Hello investors!
I am new to real estate investing. I am looking to invest in some SFH’s in Michigan. I got this excel sheet going where I listed rent vs. expanses in hope of trying to determined a good purchase price given the rent I can get in multiple local cities. Looking at all the expanses I found out that mortgage and interest is not the biggest liability I will have given the SFH prices in MI. The biggest liability by far is going to be the property taxes. My question is: what options do I have to reduce the tax on investment property? I’ve heard that there are lawyers that promise to reduce property taxes for a certain fee. My concern is that even if they are successful, there is no guarantee that the city will not raise the taxes in the next few years back to a point where my potential investment is not going to be profitable.
Thank you for your advice.
Alex R.
You can generally request the county Tax Assessor’s office to re-assess the value of the property if you think it’s not accurate. You need to be aware that different counties evaluate properties completely differently. We have a property in one state where the assessed value is about 25% of its actual value. Our property in another state is assessed well above current market value. Also be aware that there is no guarantee the assessed value will go down. It could actually go up resulting in you paying more. There could be other restrictions too. Where we are now, you have to be the property owner as of Jan. 1 of whatever year before you can request a re-assessment.
To reiterate what Justin said, having the property reassessed doesn’t necessarily mean the your tax assessment will go down BUT in many areas property values are falling, so check out some of the other homes in the area and check thier assessments over the last couple of years to view trends. You don’t need a lawyer to challenge your tax assessment, it can be done yourself. There’s was a great article on NuWireInvestor.com a couple months ago on the process or contesting your assessment to get your tax burden lowered.
I am also dealing in SFHs in the good ol mitten. What area are you in? I have found taxes to be quite a burden as well. Im not sure if this is the same or different out of state, but on the property I am currently in negotiations with, taxes are almost equal to the mortgage payment! It is very easily fixed tho. My last property was the exact same scenario, non homestead, high appraisal and super high taxes. I had it reassessed, homesteaded, and the taxes were cut in half. Just make sure the house is currently assessed at way over the actual value before you proceed or you could end up paying more.
Brian
Just to add a bit about what Brian said. In Michigan you can only homestead one property, your personal residence if that applies. Any other homes(investments properties) will not be homesteaded and the property taxes will be high. Herbster
Yes that is correct, is that rule different on other states?
Thanks all for your replies, good info.
One follow up question on the same subject - is there a cap on how much the city can raise taxes per year? Say is there a rule that says that they can’t raise next year’s tax bill by more than a certain percentage of your current taxes?
Thanks,
Alex R.
Alex, I never heard of that one. Usually taxes aren’t re-evalueated but once a year. You may even get away with being homesteaded until they catch up once that year. Herbster
PS I’m in Kalamazoo if it matters.
Thanks herbster. I am in detroit metro, just starting out in REI.
Alex R.
arudnev,
Make a personal visit to your local tax assessors office. Your taxes pay their salaries, and they should be happy to answer your list of questions. Become an expert on the tax situation in your local area where you want to invest. Go to the horse’s mouth. Good luck on your quest.
Furnishedowner
Several important issues must be considered when deciding to acquire a house or apartment in a foreign country.With regard to tax and estate planning, the following issues need to be considered in particular:
1- Real-estate transfer taxes
2- Annual real estate taxes
3- Local inheritance and gift taxes
4- Local inheritance laws and forced heir ship rules
5- Capital gains and other taxes upon the re-sale
6- Personal tax liability and tax residence