Real Estate Due-Diligence Tip: Estimating Real Estate Taxes

Whether you are buying a home or developing a commercial property, real estate taxes are one of the biggest expenses you’ll face. Here’s a quick breakdown on how to reasonably estimate current and future real estate taxes for your property (with free data)!

Real estate taxes are typically based on your local assessor/auditor’s appraisal value of your property.  The assessor will establish an appraised value of your land and any improvements (buildings) on that land every one to two years. Once an appraised value is established, the assessment amount is calculated based on the property type (commercial, residential, agricultural).  This assessment amount is calculated as a simple percentage of the total appraised value. Depending on the municipality, assessed values will likely range between 15 and 35 percent of the total appraised value (agricultural property and residential property typically are assessed at the lower end while commercial property is assessed at the higher end).  Once the assessed value is established, the tax bill—the actual real estate tax expense we are trying to estimate—is derived from multiplying the assessed value by the “mill rate” for the taxing district.  To get this rate (if it’s not online), simply reach out to your assessor’s office and ask what the current mill rate is. If you can, also ask what future rates might be. If they have a good handle on the taxing district—or if it’s close to a new taxing year—they might give you a good estimate. This can help when estimating future tax expenses for the property.

To sum everything up, here’s the flow:

Appraised Value–>Assessed Value (percentage of appraised value)–>Tax Bill (assessed value times mill rate)

The best part about estimating real estate taxes: this information is available to the public for any property.  Many assessors have a free online database where you can track appraised values, parcel data, historic tax bills, property improvements, and many other sources for information.  So you can make a very reasonable estimate of this expense based on a plethora of actual data. To find this data, do a simple Google search of “Fill in the Blank County/Parish/Municipality Assessor”. Once on the main page, look out for “Real Estate Information”, “Property Data”, etc. When you click that, you should find a page that prompts you to input the address, owner, parcel pin number, or intersection.

Quick note: When you can, always try to double check this data with other sources.  Real estate taxes represent a large chunk of the total expenses for your property—it’s important to get right.  If your estimates are contingent on a few data points that were found on the assessor’s database, you may have a big problem on your hands if that data is wrong (wrongly imputed into the database, old data, etc.).

Let’s walk through a quick example to see how you can get real estate taxes for your property.

Say I am very interested in acquiring and/or developing industrial property in Naperville Illinois. I get wind of a vacant parcel up for sale in a great location for industrial properties in the area.  On top of many other parts of my due-diligence, I want to understand what the current taxes (for carrying costs) and future taxes (if I decide to develop) will be.

Naperville Illinois falls under the DuPage County Assessor’s Office. I start by looking up the parcel in the public records and GIS mapping information found on their website.   (http://www.dupageco.org/PropertyInformation.aspx). Luckily, DuPage County’s property information is easily available on their county GIS parcel map. From here, I have the exact address, PIN number, and owner of the parcel I’m interested in. Here’s what comes up when I select the parcel:

Once I have this information, I switch over to their “Tax Information” section and search for my parcel.  Here’s what comes up when I search:

While some counties will only show appraised or assessed values online, I’m lucky with this example because the actual tax bill is available. If this weren’t the case, I’d simply give the assessor a call and ask about current and historic appraised values, assessed values, and mill rates for the property. From the data above, I can see that the tax bill has been increasing relatively steadily each year. Under the assumption that this growth rate remains the same in the near future, I can now plug in an estimate of future (carrying cost) taxes for the property.

Estimating future taxes for a newly developed property involves more research and due-diligence because the assessor will almost certainly increase the tax bill for the property once it’s improved.  Using the assessor’s data as a guide, analyze comparable properties in the area to get a good understanding of the likely increase in taxes for the improved property once it’s completed and re-appraised.  While more in depth due-diligence is likely needed, using the free and easily obtainable data provided by the assessor should get you on the right path.

Good luck!

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