Property taxes: understanding reassessments as a gp and lp

Recently, I was touring a property in the midwest. The asset is a brand new, A class building with all the bells and whistles. We liked the property, both from a financial and location standpoint. Or so we thought…

When I got to underwriting the deal, I noticed the brokers OM showed a property tax amount of $150,000.

Why was this anything to think twice about? Two reasons:

  1. The property was built last year, meaning last year the taxes were assessed solely on the land without an income producing structure built on top of it.
  2. Whenever property trades hand through a sale, property taxes get reassessed based on purchase price and county mileage rates.

I knew immediately that I did not have accurate information on the tax information. I proceeded to call the county tax assessors office and had them walk me through how this particular property would be reassessed once purchased. What we found out was that taxes could potentially rise from $150,000 to somewhere in the mid to high $300,000.

The deal was not as good as I thought it would be.

Now, I’m not an expert in tax appeals or reassessments, but it is imperative that when underwriting a deal as a GP, as well as an LP, that you verify the property tax increases are properly accounted for.

Good resources to contact are the county tax assessors office and have them walk you through the tax assessment process and confirm your assumptions.

In order to verify, you can always find a local tax appeal specialist to confirm your assumptions a second time!

Don’t skimp on details when it comes to property taxes. This can make or break your deal.

*This article should not be taken as legal or tax advice, but merely as an illustration of a real deal analysis and what pitfalls can occur without proper verification