Cook County Class 9 may mean lower property taxes, but is it right for you?

Apartment buildings with more than six units in Cook County are generally designated as Class 3 properties and are assessed at 26% of market value (as estimated by the Cook County appraiser).

But Class 9 properties are assessed at an assessment level of less than 16% over a ten-year period. And that means significantly lower property taxes for owners of buildings designated as Class 9.

For example, a unit of seven valued at $300,000 (as measured by the Assessor) would typically 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 rehabilitation

First, Class 9 is only for new construction or older properties about to undergo major rehabilitation. Rehabilitation costs must be at least $6.00/sqft in 2005 (rises to $7.00/sqft in 2006 and $8.00/sqft 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 the job.

The good news is that most projects make a building eligible, including 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 from, you may already have the tenant demographics needed to satisfy Class 9 requirements. But, under the program, you must designate 35% of the units as Class 9 units…

…And document the income of the tenants in those units, showing that the household earns no more than 80% of the area median income.

The county sets the maximum rents for each type of unit, and as of 2005 they are:

Studio/Efficiency $745

1BR $804

2BR $965

3BR $1,116

4BR $1,251

Prepare for commitment

Not only must you commit to documenting tenant income each year, but it’s important to know that the Class 9 designation applies to the building for ten years. So if you plan to sell anytime within that time frame, consider whether the affordable housing restriction will be attractive to investors looking at your property and area.

If an investor later buys your property and needs to get rid of Class 9, they will need to pay back all tax savings from the previous three years. You will most likely be aware of this requirement at the time of the sale and look for a price discount to cover that penalty.

Class 9 is a great cost reduction tool for multi-family homeowners across the city, just make sure it fits your investment goals today and tomorrow.