I am curious how you guys think about property tax underwriting, specifically through revaluation periods.
My group has encouraged underwriting what is essentially the worst case scenario for tax revaluation periods in our markets... assuming assessors take 80%-95% of the transaction price and holding the mill rate flat for the revaluation year. While this might not have a huge effect on newer builds that have traded hands a few times, it absolutely kills any deal where the owner has held the property for a while, simply because the assessor is so far behind in their appraisal. What's more is that these deals aren't pricing in the inherent tax risk for the buyer. Of course we can always appeal after the fact but there's no guarantee of a reduced tax bill.
How are you guys dealing with this challenge, specifically on older vintage product that have not traded within the last revaluation period?
I've put together a lot of real estate tax estimates, and it really boils down to a market by market approach. I would suggest calling the assessor for each property's market and having a discussion with them about how they reassess properties. That being said, I would not mention the specific property, as that can cause them to dig into it and raise the taxes on it.
If you get a copy of a Ryan, LLC tax report (or similar tax report) you can often reverse-engineer the process in that report after a conversation with the market's assessor. Taking that approach is typically good enough for initial underwriting. I would recommend having a tax study done during due diligence on any deal.