How to Decrease Property Taxes When the Economy is Booming or Declining

Commercial Real Estate Investing From A-Z

What are some techniques in decreasing property taxes when the economy is doing great and values are going up, and when the economy is in a downturn and values are going down? How often should you request a reassessment? How to approach properties in multiple states? Nicholas Mau, Partner at FirstPointe Advisors, shares his knowledge.

Read this entire interview here: https://tinyurl.com/2pk8c3ad

We are currently in a recession and there are two scenarios of appealing taxes: when the economy is doing great, and they want to come after you and get more money for your properties; and when the economy is going down and property prices decrease. What are techniques for decreasing taxes when the economy is doing well?

You must take into consideration different factors that you have for that property, the income producing potential, what's the end place income, and comparing that to what the overall market looks like, the market occupancy, market rental rates, market cap rates, etc. Diving more specifically into the nuances of the property is going to be where you'll find opportunities when it comes to properties in an up market.

The property appraiser is going to have more of the shoe on their foot when it comes to valuations in an up market. The sales are going to be supportive of higher values, the incomes are going to be supportive of higher values so this is where it really is a lot more imperative to be diligent in the review of the individual property to ensure that you're taking into consideration all of the nuances. You should look into what are some of the challenges that this individual property may have, are there little things that are not evident to the property appraiser from their mass appraisal perspective because they are required to value all the property within their jurisdiction so they're looking at the overall market factors. Market cap rate might be 4% for an industrial property, but is that the correct cap rate for the property that you have, which might have an additional risk factor associated with it, where there's near term leases that are coming due or there might be some different occupancy challenges that they may not know.

There's hesitation in the community to lower values when the market tends to turn downward. Make sure that the right rental rates are being used; if rental rates have decreased, ensuring that the appropriate market rental rates are being applied; make sure that the appropriate vacancy and collection losses are being considered and that any nuances with the property in terms of near term lease expirations are being considered, or credit defaults.

A lot of office properties are struggling where tenants are vacating because they don't need as much space. Property appraisers don't necessarily know these things are occurring until it's brought to their attention, so it's important to make sure that that type of information is being put forth to them and being provided to them.

Sales velocity has slowed dramatically across a lot of property types in the commercial real estate world. When you have a lot of sales and you have brokers that are selling deals at 3.5, 4.5 cap rates, everybody's willing to sling out their cap rate when cap rates like that transact. When properties do transact, the brokers and property owners are a lot more tight-lipped on what is the cap rate that properties traded for because a lot of people are taking haircuts on these deals.

Rely upon building cap rates through the weighted average cost of capital, or an equity dividend rate, or looking at the debt service coverage ratios and different things like that to try to come up with an accurate estimate and support for the positions that you're taking in your property tax appeal.

Nicholas Mau

www.first-pointe.com

[e-mail]

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