Krazy Kommercial real estate around DETROIT!

[Peregrine]

I remember that there are similar problems with property taxes in lower-tier retail properties in Middle America. The taxes are assessed on property values that were based on values from years ago and were no longer current. I think that many of the property owners were also trying to renegotiate their property taxes.

[DTEJD1997]

I remember that there are similar problems with property taxes in lower-tier retail properties in Middle America. The taxes are assessed on property values that were based on values from years ago and were no longer current. I think that many of the property owners were also trying to renegotiate their property taxes.

Yes, you are 100% correct.  I forgot to mention that I got my new tax assessment for the current year and the value went up like $600.  I think the assessor's office simply has a simple formula that every property is upped a certain amount EVERY YEAR.  If nobody contests over a 20+ year time frame, the assessed and ACTUAL value can be very different...

[Pelagic]

I'm trying to get a handle on the incentive structure for the tax assessment board, perhaps you can shed a little more light on how they work.

 

I assume they're either elected or appointed by elected officials so ostensibly they work for the residents? What prevents them from just lowering everyone who petitions taxes, save perhaps those outwardly hostile to them in their hearings? Do they work under a quota where they can only reduce property taxes in a year by $X and you have to argue for a portion of that quota to be applied to your property? Other than people who piss them off, why wouldn't they reduce most petitioners taxes if they have a somewhat valid claim to it? I can't imagine they're being rewarded for keeping taxes high.

[DTEJD1997]

Hey all:

 

Well, the bad news came in today...

 

The valuation of the one building was only lowered 38% and the other was lowered 40%.

 

I am a little distressed at how unprofessional the whole situation is.  When I got the decision, it is just a standardized, computerized form.  No comment as to how the board reached their decision, nothing...just the new valuation.

 

When I went in to contest it, there were standardized forms that you had to fill out, name, address, etc.  Towards the end, there is a spot for you to write the reason why you think the valuation is incorrect.  You would have a difficult time writing a complete sentence in the space provided. 

 

I put together a 3 page argument that used comparable sales, the buildings condition and costs needed to bring it up to a "rentable" condition...and finally a cash flow analysis.  What did the valuation board do?  Any analysis at all?  Even a single sentence?  NO.

 

This is just so silly.  The NEW TAX VALUATION is only 4X what I paid for the buildings, not the 6X what it formerly was.

 

I wonder if the board members would be willing to buy the buildings for HALF of the tax valuation?  I doubt it....

 

If these buildings are so @#$#%^ valuable, why didn't some other aspiring business man buy them?  They were for sale for MONTHS, almost a year.

 

Looks like I'm to the state level next...

 

I guess if it were easy, everybody would be doing it, and everybody would be rich...

 

>:(

[Green King]

Hang in there. There is an innate conflict of interest built in the process since your taxes pays their salary. With budgetary problems they are facing dragging their feet is perfectly normal.

[Cigarbutt]

Interesting story.

Reminds me of similar experiences with the Monster.

Perhaps it becomes, at some point, a simple investment decision:ie is it worth the time or aggravation?

If it becomes a matter of principle, re-evaluate?

When you reach points of resistance, it may not be time to pick up and read Atlas shrugged as you may feel like looking for a guy whose first name is John. Who?

I encourage you to continue your venture. Keep us informed.

Good luck.

[johnny]

Nothing to add to this thread but just wanted to say it is a cool thread and you are a good poster.

[John Hjorth]

To me, both Cigarbutt and Green King are right. Don't give up, DTEJD1997.

 

Here we have a term for the behavior mentioned by Green King : Cash thinking.

 

Also, I'm really surprised to read how things are going on at your place about administrative rulings. It really reads like "Klondike" to me.

 

Here, we have a separate law in place, that embraces all administrative rulings in the public sector, including administrative rulings about taxes: [In Danish: Forvaltningsloven - in English it would something like "The law about public administrative rulings" - without translating directly.

 

Don't you have such legislation in place in the US, to protect citizen from being run over by the system with access to almost unlimited ressources?

 

If your case was here, I would just do one swing at the ball to get it on the other side of the net by sending a one line complaint letter to the state level stating that the administrative tax assessment is invalid because of lack of reason, ref. paragraph 22 in the law.

[oddballstocks]

To me, both Cigarbutt and Green King are right. Don't give up, DTEJD1997.

 

Here we have a term for the behavior mentioned by Green King : Cash thinking.

 

Also, I'm really surprised to read how things are going on at your place about administrative rulings. It really reads like "Klondike" to me.

 

Here, we have a separate law in place, that embraces all administrative rulings in the public sector, including administrative rulings about taxes: [In Danish: Forvaltningsloven - in English it would something like "The law about public administrative rulings" - without translating directly.

 

Don't you have such legislation in place in the US, to protect citizen from being run over by the system with access to almost unlimited ressources?

 

If your case was here, I would just do one swing at the ball to get it on the other side of the net by sending a one line complaint letter to the state level stating that the administrative tax assessment is invalid because of lack of reason, ref. paragraph 22 in the law.

 

Ah, the enlightened European attitude once you realize what a mess we have here.  The US in many ways is like a start-up country that hacked a bunch of crap together and got things rolling.  We grew and scaled and became huge but suddenly all of the pieces hacked together are showing they aren't sustainable.  We're trying to become sustainable..

 

I've had a similar experience with DTEJD1997.  I had a house we purchased for $117k in 2005, it had an assessed value of $80k.  So far so good.  About eight years after moving in we received a letter in the mail, sudden reassessment to $140k, our property taxes almost doubled.

 

I went to a hearing.  It was a Kafkaesque experience.  I went to some senior center and sat in a holding room.  I waited for 45m and finally asked "when is it my turn?" it turns out they had my name wrong.  No worries, someone would fix it.  I get in there and I sat at a table with some gov worker.  They listened then said "we can't actually do anything, we're just accepting your forms."  But since they were missing my name I had to go to a different table where someone entered information in on a typewriter.  Is it any surprise that they again lost my forms and my appeal was denied?  It wasn't denied because my logic was wrong, probably just all of the record keeping errors.

 

We sucked it up and paid the higher taxes and then a few years later sold the house for almost $20k over the assessed value.  The value was probably 'fair', but it was also unfair.

 

In Allegheny County (county Pittsburgh, PA is in) they haven't had an assessment since 2002.  This means there are $450k houses built on farm land that are paying the assessed value of their property from 2002, so a value of $15-20k.  Other PA counties are even worse.  There's one north of us that's very popular for low taxes, their last assessment with approved values was in the 1960s.  Taxes are low because people are paying on 1960s values, it's insane.  I doubt this system is ever fixed because if it was there'd be such massive upheaval that citizens would form to fight it.  So we have the status-quo.

[John Hjorth]

I can't help it ... - I really have to ask: What's the dress code for participants in such hearings/meetings? Bullet proof vest, helmet and bringing your arms? [J/K - lol]

 

Crazy stuff to read in this topic - thanks all for sharing.

 

- - - o 0 o - - -

 

Off topic:

 

Here we have a computer system in place to pick up all trading data for real estate deals all over the country, to get real estate valuations as fair as possible, over time.

 

I think it was about 2 - 3 years ago, it was recognized, that the code in the system was broken. Especially the calculated real estate valuations in the area north of Copenhagen - where the real estate is really expensive - was way off - too high. What next happened was, that the complaint system got flooded with complaints, and blew up totally - it's still down now.

 

Danish citizen don't take any BS from the Danish Government and Administration - especially not from the Danish IRS. [The name of the Danish IRS is "SKAT", which translate directly to both "HONEY" [and "TAX"], btw.]

 

- - - o 0 o - - -

 

The more I learn from reading this board, the more I get to appreciate my own living conditions here.

 

- - - o 0 o - - -

 

Now back to topic again.

[DooDiligence]

I'd wear a pink leotard...

 

-----

 

I was searching for stories about how Trump has gone about reducing property taxes & found this:

 

http://money.cnn.com/2016/10/25/news/companies/donald-trump-property-tax-fights/

 

The headline of the ad isn't the message here.

The message is "you gotta fight on property taxes"

 

I also like the herd of goats idea (it's at the end of the article...)

[gg]

There are lawyers that specialize in reducing your real estate tax. Typically work on commission based on savings. That is your best option-- don't have to deal with the bureaucracy, and they also already know all the people involved, so they're more successful.

[racemize]

Perhaps it is different in Texas, but it has been very straightforward here, and I've owned three different houses.  For my second home, I showed up with my purchase price and the guy stamped it as the value--no questions asked really. 

 

Since then, I've hired tax guys to go do the negotiating for me and I pay them some percentage of the savings.  It is an amazing deal and almost always results in some kind of savings without me doing anything.

[Williams406]

"Danish citizen don't take any BS from the Danish Government and Administration - especially not from the Danish IRS. [The name of the Danish IRS is "SKAT", which translate directly to both "HONEY" [and "TAX"], btw.]"

 

That's classic: "SKAT" translates a bit differently in English but nonetheless fits closely with how many view the IRS in the U.S. I'd be willing to copy you Danes here and re-name the IRS.

[Spekulatius]

Ok, my 2 cents as a transplant from Germany, then to California and now in Long Island (New York). The reaal estate taxes  become less logical on every step of my journey.

 

In Germany, RE taxes are so low that they are not worth fighting over. Probably about $200/year. in CA, taxes were about 1.25% of the value at the time of your purchase, adjusted for inflation. After the financial crisis, I was able to reduce my taxes simply by sending in a form letter with property value estimates that I got from refinancing my home. sInce property values had dropped momentarily below my purchase price, I was able to get it adjusted very simple.

 

In Long Island, taxes vary significantly from town to town and even from property to property and no one can tell you exactly why.You can fight your taxes, but need to hire a specialized lawyer firm that takes half the tax savings for the first year as pay. It seems to work most of the time, but even after that, taxes are absurdly high at about 2.25-3% of your property value.

The reason for this is as oddballstocks stated is that taxes are a patchwork of federal, state, county, city and township legislation which has been developed over the years and is incoherent.

[DTEJD1997]

Hey all:

 

Thanks for all the interest and comments, I appreciate it.

 

I don't think the specialized law firms would work too well....they take 1/2 of the savings.  They would therefore have to get an 80%+ reduction to equal what I got on the first round.  I just don't think they would have been able to do that, no matter how "juiced in" they are.

 

I did a little checking around and here in Michigan, property tax work does not really seem to be that big a business...as compared to Texas, where it well developed.  From the little bit of research that I did, I got the very distinct impression that the firms involved with it would probably not be interested in "small potatoes" like me.  They appear to be dealing with large commercial developments (malls, factories, etc.).

 

That leads me to think that this might actually be a good business to go into.  It certainly is not "rocket surgery".  Heck, I can do it myself!

 

I also want to apologize for not getting pictures of some other interesting real estate situations in the Detroit area.  Detroit is kind of like a weird alternate reality.  Normal rules of society & economics simply do not always apply here...

 

I exaggerate a little of course, but the stories I could tell about the things I've seen/experienced ONLY in Detroit...

[rkbabang]

Hang in there. There is an innate conflict of interest built in the process since your taxes pays their salary. With budgetary problems they are facing dragging their feet is perfectly normal.

 

Exactly.  I can picture themselves asking "Holy hell! What if everyone only paid taxes on what their property was worth?"

 

 

[crastogi]

Hey all:

 

Thanks for all the interest and comments, I appreciate it.

 

I don't think the specialized law firms would work too well....they take 1/2 of the savings.  They would therefore have to get an 80%+ reduction to equal what I got on the first round.  I just don't think they would have been able to do that, no matter how "juiced in" they are.

 

I did a little checking around and here in Michigan, property tax work does not really seem to be that big a business...as compared to Texas, where it well developed.  From the little bit of research that I did, I got the very distinct impression that the firms involved with it would probably not be interested in "small potatoes" like me.  They appear to be dealing with large commercial developments (malls, factories, etc.).

 

That leads me to think that this might actually be a good business to go into.  It certainly is not "rocket surgery".  Heck, I can do it myself!

 

I also want to apologize for not getting pictures of some other interesting real estate situations in the Detroit area.  Detroit is kind of like a weird alternate reality.  Normal rules of society & economics simply do not always apply here...

 

I exaggerate a little of course, but the stories I could tell about the things I've seen/experienced ONLY in Detroit...

 

I did use a firm for my detroit rentals, and they did bring it down significantly.  Keep in mind savings accrue every year, while the fees are due only the first year,  so the savings do add up. 

[SmallCap]

I live over on the other side of the state of Michigan in the town of Holland on the shores of lake Michigan.

 

I have had some simple success with walking into the assessors office and asking him to take a look at the value of a property.

I bought a house for 34K and it had a taxable value of 58K so I walked in and asked him to look at it and he came back with a taxable value of 29K :)

One cool thing about Michigan is that as long as I hold it the taxable value can only go up by the rate of inflation.

So even thought I put 12K into the house and it's now worth 140K-160K, the taxable value is only 31K.

 

Also if anyone is curious I am currently renting this house out for 1200.

My tax bill is $1853 and insurance is 650.

[DTEJD1997]

I live over on the other side of the state of Michigan in the town of Holland on the shores of lake Michigan.

 

I have had some simple success with walking into the assessors office and asking him to take a look at the value of a property.

I bought a house for 34K and it had a taxable value of 58K so I walked in and asked him to look at it and he came back with a taxable value of 29K :)

One cool thing about Michigan is that as long as I hold it the taxable value can only go up by the rate of inflation.

So even thought I put 12K into the house and it's now worth 140K-160K, the taxable value is only 31K.

 

Also if anyone is curious I am currently renting this house out for 1200.

My tax bill is $1853 and insurance is 650.

 

Smallcap:

 

I did my undergraduate work in Grand Rapids.  A wonderful place to be, and some of the best times of my life were there...I often think of going back there...I love West Michigan!

 

Your houses tax value is $31k, and the tax bill is $1,853?  Residential property tax is 6% in Holland?  That seems a bit high! 

 

******************

On a different note....

 

I went through an old neighborhood.  My Dad used to have his law office there, and I spent many, many, many hours there.  It is improving!!!!  Some of the liquor stores have even reopened!  Of course, not everything is perfect and it is still a VERY rough neighborhood.  I am not kidding when I say it is "rough". 

 

Things got so bad in that area, that even a bunch of the liquor/party stores shut down.  Besides gambling and fighting, Detroiters LOVE TO DRINK BEER/WINE/LIQUOR.  So you know when even the liquor stores are shutting down, THINGS ARE BAD.

 

Another further sign of improvement is the house that I lived in high school, now is no longer boarded up!  It is still vacant, but maybe somebody is going to start to improve it?  Maybe even make it habitable to live in?

 

Sadly, this neighborhood is literally MAD/MAX, warzone type of area.  Heroin & other drugs have really been bad for this area (when is heroine ever good?)...many houses have been leveled, many are burned out (looking like a war zone) and many are boarded up, and many are vacant.

 

I've often thought about maybe doing a photography experiment....take photos of the buildings, photo shop out any cars, and make the photos black & white.  Maybe artificially age them and make them scratchy looking.  A casual observer might think it from WWII inside of Germany maybe?

 

Maybe if Saturday is bright and sunny, and I'm feeling particularly adventurous, I'll take some photos.

 

it is one thing to read me babbling on about the weird goings on in Detroit, yet another thing to see it...

[Cigarbutt]

Interesting link perhaps about property taxes in the US.

http://www.marketwatch.com/story/want-to-see-how-america-is-changing-property-taxes-hold-the-answer-2017-04-07?mod=MW_story_top_stories

Interesting comment about the property tax Laffer curve.

Relevant for Detroit? Cyclical or vicious circle?

[Spekulatius]

Well, can the taxes realy go to zero, if the property value goes to zero? A house may cost 30k, so if you keep the property tax at 1.2%, like it is in other parts of the US, this is $360 per year, can this really pay for firefighters, schools etc?

I agree that property taxes are too high in some areas, but at some point, you need to look at the tax as the price for services provided, not a percentage of the value of the house.

[DTEJD1997]

Well, can the taxes realy go to zero, if the property value goes to zero? A house may cost 30k, so if you keep the property tax at 1.2%, like it is in other parts of the US, this is $360 per year, can this really pay for firefighters, schools etc?

I agree that property taxes are too high in some areas, but at some point, you need to look at the tax as the price for services provided, not a percentage of the value of the house.

An interesting question!  I would counter that it is MUCH better for a city to $300 or $400 a year in taxes than nothing...

 

Also, a property that is having it's tax paid is more likely to have somebody living in it and making repairs, picking up trash, keeping the crackheads & urban miners at bay, etc.

 

There is a massive, Massive, MASSIVE problem with properties being behind in taxes, and properties simply abandoned.  Large areas of the city are vacant...block after block after block.  There was a report saying that something like 65,000 structures need to be demolished in the city of Detroit...I am going to guess that 99% of those properties are not paying taxes.

 

I also have heard of property owners simply REFUSING to pay property taxes...Why should they?  They will probably not be evicted from the property for back taxes.  A lien is simply placed on the title...The property owners are not worried about that, because the market value is zero, or very close to it.  In that case, a lien is ineffectual.

 

The city of Detroit, they also have alternate revenue generating schemes besides property tax.  For example, there is a LOCAL income tax.

 

I also think the city gets a cut of sales tax.

 

There is also a "personal property tax" for businesses that have more than a certain amount of inventory and fixtures....is it $75k? 

 

Detroit also gets a taste of the taxes paid by the 3 MEGA casinos.  If it were not for the casinos, the city would have been bankrupted many years ago.

 

They also get money from writing tickets & civil asset forfeiture.

 

I am also sure there are ways that I don't know about or simply forgot to list...

 

[Cigarbutt]

Fair enough. So a new equilibrium has to be established.

Maybe then costs related to public services (and pension liabilities) may need to be lowered also. Not easy. Kind of sticky.

Time for price discovery?

Restructuring is by definition painful.

Sharing the pain makes sense.

[DTEJD1997]

Hey all:

 

My apologies for not updating this thread like I said  I would.  I fully plan to make some very interesting updates in the days to come.

 

I have learned some SHOCKING things since the last update that I made.  Some things that have shaken me to the core.  I will share a couple of them today, and perhaps the 3rd one at a future date.

 

A). When I was in high school & undergraduate, I lived in a co-op along the Detroit River.  This is a high rise building that is just under 20 stories high.  It is a very nice building, with a manned desk 24 hrs. a day, access to the property is controlled through a manned guard shack.  The building is a "luxury" building with a heated pool, restaurant, grocery, gift shop, beauty salon, work out room in the base of the building.  There is heated parking (important in Detroit) with a valet along with "regular" parking in a parking structure or lot.  The building is on right on the Detroit River with spectacular views of it, Belle Isle, Canada, and downtown Detroit.  My Dad lived there and owned a few units for about 20 years.  He might have lost a small amount when he sold & moved back around 2006 or so...in 2008, the market collapsed and the co-op had trouble.  A few years ago, the vacancy rate went to around 35% or so.  This would have been 2015?  It got to the point where a few units were given back to the board.  The owners simply had moved on/passed away, and no longer wished to pay the monthly association fees.  So they simply gave the unit(s) back and received a release from future payments.  THAT IS IT!  Units were worth almost nothing...

 

Keep in mind, that if this were in NYC or LA, or other major cities, the units might be million dollar places.  The location is A+...the building is solid with luxury amenities...

 

Fast forward to today and the occupancy rate is close to 100%, about 98% to be exact.  Units are now being resold for actual money.  Prices are not high...but have come back substantially.  When I heard that units were being given away in 2015, I figured there a real possibility of a death spiral in the building.  With a vacancy rate of 35%+ the remaining owners monthly association fees went up SUBSTANTIALLY.  It would be very unappealing to potential buyers...

 

HOWEVER, the market has turned, I thought there was a good chance it never would.  There are vacant buildings very close to this building.  It is very KRAZY that this situation even exists, as it is right on the river and about 5 minutes from downtown.

 

So that situation has turned around completely!!!!!!!

 

Situation number two is that there is now a commercial tenant in my Dad's old office building!  It was sold in 2006 to a "developer" that never really managed to develop it until a couple of weeks ago.  It sat vacant for 10+ years...the neighborhood has gone down TREMENDOUSLY.  Many of the liquor stores have shut down.  You KNOW things are bad in Detroit when even the liquor stores are shutting down!  There are many burned out houses in the area. Further down the street there have been some marijuana stores opening/attempting to open.  THIS IS A VERY ROUGH AREA, even for Detroit.

 

The tenant is a hair salon, and there are TONS of those in the area, and it is probably a low quality tenant...but they are in there and have a chance.  The first tenant in 10+ years.  There are still lots of vacancies and failed businesses, but there a few NEW businesses.  Perhaps that neighborhood is having green shoots and starting to turn around?  I never thought it would.

 

Finally, I saw a deal that was probably even better than the one I got...but that story is for another time.