Underwriting Taxes
Does anyone have a good resource to quickly figure out how to underwrite multifamily taxes? I feel like I am constantly parsing through old OMs or on the phone with an assessor trying to figure it out for like an hour.
Thinking about maybe just building out a spreadsheet and having an ongoing open list on this forum. Not sure if this would be helpful or if it exists already.
Quickly would be applying a consistent, conservatively high growth factor each year. Unfortunately most jurisdictions have different levy structures so it’s almost impossible to have a 1 size fits all formulaZ
Agree OP, If we can all create a spreadsheet for how taxes are typically underwritten for a purchase and refi in every state, that will be very helpful. Or even better, if anyone on here can point to a resource that is already out there, it will be helpful and it will only make us all efficient. But OP, why look through old OM's? If you are referring to broker packages, I would not really trust those. I prefer reading through internal appraisals (of course it's easier only if you are at a heavy volume shop that has a ton of recent internal appraisals or at a large brokerage with an appraisal team) and look at what we previously did for deals in the same state or county. Over time, you should create your own cheat sheet. Just from experience, I know for purchases in TX for example, you underwrite 70-90% of PP* tax rate and for refinances, trending taxes by 3% should be fine and of course your tax expense/unit should be supported by comps either way. For deals in WA or OR, I think even purchases might not get reassessed based on PP, so trending latest taxes by 3% works. For purchases in CA, it is always tax rate* PP + special assessments. Once you keep doing deals in the same market, over time you dont have to call the county assessor unless you have trouble finding the latest tax bill or the assessed value/tax rate online.
This is pretty much it. Just takes time and experience UW deals in a market to get a sense for where the assessor lands.
Similarly I don't often rely on broker's OM assumptions given they are typically light on re-assessment %...in TX for instance, many jurisdictions are proven to be at 85-90% of PP in recent years. So many broker packages from last year were at 70-75%.
One small point - you're right that Oregon does not re-assess (plus net annual tax increases are capped), but most of Washington re-assesses, and fairly aggressively (~90% of PP).
If there's one expense I'd prefer to be conservative on, it's taxes.
I usually only go back to OMs if I am underwriting in a new market I don't typically underwrite a lot of deals in and I remember they had a good breakdown of the tax method. But I hear yall, I'll try to get an open google sheet or something going this weekend to start a thread of maybe the metro markets and break it out further from there.
I mean, it would be exceptionally laborious. Every state and municipality? Not to mention exceptions, workarounds, and loopholes for every single one. Or different tax classes even within MF.
In most major metros you can find property tax statements online. Or ask a broker. It's the one thing they probably won't lie about, because it'll be so easily disproven once you're in contract.
Totally understand, lihtc for example throws another layer of complexity into the mix.
I'd have to do a little thinking of how I would want to set up a sheet if I did go ahead and make one. What categories would people want to see? Below are some initial thoughts but feel free to add.
Probably just linking to the local tax authority's FAQ is the only helpful thing.
What would be more interesting to me (though equally impracticable) would be a list of which entities are levying property taxes, and how they each assess. Which is close to #2 on your list, but not exactly.
Is it local government which is the big tax assessor? Or the school district? How do they know when a property changes hands? Can you drop and swap and avoid a re-assessment? Partner with a local non-profit? How do you go about getting an abatement? All of this is pretty technical, granular knowledge and is almost certainly not practical to compile. There are over 3,000 counties and nearly 14,000 school districts in the US, not to mention various IDAs or other entities that might levy taxes on certain forms of real property. The list would be so overwhelming that it would be difficult to use, let alone put together!
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