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Krazy Kommercial real estate around DETROIT!


DTEJD1997
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Hey all:

 

I'm off work for a few days, as the new project hasn't geared up yet...

 

SO I'm out & about looking at commercial real estate.  HMMM...the accountant's office 1/2 mile from me is now closed & up for sale.  Wonder what the ask is?

 

Get the owner's son on the line.  He is very nice & informative.  Father passed away and now mother wants to sell the building.  BUT WAIT it is a "two fer" deal.  You also get the building attached to it! ????OK????

 

So you get just under 2,700 sq. ft.  of "move in ready" space.  You might want to redecorate though, as the last time it was updated was in the early 80's.  OK.

 

Price?  $40K

 

But here is where it starts to get KRAZY!

 

THAT IS FOR BOTH BUILDINGS! 

 

OK, what are property taxes?  They are about $7,900 per year!

 

WTF????  Did I hear that right?  Surely you must be mistaken.

 

Answer:  Please don't call me Shirley, and NO, I am not mistaken.

 

What is the assessed value?  Approximately $42k per building.

 

This is a SUBURB of Detroit....Assessed property taxes are almost 10% a year?  On grossly inflated property values?

 

I told the seller that if the information he gave me is correct, I don't see how he will be able to sell the property.  He sounded quite deflated and said, well yes, that is why the price is low, and we want OUT.

 

Am I krazy?  Does this sound like an out control situation with property taxes?

 

I am going to dig into this and find out.  The buildings are in good shape...Heck, I could easily walk to work!

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In texas you can go question the assessed value and just show a receipt.  Then they lower to the purchased value for you.

 

I asked a couple of people more knowledgeable about real estate in MI...

 

They said that you absolutely can contest the property tax assessment and will likely prevail.

 

The PROBLEM is that if the tax is $7k per year, you'll get it lowered to $6k per year.  Not to the $2k per year, which is where it needs to be based on market conditions.

 

If the tax rate is 18% for commercial property in my little suburb, no wonder the vacancy rate is 40%.  This is destroying the market...

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Isn't it 42k per building vs 40k for both?  So, assessed is 84k, of which 8k is assessed, which is still incredibly high, but less than 10%.  So it would seem like it would get halved?

 

I believe the assessed tax value is supposed to be approximately 1/2 of market value.  Each building's assessed tax value is something like $42k.  That would imply market value is $84k PER building.  So on that basis, the tax is about 4.5%.  The problem is that the taxing authority is saying the properties are worth 4X more than they really are.  Heck, it might be even more than that.  These properties have been listed for sale for months.

 

The problem is that the assessed values are the absolute height of lunacy.  I can't think that either of these buildings was EVER was worth $84k.  They are small, at about 1250-1300 sq. ft. per unit.  This area of town, while not hit with the crime & decay that Detroit has been, is not prosperous by any stretch of the imagination.  The commercial vacancy rate is 40%+ in this particular area.  The vacancy rate has been high for years & years & years.

 

I am sure that the high tax rate is contributing to the vacancies.  Landlords simply can't lower the rent too far, as they have to pay high taxes.  In that case, who really owns the land/buildings?  In the properties that I am looking at, taxes would tax 1/2+ of a "reasonable" rent!

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  • 2 weeks later...

Hey all:

 

I have not purchased this property...

 

While it passes almost every test...the problem is the property taxes.

 

I am going to try and get an option contingent on getting the taxes lowered.  The property simply does not work with the current level of taxation.

 

I also want to see what happens with the election and see if the economy falls into chaos again...

 

Right now real estate is/has been strong in the Detroit area.  It makes me think that the stupid money is flowing in now...after prices have risen.

 

If the economy declines substantially, the Detroit area is going to get hit HARD. 

 

If there are any developments, I'll let the board know.

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Hey all:

 

I have not purchased this property...

 

While it passes almost every test...the problem is the property taxes.

 

I am going to try and get an option contingent on getting the taxes lowered.  The property simply does not work with the current level of taxation.

 

I also want to see what happens with the election and see if the economy falls into chaos again...

 

Right now real estate is/has been strong in the Detroit area.  It makes me think that the stupid money is flowing in now...after prices have risen.

 

If the economy declines substantially, the Detroit area is going to get hit HARD. 

 

If there are any developments, I'll let the board know.

 

Maybe its different in Detroit but I've actually seen and used this kind of a strategy as leverage in transactions like the one you described. You simply argue that the tax rate is too high and are bearing substantial risk in taking on the property. You also point out that every month that goes by thats another "x amount" of carry cost being eaten by the seller so his best bet is to get it taken off his hands asap, even if it s at a great discount. If he holds these another year his $42k ask is now equivalent to 34k. The key however is to know the local real estate market and what the process is for appeals, which obviously includes the likelihood of getting it adjusted in your favor. Where I am, you generally just have to show the market value contradicts the assessment, in which case a contract of sale will do the trick. That should then theoretically take your assessed value down from 42k per, to 42k for both, likely cutting the tax bill in half.

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  • 1 month later...

Hey all:

 

Just got home for the evening...

 

I bought that KRAZY KOMMERICAL PROPERTY outside of Detroit...

 

Of course, the $40k price for 2,600 sq. ft. of office space was just KRAZY EXPENSIVE.

 

So we reached a deal of $25k for the two buildings.

 

Of course, the buildings need a thorough cleaning and actually need some renovation. 

 

Fortunately, the plumbing (copper), electrical, HVAC, roof, windows are all good.  A rear door needs to be replaced.  Carpeting needs replacing...

 

I figured at about $11/sq. ft, that it was not a too bad a deal for commercial real estate that does not need extensive work.

 

I figure one building will be retail, and I'll use the other as professional offices.

 

Perhaps I'll upload some pictures later...

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Hey all:

 

Just got home for the evening...

 

I bought that KRAZY KOMMERICAL PROPERTY outside of Detroit...

 

Of course, the $40k price for 2,600 sq. ft. of office space was just KRAZY EXPENSIVE.

 

So we reached a deal of $25k for the two buildings.

 

Of course, the buildings need a thorough cleaning and actually need some renovation. 

 

Fortunately, the plumbing (copper), electrical, HVAC, roof, windows are all good.  A rear door needs to be replaced.  Carpeting needs replacing...

 

I figured at about $11/sq. ft, that it was not a too bad a deal for commercial real estate that does not need extensive work.

 

I figure one building will be retail, and I'll use the other as professional offices.

 

Perhaps I'll upload some pictures later...

 

Yes, please do so...would be interesting to see.  Cheers!

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Any reconciliation with the taxing authority yet?

No, not yet.  Tax contesting season opens in the new year.  February I think....

 

HOWEVER, I did go to the city's tax assessors office.  They admitted that a lot of properties are "out of whack" and that on this property the taxes are probably at least double what they should be.  The taxes are probably 3X or 4X what they should be...but if I get them cut in half, I will take it.

 

One of things that gives me optimism is that there are a few vacancies that got filled and a couple of rehabs that are starting within a 1 mile radius of the property.

 

Not that this suburb will ever be a "prosperous" suburb...but it looks like it is getting just a bit better.

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Hey all:

 

Started moving stuff into the buildings yesterday.

 

This is going to be a lot of work!

 

Tried to get utilities switched over today, but offices said to call back during "regular business hours"...oh well.  Maybe they'll be back to work Monday.

 

My buildings are the red brick buildings in the center of the photo...specifically 21040 & 21044.  I'll post some interior photos over the weekend.

RPs-revised-buildings.thumb.jpg.83885d366d09c62f0147efd2564b7369.jpg

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hey all:

 

Here is a picture of the rear of the buildings....As you can see, one of the buildings goes back just a bit further than the other.

 

There are a few good things....

 

A). Each building has it's own door

B). Each building has it's own HVAC system

C). The A/C units are on the ground!  I was alarmed at first, but the prior owner stated (correctly?) that if they weren't stolen fiddled with previously, why now?

 

I promise some more interesting photos to follow soon...

RPs-buildings-REAR.thumb.jpg.3fd1a7cc252853e9591b75aa37611eda.jpg

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  • 1 month later...

Hey all:

 

Everything is progressing...just taking a LOT more time & energy than initially expected.

 

Got the first water & sewer bill the other day....This is reason # 5,796,473,954 why Detroit & Michigan have sunk so far into poverty & despair. 

 

Total bill was almost $110 for 35 days of water & sewer.  Water use was just above nothing.  A lot of days there is NO water used at all.  The vast majority of time, I am the only one there. 

 

She then informed me that consumers have to pay for pensions AND all the unpaid water bills in Detroit...There were 90,000 unpaid water bills in Detroit according to the NYT:

 

https://www.nytimes.com/2014/07/04/opinion/going-without-water-in-detroit.html?_r=0

 

keep that in perspective.  Detroit now has about 700k residents, down about 65% from it's peak population.  If there are two residents per household, that means that about 26% of Detroit households are not paying their water & sewer bills.

 

Water & sewer in Detroit is MUCH more expensive than in Las Vegas and Texas. 

 

Finally, consider that Detroit sits atop the best fresh water resource(s) in the WORLD.  Also consider that the infrastructure is probably 100+ years old and has certainly been paid off by now.  The major spending is on maintenance & upkeep, no huge capital outlays needed to build it.

 

I am going to guess that if there weren't MASSIVE problems here, you would not be able to buy commercial buildings for $11/sq. ft.

 

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Hey all:

 

Sorry for the lack of updates & promised pictures.  I will be adding some this weekend.

 

In the spirit of the topic of the thread, I am also going to expand it to show other "odd" things that have happened in Detroit.

 

A few examples....

 

A). There are abandoned sky scrapers in Detroit.  Not just 1 or 2 either!  In the past few years though a few of them have been torn down, and a few have been rehabbed.  HOWEVER, there are still several still standing.  Some of them are also not 100 years old.  There is one near where I sometimes play poker that I think was built in the 60's.  A relatively modern looking 20 story building.  Totally vacant except for cell phone antennae on the roof.

 

B). There have been PRIME lots of land along the Detroit river that have been for sale as long as I've been alive.  I can remember walking past them and seeing "FOR SALE" signs as a very small child.  35+ years later they are still "FOR SALE".  Assuming there was 1 owner, there is no WAY they can make their money back after paying property taxes for 35+ years.

 

C). I and my father used to live in a CO-OP on the Detroit River.  A very nice luxury building...After the great recession, many units were simply given back to the CO-OP board as there was simply no resale market for them.  If these were in NYC, they would be million dollar units.  Property has come back to life in Detroit, and the vacancy rate has gone from 35% to now maybe 5%.  Value of the units has also come back, but still a crazy situation.

 

Dad bought his unit(s) around 1985.  He sold in 2007.  He got about what he paid.  There was almost no price appreciation in 20 years.  This was also before the great recession hit.

 

I am sure I will have some other examples too.  This weekend I am going to try and take some photos of stuff so readers will have examples of what I'm talking about....

 

 

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  • 1 month later...

Hey all:

 

I am sorry for the lack of postings & updates in this thread.  I've had numerous small things and small problems keep cropping up.  It always takes me more energy & time to complete things than I initially think.

 

Also, organization is not my strong suit...

 

With that being said, I do have some interesting information to report:

 

I had the tax hearing the other day.  I think it went relatively well, and I should get the results back very soon. 

 

Here is ONE of the unusual things that happened...

 

The counter clerk almost jumped when I came in.  He said he was shocked that I showed up on time.  I queried as to why that is odd.  He told me that just over half of the people that schedule a tax protest hearing simply don't show up.

 

OK, I sign in, and fill out the initial forms and then up in front of the board I go...

 

They repeat the same thing.  I go into my presentation about how "out of whack the taxes are", and then hand out my paper & research.  The board acts confused and what am I doing?  I then get confused, and state that the handouts have more details and specifics than what I am talking about.  WTF did they think it was?

 

The board members tell me that MOST of the people who show up simply start yelling about "the taxes are too high!" and want to "throw down" with the board members....I did not get the impression that the board members wanted to settle disputes with their fists...

 

I was the only one who looked up comparable sales, used a cash flow analysis, and a repair schedule for the property to show why it was not properly assessed.  They said I was by far the best prepared and the only person who had any significant documentation to back up what I asserted.

 

The board wanted to know how I knew what other properties sold for, and how did I get that information???  Simple, I filed the FOI request & got the last 2 years of commercial sales for the city.  The board wanted to have a copy of that.    I didn't print that up as I figured I was pushing it with 3 pages, and I figured they would have that information in front of them.  They weren't aware that this information could be easily pulled...

 

I was also given 30 minutes instead of the usual 10 minutes, as the next scheduled person did not show up.

 

So I think I made my case reasonably well, and I anticipate a good outcome.  The board stated that I was easily the most prepared person who came in front of them.

 

I was just surprised at how the actual process went, that so many people don't show up, that those who do simply complain and have little/no facts to back themselves up with...

 

I'll let the board know the result when I get it.

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Hey all:

 

Here is another interesting bit of information that I learned in preparing for my tax hearing.

 

While I think I got a reasonable deal on the property...I am not the only one who got a deal!  A commercial building about 1/2 mile from mine sold within the last year.

 

This building is an office building with a small parking lot. 

 

 

I have walked past it numerous times when i go out exercising.  It is on the infamous "8 Mile" road!  Do not fret though...Mad Max time starts about 1 mile further down 8 Mile.  This building is in a relatively safe area.  It is at an odd spot, three cities converge at that point...Eastpointe, St. Clair Shores and Harper Woods all come to together at that spot.  If you walk about mile to the west, you will hit Detroit proper.

 

Anyways, I estimate the building to be about 10K square feet.  It is a two story building.  It is currently being rented out to small businesses, offices are $199 a month with all utilities included.  I do not know if that includes internet/phone though...

 

One problem with the building though is that you have to climb some stairs to get into it.  I don't think it is ADA compliant.  Perhaps it is grandfathered in?

 

So how much would you pay for a building like this?

 

Tax assessment puts market value of the building at just under $450k!

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THE BUILDING SOLD FOR $110K.

 

So that is about what I paid, about $11/square foot.

IMG_2040.thumb.jpg.db8a80962646d71464cb0d122df7c3df.jpg

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