New development - Calculating Tax assessed value at completion
Hey Everyone, quick development Question, I am putting together our model now for a new MF project and am trying to calculate taxes pre and post development. Pre development was easy as I just had to go off current taxes. For post development I need to come up with a assessed tax value we are basing it off a Subject property that was recently developed. SO would it be more accurate to calculate a ratio of their pre and post development values and use that as our post development assessed value or would it be better to take their assessed value/# of units and calculate based on our unit counts at the same value?
[{"id": "icl37vo", "text": "unit count", "replies": [{"id": "icl3mmm", "text": "Thanks its about a 500k difference in taxes so wanted to make sure.", "replies": [{"id": "icl6t7k", "text": ".... also look for tax comps of competitive projects.", "replies": [], "depth": 3}], "depth": 2}], "depth": 1}, {"id": "iclcdww", "text": "Assessed values are determined by the local jurisdiction.  It would be very hard to find \"tax\" comps.\n\nGenerally the land won't be reassessed at the time of completion so if you just bought your land for $10,000,000 and another developer bought their land 10 years ago for $5,000,000 then the land portion will be vastly different.   So if you both complete similar construction at the same time the improvement assessment will be similar but not the land.\n\nAt best you can estimate the value at completion and use the tax rates to get a value and adjust for the land value.", "replies": [{"id": "ico2q4n", "text": "It's not that hard to find tax comps. Just pull other similar new construction in the area and see what their taxes are on a PSF and per unit basis. \nThe only difficult part would be if your area has no other newer construction. By that I mean anything built in the last 5 years.", "replies": [{"id": "ico3fld", "text": "I showed in my example how the land value could greatly impact total value.  Some assessors only reassess every 5 years by districts\nLots of crazy tax laws across the nation.", "replies": [{"id": "icp4c4u", "text": "Most places I know make an exception to reassess a property upon completion or soon after so they get their higher tax rate as soon as possible. My understanding is OP is looking for taxes upon completion.", "replies": [{"id": "icpfojv", "text": "I don't know of any jurisdiction that would reassess the land because of new construction so the TOTAL reassessment would still be skewed by when the land valuation was done.", "replies": [], "depth": 5}], "depth": 4}], "depth": 3}, {"id": "icobe6v", "text": "Instead of PSF and per unit I\u2019d look at % of purchase price (for markets that reassess upon sale). At the end of the day RE taxes PSF or unit is not something anyone looks at. Look at tax liability based on value (which 99% of assessors base on purchase price) to back into a conservative Y1 NOI for your hypothetical buyer (or lender for a take out) and capitalize it a cap rate that gives you room in the case of expansion. Exit cap rate and Y1 market to market are always the most powerful return drivers. Even then it never comes down to where you start, it\u2019s where you end up at exit. The people that look at real estate as a back ended return profile are typically the most successful", "replies": [{"id": "icp4qsz", "text": "I agree with your method. The issue is if there isn't a enough sale comps to look up in the county", "replies": [], "depth": 4}], "depth": 3}], "depth": 2}], "depth": 1}, {"id": "ico9rrk", "text": "Get a third party tax assessment. In the meantime, inflate the tax rate today out to your exit year + 1 (buyer Y1 NOI) and calculate taxes at that forward rate based on a 85%-90% tax reassessment of your underwritten exit value. If a merchant developer, your return is based on costs and the noi and cap rate at stabilization/exit. Taxes differ from jurisdiction but are almost never assessed on a per unit basis. If I buy a deal at $200k/door I would never factor in a deal down the street that traded for $170k/door into my underwrite.", "replies": [], "depth": 1}]