Ever wondered whether its worth protesting multifamily or other commercial real estate property valuations?
Is It Worth Protesting Property Tax Valuations?
Each year counties across the country assess valuations to all properties including residential, multifamily and other commercial real estate properties. There is an established tax rate for each county that is multiplied by the valuation to determine the property tax for that particular year.
Do your homework. Find out if you are in a county that is aggressive in increasing property valuations. I live in the Dallas Ft Worth area. Texas does not have an income tax so the state derives much of its revenue from property taxes and sales taxes. My experience is that counties reassess property tax valuations pretty aggressively after a sale of the property occurs. The new owner will most likely pay significantly higher taxes as compared to the existing owner. It’s also my experience that some counties are significantly more aggressive in these valuations than others. As a buyer of real estate you need to know how the county typically handles new property tax evaluations.
So should you protest property tax evaluations?
I can’t speak to every county across the US but when it comes to TX and other states that aggressively revalues property tax valuations, I would highly recommend you hire an expert to protest the property tax valuation. The expert firm will compare your property to other like properties and build a case that the initial evaluation is too high. They typically are paid a commission as a percent of the savings that they provide.
Is this material?
I would argue that this is extremely material and should not be overlooked by any real estate investor. Let’s use a very simple sample.
Let’s assume the county assessed the property at $10 million. After protest, the county agrees to a valuation of $9 million. Let’s assume the tax rate is 2.8%. In this case the property would save $28,000. If you apply a 4 cap rate against this $28,000 savings, the property would be valued $700,000 more because of this reduced expenditure. That in my book is material. Don’t overlook this process each year for each of your properties.
Why do I share this story with you?
I share this because I want to alert property owners to the opportunity to save money and maximize the value of their property.
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