I’m working on 34 space park purchase and am finding the property taxes for the current owner at about $1700 per year, however I visited the tax assessors office to get an estimate on how much my new taxes would be on the new sales prices and was shocked they could go up to $8000 per year.Is there a strategy that can be used to reduce this large increase?
The property tax value will be based on your purchase price after you took over the park. That’s the reason during the DD period, your projection need to reflect this fact, so you will have a clear picture of its financials, such as cap%, ROI%, etc., then you can decide it’s a good deal or not. If your exit strategy is short term flip (say in 3-5 years), I would try the Master Lease Option if the current park owner agrees.Best Wishes!
Very interesting observation but even with a lease option agreement when a new buyer comes along he might have the same objection that you are having. On the parks I own taxes are our biggest expense and that will increasingly be a major cost for all buyers. Thank the government for inflation and the redistribution of wealth to keep the sheep quiet and voting for a certain political party so there welfare continues. I have negotiated with the local assessor and had my cut in half so be cool and give it a try.
Really you are often buying three things when you acquire a mobile home park:1. The park (real estate)2. The homes (wheel estate)3. The business of dealing in homes (and perhaps you also are leasing storage units, etc. on the property)We’ve never argued our property taxes should be reduced because much of the value is in ‘the business’ - but I’ve heard others have done so successfully. So you might try that valuation approach if/when you protest your real estate taxes. But even if you don’t want to argue ‘the business has a lot of the value and it isn’t real estate,’ certainly you would at least argue that you should not be taxed (through real property taxes) on the value of the mobile homes. Homes are, of course, taxed through the DMV. So it is not fair to be double-taxed. Any value in the POHs needs to be removed from the value of the land.We purchased a mobile home park last year with nearly 100% POHs and closed with two separate appraisals and two separate mortgages (one each on the real estate, one each on the wheel estate). Apparently the park had traded hands previously always as a package deal (real + wheel). So the entire purchase price had been recorded as the purchase price for just the real estate, and the property tax was paid on the entire amount of real + wheel. And in addition to that, the previous owners were then also paying taxes on the mobile homes to the DMV. They were being double-taxed on the homes by having them included both in the purchase price as if they were real estate, and then also being taxed by the DMV.So we closed this transaction correctly for the first time, apparently, ever. (Modesty is clearly not my strong point. ;) ) The appraisals showed the value was split 54%/46% between the real and wheel. So we now pay 46% less property tax than the previous owners had. The previous owners had just been lazy or foolish and had not split-out the value of the homes separate from that of the land. We are now selling the homes on RC agreements (and a few for all-cash) and as we get out of the home business naturally that portion of the tax burden transfers to the new home owners. All this, and without even having to file a protest. But we do still have the option of protesting our real property taxes for an even further reduction.Good luck to you,-jl-
Another method - if the property is held in a partnership or LLC, you could buy out the seller’s interest in the LLC, including all assets, liabilities, etc. That way the ownership of the real property does not change hands in the eyes of the county assessor. You need to be careful with this type of transaction since you acquire all of the possible skeletons in the LLC’s closet. And of course, this just delays the inevitable revaluation until the next sale (just like the master lease).
Great points from everyone.Maybe the best option would be to argue for the actual real estate values vs the business value (paying tenants/blue sky) as Jefferson states. I do wonder however if the sale could be split into 2 parts like this on the front side. I suppose it might create tax complexities for the seller as I’m unsure of any impact on his long term capital gains.Bret, I had already considered the LLC transfer route but the seller currently has the park already listed in he and his wife’s personal names. Perhaps an attorney could advise on the legality of moving to a new LLC and then acquiring that LLC.
The assessors have taken many classes to detect questionable practices and will look at the doc stamps at your closing to KNOW what you paid and to determine the tax. Why are people trying to not pay their FAIR SHARE to help the poor especially since the buyer decided how much they were WILLING TO PAY??? The assessor responsible is to have an equable system fair to all.
CarlBusinesses do not make a profit operating as a charity. “Fair Share” is suppose to be fair not simply what someone else determines. Do you have your account deduct park expenses off of your income? Why would you do that when those expenses are actually coming from your tenants rent payments.