Apartment buildings with more than six units in Cook County are generally designated as Class 3 properties and are appraised at 26% of market value (as estimated by the Cook County Assessor).
But Class 9 properties are assessed at a lower assessment level of 16% over a ten-year period. And that means significantly lower property taxes for owners of designated Class 9 buildings.
For example, a unit of seven with a value of $ 300,000 (as measured by the Assessor) would normally have an annual tax bill of about $ 12,500. Under Class 9, a building with a similar value would owe about $ 7,700 in property taxes, an annual savings of 38%.
Sounds like a no-brainer, right?
Not so fast. Like any other government incentive program, there are conditions to qualify. Keep reading …
Prepare for rehab
First, Class 9 is only for new construction or older properties that are about to undergo a major renovation. Rehabilitation costs must be at least $ 6.00 per square foot in 2005 (up to $ 7.00 / square foot in 2006 and $ 8.00 / square foot in 2007). So for a 10,000 square foot apartment building, you would have to spend at least $ 60,000 to qualify. And you must apply before starting work.
The good news is that most projects make a building eligible, including those for electrical, plumbing, roofing, and windows.
Prepare for the paperwork
First, Class 9 is an affordable housing incentive, designed to encourage building owners to keep rents affordable for seniors, low-income renters, and working families. Depending on who you typically rent to, you may already have the necessary tenant demographics to meet the Class 9 requirements. But under the program, you must designate 35% of the units as Class 9 units …
… And document the tenant’s income for those units, showing that the household earns no more than 80% of the area median income.
The maximum rents for each type of unit are set by the county, and in 2005 are:
Study / Efficiency $ 745
1 BR $ 804
2 BR $ 965
3BR $ 1,116
4BR $ 1,251
Prepare for engagement
Not only do you have to commit to documenting tenant income every year, it is important to know that the Class 9 designation applies to the building for ten years. So if you plan to sell at any time within that time frame, think about whether the affordable housing constraint will be attractive to investors looking at your property and area.
If an investor later purchases your property and needs to get rid of Class 9, they will be required to repay all tax savings from the previous three years. Most likely, you are aware of this requirement at the time of sale and look for a price discount to cover that penalty.
Class 9 is a great cost-cutting tool for multi-family homeowners across the city, just make sure it fits your investment goals today and tomorrow.