Property Taxes & Improvements--How Do I Know I Can Afford Them?

LoveInTheHouseMarch 22, 2011

How do I know if I can afford to make an improvement? I'm buying a fixer-upper house that already has very high property taxes. It is plumbed for three bathrooms but they are just empty rooms right now. I don't need three bathrooms so if it was going to raise my taxes much higher, I wouldn't even bother putting them all together. I called the tax man and all he could tell me was, "Things like that don't raise your taxes very much. Now if you added a room..." I'd like to have a better idea of what "much" means. Another example: we were thinking that if we get this house, we might look into turning one of the outbuildings into a little apartment to help with the taxes. But would the raise in the taxes due to the improvement cancel out any money earned by having the apartment? Do they have set values for improvements? The tax man didn't seem like he wanted to talk to me at length because I don't own the house yet. The taxes are high enough already ($6700.) so I can't make a mistake. Thank you.

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Can you check your county records to see what a home similar to how you want improve this one is taxed?

    Bookmark   March 23, 2011 at 12:12AM
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Just find out the County's tax formula that they use. Also, figure out what the fair market value would be after your improvements. Take this # and apply the County's formula to it. This will be your new tax bill.

    Bookmark   March 23, 2011 at 7:04AM
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Property taxes are just calculated as a percentage of the homes assessed value. If you raise the home's value 10%, then your taxes go up 10%. Presumably, if this house currently doesn't have working bathrooms, you are going to significantly increase its value once you have it all fixed up.

As for outbuildings, you really need to talk to the city about local codes before even considering such a project. Your land might not even be zoned for multiple residences on one lot. At the minimum, they will usually require you to bring that building up to modern standards in terms of plumbing, electrical etc

    Bookmark   March 23, 2011 at 10:39AM
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Remember that in order to get work done, including fixing up those existing rooms, you have to get permits. Many municipalities use permits as a basis for changing assessments. (Some use set formulas, some do on site assessment if a significant amount of work is completed.)

I agree with Billll about the "outbuilding as apartment" issue. You are most likely walking into a zoning and code nightmare, but ymmv.

    Bookmark   March 23, 2011 at 12:44PM
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If you think that the taxes on your prospective property are high based on its present condition then after you purchase it you should look into the grievance procedure to have the assessment data brought back into line with what state the buildings are actually in now. Don't expect the tax assessor to be too thrilled to help you decrease the tax base, however. There is likely to be a formal procedure, with specific dates when grievances will be considered. OTOH, if you plan to fix up the house, that will raise the assessment back up again. Sometimes it's better to just leave it alone, but other times it's better to push it down, first, rather than have your fix-it-up improvements added on to an (incorrect according to present conditions) basis.

You will earn more cooperation in the assessor's office if you go in person and ask for a conference to better understand on what basis the assessed value is set now.

Many years ago I was a cub reporter covering municipal matters in a small towns, including the assessment abatement process. I observed that those people who started with a neutral, teach-me-so-I-can-understand attitude about their assessments seemed to wind up with better deals than those people that roared in in high dudgeon over their "unfair" taxes.

Don't confuse the tax assessment process and staff with the tax rate setting and collection side. The assessors are just in charge of data collection and maintenace, it's usually the elected municipal officials who decide how high to set the rates. They are they guys to complain to if your taxes are too high. If your data (house and property details) are correct, then your assessment is correct. In some places property assessments are made based on sales price, which tends to become increasingly unfair over time. The usual standard for fairness in non-sales-price-based jurisdictions is whether a property, relative to other similar properties, is assessed for roughly the same amount. Those two factors (data accuracy and rough parity between broadly similar properties) are the two factors that come into play in setting (or disputing) an assessed value. A visit (better by appointment) to go over your property's details and look at similar properties is usually the best place to start.

Some people think tax assessment data on other properties is private. There are probably some places where it is, but generally it's not so. There is some reluctance to openly display it, but don't be shy about asking about it. When I owned property in Virginia (Rappahannock Co.) you could go in and look up the details on any property in the county files. I'm in NY now, and much of the info is online, as it is in other areas. And what isn't online, you can get just by asking. The assessor's office doesn't advertise this, however. They rely on citizen reluctance and shyness to save themselves the trouble of producing the records and having to defend their work product.

Some things like, for instance, a 3-bedroom/bathroom septic capacity will be assessed at that rate even if you only have one bedroom/bathroom. The rationale behind that is that whether you use it or nor the property has inherent the saleable value of the 3/bedroom system. And wouldn't you count it as a valuable thing if you were selling the property?

Agree with the suggestion that you not count on making an outbuilding into a separate dwelling without considerable research: that would raise zoning, CO and code issues almost everywhere.


    Bookmark   March 23, 2011 at 3:14PM
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I think that this worry about taxes is clouding the situation and making this a bigger deal than is warranted. Based on my prior ownership experiences:

1) Only improvements where I added a lot of space to my house caused a significant increase in my taxes, while just upgrading or finishing off a bathroom did nothing.
2) Any tax increases usually took several years before they kicked in.
3) Taxes were appealable if they seemed out of line with other neighborhood properties.

I doubt that installing these bathrooms is going to largely increase the assessed value of the overall property, so, on a percentage basis, I suspect the increase will be small. And you will have a home that will be more useful and more attractive to buyers when you sell it.

You don't say what the value of the house is, but let's say that it's $400K and the value of the finished bathrooms increases it by $8K (which is probably being generous). That's only 2%, which would mean your property taxes might go up by about $134...or less than $12 a month. The tax man probably didn't have much to say because this project is relatively trivial in the grand scheme of how properties are valued.

    Bookmark   March 23, 2011 at 3:25PM
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I sold my home a year ago after 40 yrs living in one of the highest taxed areas of the US. We obviously improved the house, over those years but were careful how to improve.

We gutted 4 bathrooms and did total remodel. This did not require any permits because the baths already exsisted. We did a gut of our kitchen and didn't require a permit.

What did affect our taxes was an addition of a sunroom (never existed before) and a large wrap-around deck. Both required permits.

This in turn caused our taxes to jump up because they assessed our home for more money.

One other interesting thing, when we built the deck, we didn't think we needed a permit because there was a deck there (smaller). But, because the new deck had stairs to the yard (old deck did not) this created another entrance to the house requiring a permit. If we hadn't added the stairs we could have built any size deck without needing a permit, if it didn't have stairs.

What hurt us the most (increase of $10,000) was the addition of the sunroom.

Try to do improvements which don't require permits. Then your taxes won't be affected.


    Bookmark   March 23, 2011 at 3:42PM
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Without reading all of the replies I want to add something that I hope wasn't mentioned.

I saw permits mentioned- make sure you do not trust a contractor to get them like we did. My hub added on to our driveway thinking the contractor knew codes; etc because he works in this town; well 3 years later I have a violation in my mailbox. We've now been put in a bad situation; not only with getting the permit but with some additional permit that has to do with property grading. In the end; we're probably going to have to rip the driveway out.

Next; someone mentioned decreasing value; be prepared that someone just may knock on your door to gain access to reassess. This just happened to a neighbor of mine; brand new house; they added a fence; I guess the township wondered what other improvements have been done & want to make sure they are taxing right.

We're looking into a fighting our taxes. According to the tax lady; people have been successful & that's probably why Mr code enforcement is driving around looking for more $$$

    Bookmark   March 23, 2011 at 4:19PM
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I'm thinking that if your budget is such that a small increase in taxes cannot be tolerated, that you are buying too much house. Trust me, if it is not taxes going up (and where I live they go up every year, like clock work), it will be a sewer line replacement, or a roof repair or any number of other issues. You simply must have enough buffer to be able to handle maintenance, repair, insurance increases and tax increases.

    Bookmark   March 23, 2011 at 4:33PM
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For starters, it seems strange that your property is being taxed so high an amount when it appears from your post the house is currently uninhabitable - i.e, 3 bathrooms, none useable?

your tax bill might be broken down into two sections -


or some similiar method. Knowing how they are breaking this down will tell you a lot. If 80% of the bill is for the structures, for instance, and currently it is not inhabitable, then you know your bill should likely be lower until you are able to move in.

If most of the bill is the structure, then you need to decide whether you want to let the assessor know it is currently in disrepair. It seems likely he may not be aware of that, and he might well lower the bill if he knows. The downside is, many assessors will immediately report this info to the code department. And that could make your concerns about taxes seem trifling by comparison...

Second, if you find out exactly what the ratio of Land value to Structure value is, it will help you figure out how much to be concerned about any improvements.

I would not think creating a an apartment or cabana will be likely to do much to help your cash flow. Aside from permits, city inspections, additional tax loads, and higher insurance, there is also maintenance - which is always HIGHER on rentals, there is also the oversight factor. If you have not been a landlord, it is not a good idea to rely on income from your first attempt.

I am also concerned that the assessor did not seem to be eager to be of help in your opinion. Assessors are not all the same - there are very good, honest ones, and there are also the other sort who look to squeeze every lasy penny out of a property - whether justified or not - to make themselves look better to their county.

I would be concerned. I know of a family that moved last year after a yearly assessment increased their FMV and taxes 51% - they were literally forced from their home when they realized they could not make ends meet indefinitely with the new rates.

I'm sure you will hear many more opinions on this, but are you certain this is the best situation for you?

    Bookmark   March 23, 2011 at 9:12PM
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Next; someone mentioned decreasing value; be prepared that someone just may knock on your door to gain access to reassess. This just happened to a neighbor of mine; brand new house; they added a fence; I guess the township wondered what other improvements have been done & want to make sure they are taxing right.

Our HOA very helpfully sent out a letter notifying us that if an assessor comes by to gain access to your house, you are under no obligation to let them in.

    Bookmark   March 23, 2011 at 11:16PM
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Wow, thanks for all the responses. I am going to have to reread this over very slowly so that I understand everything you all said. To answer some of your questions and comments, it's not too much house for me Gardenspice because I am buying it for cash. Taxes are high in New Jersey. They are $6700. on this house now. I want to make sure I can continue paying the taxes on it when I get older so I don't want to do anything to it that's going to cost me more money in taxes. I understand that taxes go up anyway. But I want to keep them from going up as much as possible. The taxes are one reason I am looking into building an apartment in one of the outbuildings on the property. I'm thinking ahead for old age. I want to keep this house until I die. If I had a tenant, it would help with the taxes. Unless the tax cost of the improvement cancels out any profits I would make on rent. Of course I will look into all the rules and laws I have to follow if I was going to do something like this down the road and I'd never do it without getting proper permits, etc. I wouldn't be able to sleep if I didn't follow the rules! I am also looking into other ways to make some money with this property. Making an apartment was one idea. I've also thought of having weddings and other events there. I'm a bit of an entrepreneur and will do a lot of research. Whatever we do, we will be doing all the work ourselves. As far as what's going on inside the house right now, there are open permits on it now that the code officer told us was transferrable to us so we can complete the work. Nothing is hooked up in this house. The work was in progress and then the owners had to stop. It will take us three weeks to hook it all up. There will be lots more work to do but in three weeks we'll have enough done that we will be able to get the certificate of occupancy to move in. Other than the tax man kind of rushing me off the phone, all the town guys we've spoken to about this property have been very helpful and supportive of us--they want us in there. The house has been empty for a while and I think they're afraid someone's going to buy it and turn it into some kind of halfway house type thing (it's a big old Victorian) and they would rather have a family in there who is going to give it tender loving care. It is in a town with other multiple dwelling buildings, bed & breakfasts, plus it's on five acres. I'm not even sure what I want to do with it and what I can do to it at this point. My goal is taking care of these taxes. Where I live now, on an 11 acre farm in Virginia, my taxes are only $846 a year so this is going to be sticker shock!

And this whole thing might be moot if I don't get my farm sold. We lost our buyer two days before closing! Now we're praying the old Victorian is still going to be there when we get a new buyer!

    Bookmark   March 23, 2011 at 11:36PM
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Our HOA very helpfully sent out a letter notifying us that if an assessor comes by to gain access to your house, you are under no obligation to let them in.

True. However the worse assessors will then "guess" as to likely improvements and condition. And they will then defend their guesses to tax appeal councils and courts by stating they requested entrance and were denied access. In that case the burden is right back on the homeowner to prove their speculations - no matter how unfounded - wrong.

    Bookmark   March 23, 2011 at 11:40PM
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Have you checked the assessment to see what portion is based on the land valuation and what is based on the actual structure? You've got 5 acres, which is a big chunk of land. You may find that the majority of the valuation comes from the assessed value of the land, which means that improvements to the dwelling will have an even smaller impact on any potential tax increases.

    Bookmark   March 24, 2011 at 1:39AM
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Do you mind saying where in NJ? I'm down by the AC expressway; we moved down here from Burlington County.

Not sure I would buy an old Victorian as my forever house. What happens when you can't climb stairs? At my old house; I had a neighbor in his late 80's; he fell going up 2 small steps into his house; spent weeks in the hospital; then rehabs as he couldn't go home due to being alone & steps inside.

    Bookmark   March 24, 2011 at 7:41AM
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Kudzu, no I didn't check that. I will look into it. At this point, we may not even get this house because I lost the buyer on my house.

Roselvr, it's in Mullica! Where are you? I'm not worried about it being an old Victorian. That's all I buy is old houses. I'm not happy in a new house. I had one. It was beautiful. Everyone was crazy about it. I hated it. Plus, there's a bedroom downstairs too. I have to follow my heart. But I do want to plan ahead.

    Bookmark   March 24, 2011 at 8:56PM
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I am also looking into other ways to make some money with this property. Making an apartment was one idea. I've also thought of having weddings and other events there.

I think if you want a business, you want to purchase with the idea of having a business. I'm not trying to be mean, but the whole "maybe I'll do this, maybe I'll do that" sounds a bit dabbling to me and businesses run as hobbies don't generally make money.

    Bookmark   March 25, 2011 at 2:54PM
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I'm in the next county up; town called Williamstown. There's a lot of great shopping up this way along rt 42 in Turnersville.

Check the township codes about using the property because there may be limits on it. You also want to check into the apartment idea before you buy.

Taxes are cheaper in my last town; you may think to look out that way too- there's a town called Cream Ridge; lots of nice properties out that way. Taxes are supposed to be cheaper too; or they were the last time I looked a few years ago.

    Bookmark   March 25, 2011 at 4:05PM
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"I'm not trying to be mean, but the whole "maybe I'll do this, maybe I'll do that" sounds a bit dabbling to me and businesses run as hobbies don't generally make money."

Good grief Trilobite. That's how many businesses get started. With an IDEA. People kick it around. Then they research. I'm a money maker. I'm not buying this place FOR business but if I see an opportunity, I might start one. I'm in business for myself now. I've been an entrepreneur my whole life. That's how I pay for my hobbies.

Roselvr, I looked in Williamstown! In fact, if this house falls through, and it might because she won't give me a house selling contingency, there are a couple in Williamstown that are still on my list. They are on Clayton Road. I haven't seen them in real life, only online. Before we found the one in Mullica, we looked at a house on Morgan Road in Williamstown that we ruled out because it needed to be torn down! Williamstown is a good area for horses. We saw the great shopping! It excited us because where we are living now, in south Virginia, we are out in the middle of nowhere and I'm dying for some good shopping! Forget Cream Ridge. It's expensive. There was NOTHING there in my price range. (I'm from Jackson originally by the way.) Don't worry--I will check the codes and rules if I buy that house. But even if I am not allowed to do anything with it, I still want it.

    Bookmark   March 25, 2011 at 10:57PM
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OK, You're going to be in for major tax sticker shock no matter where you move, if you're starting from VA.

When I owned my property in VA I paid about $1500 per year in taxes. The first time I went in to pay it, I kept asking for the "other" portions of the tax bill. The tax collector as confused because that's all there was due.

At the time I also owned the farm I live on now in NY, which has about half the market (resale) value of the Virginia property. And the same year I paid $1500 in VA we paid over $8K in NY, when both property and school taxes were factored in. (And that was a few years ago - it's higher now!)

And from what I've read, NJ is even worse than NY!


    Bookmark   March 26, 2011 at 5:52PM
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Liriodendron, yeah, I'm concerned about it. I'm from Jersey so I know what I'm in for. My taxes here in Virginia are only $846 a year and I could actually lower them if I put the place into Farm Use! I never bothered because they're so cheap! That's why I'm trying to figure out a way to help with that in NJ.

Did you sell your Virginia place?

    Bookmark   March 26, 2011 at 11:15PM
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