If you are going to buy real estate which is distressed, trashed, or otherwise abandoned, here’s something you should know.
I am sure you know that the market value of a house won’t always match the assessed value (what the local authority says it is worth for tax purposes) but did you know that many states have laws on the books restricting the assessed value of a house to 50% of the fair market value?
I was reading an article about a house in Detroit and I came across this interesting detail:
When Tomeka and I speak, I show her a packet from a nonprofit that pulls information from the Detroit Assessor’s Office. “The year you bought the house for $700,” I point out, “it carried an assessed value of $17,720.”
That’s high, but Tomeka is not impressed.
“The year before, when William C. Murray II bought it for a thousand dollars, it was assessed at $20,136,” I read.
Tomeka remains unfazed.
“Inflated property tax assessments are a violation of the Michigan state constitution,” I say. No property can be assessed at more than 50% of its market value, I explain.
The year she bought it, Tomeka’s house was assessed at 2,500% of what she paid for it.
The reason this matters to me is that the assessed value of the Clendenin House is currently 8 or 9 times what I paid for it. WV has laws which limit the assessed value of a property just like the aforementioned Michigan laws, which means that my property taxes are going to go down a lot.
If you buy distressed property, you should check out state laws governing property tax. Who knows, you might save yourself some money.