Philadelhpia’s 10-Year Tax Abatement and how it affects your REI future

There is a grand opportunity for real estate investors in Philadelphia who are looking to hold properties for an extended period. We will discuss some of the specifics of this program for those in that region as well as some strategies for everyone else to consider in their own investment markets.

Here are some specific details to find out if you have a property that qualifies for the abatement or if you are looking for an investment opportunity that would fall into this category.

New construction of residential properties:

  • Apply to the BRT no later than 60 days from the date that the construction building permit was issued by Licenses and Inspection (L&I).
  • Construction must be an eligible unit located in a single house, duplex, triplex, townhouse, row house, apartment building, condominium unit or cooperative unit.
  • Abatement is for the improvement’s assessed valuation and starts in the month following conveyance of the real estate to the qualified owner.

Improvements to existing residential properties:

  • Apply to the BRT by Dec. 31 of the same year that the building permit to construct is issued.
  • Eligible residential property contains one or more dwelling units that is/are certified by L&I or the Department of Health as unfit for human habitation, or has been the subject of any order to be vacated, condemned or demolished by reason of noncompliance with laws, ordinances or regulations of the City of Philadelphia.
  • Abatement is limited to the assessed value of the cost of improvement and commences January 1st in the tax year immediately following the year that the property improvement is certified complete.

Importance of having a plan

Clearly you need to have this plan in place as you need to file your paperwork at the beginning of the project. It is important to know before you purchase, whether your property is going to qualify for this program. There is a resource through the city government website to find out if your investment qualifies.

Benefits for rental properties

So how do you take advantage of a program similar to this one? Well first, we have to understand what it means. The tax abatement explained above would allow a real estate investor to rehab a condemned property and pay reduced taxes over a certain period of time. This is extremely beneficial to a rental property, as it would save thousands of dollars each year on taxes. It is not a program for a quick flip. There would not be enough time to experience the benefits.

These types of properties can offer extreme upside provided that they can be bought on the cheap. Most of them can because they will need significant remodel and have probably already been condemned by the local government. You need to know that you are in for a timely renovation, but a savvy real estate investor can see through that to the extensive profits that are waiting.