Hi all,
I had a question on underwriting projections on property taxes for certain states, which 1) do not have a maximum limit on the YoY increase in assessed value and/or 2) use a mass appraisal system that factors in all three market, income, and cost approaches.
In particular, I've had trouble justifying my assumptions for states like Florida and Texas. I've spoken to the appraisers, but it seems to depend case-by-case.
For example: Texas counties have a relatively high millage rate and the YoY has no cap, so I have been relying on the historical averages of prior years assuming the maximum assessment would be the purchase price. But the growth assumptions on larger deals tend to make or break the deal, or at least have a significant impact, in my underwriting. Is this just a judgment call I have to make?
Any suggestions on how to make these proforma assumptions? Please let me know if I can explain something more clearly.
Thanks.
For Texas, you should assume somewhere between 90%-95% of PP. Then I'd expect your tax bill to grow by 3%-4% annually (you can decide how to allocate value and millage rate growth).
For Florida, 85% of PP (can vary by MSA), value growth of 3% and millage growth of 1%.
Call Ryan for property tax info in these markets. We use them nationally for appeals.
Depends jurisdiction by jurisdiction, as you've pointed out. At some point you have to phase to 100% of purchase price, it's a matter of how soon you do it. Is it over 3 years? Is it immediate?
Also, on the disposition side, are you assuming a real estate tax adjustment for the buyer? This clearly affects your exit price.
Unfortunately, you'll have to take a look at old comps and see how they were treated. This all assumes that the acquisition is in a market that you don't frequently do deals in. It's always best to have something in the portfolio that you acquired in the market and point towards previous experience. I believe most jurisdictions always have the right to assess a property at the most recent recorded sales price.
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