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Commercial Property Taxes: What Can I Expect in the Midwest?

September 9, 2022

There’s much to think about when investing in commercial properties, but property taxes are one major aspect of cost consideration with a commercial property.

At Farbman Group, we understand that property taxes can be tricky, especially if you’re new to the commercial real estate industry. In this blog we’ll talk about what you can expect when purchasing commercial properties in terms of taxes—what specific areas have increased property taxes, why taxes are higher in specific areas, and what to pay attention to when purchasing a commercial property.

How Michigan Commercial Real Estate Taxes Work

Michigan has one of the more favorable property tax laws and amendments for commercial real estate than most states in the country. When you purchase a commercial property, your taxes are reassessed during this time and capped. This means your taxes cannot increase to an amount larger than inflation, with the exception of if you make major modifications or major improvements. This tax structure is one of the most straightforward for commercial real estate buyers, builders, and sellers, because it allows you to understand where your property may be taxed.

Additionally, Michigan provides property owners with the ability to appeal taxes. As a commercial owner, if you lose a major tenant, you can appeal your taxes downward and claim this as a hardship. If approved, your taxes will be capped at a lower rate due to this loss 

Your office, industrial, or retail location is appraised in three different ways to determine its value.

Sales Comparables

Sales comparables refers to properties used for comparison in the real estate appraisal process. Put simply, appraisers ook at similar properties nearby that have sold recently to get an idea of what the for-sale property is worth.

Income Approach

The income approach allows investors to calculate a property’s market value based on the net operating income it’s currently generating. This appraisal takes into account how much you make after operating expenses and uses this information to determine a market value.

Construction Costs

Construction costs are exactly as they sound—how much it costs to build a commercial building from the ground up. Insight to the cost of construction allows a clearer understanding of what financials were originally put into the building and what it would cost to start over.  This one is rarely used in Michigan due to the fact that rental rates currently do not usually allow for new construction to be justified

While commercial property taxes can be hefty, there are some major benefits to owning a commercial property like tax advantages, equity appreciation, and favorable financing rates. A financial professional can assist you with further understanding of these benefits, and how much these laws will benefit your business. 

Finding the Perfect Location for Your Business

Farbman Group has led the Midwest commercial real estate market for nearly half a century, due in large part to our strong ethics, integrity, and dedication to service. Our unmatched depth and breadth of experience enhances our firm’s ability to anticipate and understand our client’s needs and formulate personalized real estate solutions in response. Whether you’re looking to sell your commercial property in the Michigan market or throughout the Midwest, Farbman Group is here to help.

Find A Perfect Location for Your Business with Farbman Group

Founded in 1976, Farbman Group is a leading, full-service commercial real estate firm handling all facets of commercial real estate transactions. Whether you need assistance with handling commercial property taxes or the construction of your new business building, Farbman Group can tackle just about any financial challenge! Contact us online to begin your journey towards commercial financial success!

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