Property Taxes


#1

Please help me out. I am buying a MHP via owner’s financing. Going into the second year. The deal included a 45 acres, 132 pads MHP, 99% owner occupied, a 25 unit mini storage and a 4000 SqFt House, all for ~1.9M. We paid ~6.5K in property taxes last yr, just like previous yrs when paid by the former owner. The land by itself is probably worth 50K at most.

I have just got this yrs tax bill for 48K !!! 6 times last yr bill!!!. The assesor states that they have figured that amount on the price I paid for the business. Is this correct?? I understand property taxes are paid on what we own, in this case the land. As far as income taxes, we pay the IRS… correct? If this assesment was true, then my land will be worth close to 45K per acre, which would be awesome, but impossible based on comps. At most each acre of unimproved land in our MHP area is possibly 6K. Would anyone help me figure out what heck they are trying to do?

After my phone conversation, he asked to submit an appeal form…I am trying to document my appeal with all the info I can. Does anyone out there pay property taxes on MHP based on the business value or based on the property value. Am I wrong or confused? Thanks

Jorge


#2

I feel your pain Jorge, I think I’ll be in a similar boat next year as I just purchased my park this year…In the state where my MHP is, partial tax is based on land value, then the other tax is based on personal property of ALL the homes, regardless of who owns them, the MHP owner gets taxed for them.

Just curious, are you making any headway on your appeal? Maybe a re-assessment of MH values (if your charged for the personal property tax) or another apprasial could help reduce the tax value? You could reference the NADA MH apprasial guide for the value basis if your taxed on MH’s.

I know some of the folks who post here have been through a similar experience but I can’t remember specifically what they did to reduce the burden…hopefully someone has some tips…


#3

There is a way out of this. You have bought a business with property. You have to allocate the purchase price between business and property. The analogy that works when explaining to tax assessors is: Suppose you bought a convenience store. You may pay $1m for the business but the building it is located in is only worth $200,000. The assessment will obviously be based on the building (and land) and not what was paid for the business as he is attempting to do.

A second tactic is assessed value of other parks with similar lot rates. Assessor organizations generally issue guidance for assessing mobile home parks. Ask to see his guidance. Usually they assess so much per lot. Parks with similar lot rental rates should be valued similarly per lot.

Lastly, you can calculate value of improvements; so many feet of waterline, sewer line, etc. Land plus improvements equals property value. It is tedious; it may add up to more than you want but it is hard to for the assessor to argue with.

You can also talk to an accountant about allocation land verses improvements. You can’t depreciate land so you will have to do this anyway.

There are companies that specialize in fighting unreasonable assessments. Consider hiring one. They should be able to tear apart this assessment. You really need to fight this. It is a lot of money over the years.


#4

Andy…I want you on my team. This happens all the time here in sunny florida and it would be well worth while to ask the tax folks how they arrived at this figure jorge.


#5

Thanks Guys,

I appreciate your ideas. I am going all the way up to the county board if neccessary. I will keep you posted. I know someone is going to be in the same spot sometime. That is one the benefits of having forums like this where we all learn from other’s experience. So far, I have presented the required appeal forms with a letter, statements, rent rolls, tax returns, etc as requested by the county, showing how unlikely will be to keep the business alive if property taxes are this high. I am waiting to hear their response. I then plan to go even to higher levels, even to the county board in public audience.

Andy, would you give some more info re. this companies that specialize in fighting assesments like this. Thank you again.

Jorge


#6

AndyR your awesome. Thanks for a great response, this is the beauty of the forum and what makes it so unique…MHPs are crazy biz for sure!!


#7

I ran into the same situation while doing the due diligence on the park deal I am currently working on. I’m in Ohio, so it’s probably different, but I called the county tax appraiser directly.

I was looking at a park we were offering 550,000.00 for. The county had it assessed at 175,000. I called the appraiser and asked if they were going to raise the rent to our purchase price and used the same arguments that Andy had listed above. I should not be charged on the business just the land. The county appraiser agreed with me, but he said the problem was the school board. They watch commercial deals like a hawk and lobby to get the taxes raised the minute you buy the park.

He said that a few had fought the school board but he could not recall anyone winning. The reason being that the school board was successful at proving the income from the business as real property.

He made the point that we could fight it, but good luck trying to convince a judge in the county to not allow the school board to get what they want.

Luckily I found all of this during the due diligence period. And it may be different where you are, I’m not trying to rain on anyone’s parade just had a similar experience and wanted to share my experience. Good luck!


#8

Google “Property Tax Assistance” and you get companies like property-taxes.com which specialize in this. Also Google Property Tax Attorney. They have their own organization.

Some time with a pro will be well worth the cost. Don’t just go to the appeal board without giving them something to stand on for a change. “Taxes are too expensive and will ruin me” doesn’t work. It is important to present your material at the appeal because if it goes to court, they may only consider evidence presented at the appeal. My guess is you will get up to a 20% reduction for appealing.

When you buy a park, expect taxes to go up as a part of your due diligence. Your offer has to reflect income under your ownership i.e. with new taxes.

First, determine if the assessor is being unreasonable or unfair to you considering other parks and assessor guidance.

Plan B: Go back to the seller and attempt to redo the deal. For example pay $500,000 for an option to purchase a park for $1,000,000. Only the million shows in the transaction for property tax purposes. Or lower the price reflecting the revised net income.

Plan C: Raise rents $25/mo. That should cover the added cost. Tell tenants to complaint to board.

Greg, I’d like to be on your team. Send me an e-mail. Perhaps we can work together on a park.


#9

Jorge,

If, as you state,

“The assesor states that they have figured that amount on the price I paid for the business.”

Then how hard would it be to create a sale of the park to another LLC you privately own, for say 1/2 of your original purchase price ? Here it would mean little more than deeding the property to the LLC for some value and recording it. Then have your attorney for the LLC order an immediate reassessment based on the new purchase price.

Just a thought…

Keith


#10

Property taxes for commercial real-estate, in many parts of the country are based on the same type formulas you would use to figure the cap rate. The value of the property is based on how many dollars it produces each year less expenses.

In most Florida counties park owners are required to file a return with the tax appraiser annually. The form asks how many spaces you have, the monthly lot rent, the rate of vacancy and expenses for that year. The taxes are based on a formula that includes the condition of the park the number of feet of frontage and the net annual profit.

It would not be unusual in places where this type of return is not required for the taxes to go up dramatically after a new deed registration. The tax assessor understands that the new buyer based his purchased on a cap rate. If the new sale was considerably higher than the last recorded sale they are going to dig deep into your pocket.

The defense is a good accountant that can show that the park is not performing as well as the tax guys might think . You say the park is 99% owner occupied… if that means that you have mostly park owned rentals then the turn over, renovation repair and maintenance costs should put a serious dent in the gross profit.

Post Edited (11-07-09 11:37)