Property Tax Assessments

The below topics are discussed in much more depth
on our members' Propety Tax Assessments page.

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Real property taxes are a significant portion of  the operating expenses of any real estate investment.

If your property taxes are unfairly high, the assessment may be challenged with the assessor, a Tax Review Board or in court.

Property tax assessments are usually a percentage of the value of the property . The taxable value th at a local government assessor places on your property determines your tax bill.

Investors should always monitor a property's assessment as it invariably increases from year-to-year. If you believe it has become excessive or unfair, you can and should challenge the value assumptions.

What is your property actually worth?

The "true cash value" of any real estate is always a "best guess". However, the law requires that tax assessors must try to determine the actual fair market value of the real property being assessed.

Sales of comparable properties

The most often used method of valuing real estate is comparing the subject property to recent sales of property with similar characteristics.

Municipalities No Longer Penalize Improvements

Property taxes have long been the primary source of local government and public school revenue. As the cost of education and local government escalated, property taxes began to rise unconscionably and seemingly uncontrollably. Some taxpayers allowed their property to deteriorate, particularly on the outside or put off needed modernization and other improvements because they "didn't want their taxes to go up".

Other factors affecting value

Appraisers and assessors also look to the  potential for further development or redevelopment of a property when trying to determine "fair market value".

Depreciation of the improvements on a property is also a factor.

Changing conditions

Changes in the property's condition will certainly affect market value.

Another aspect to consider is market changes.

Rental income and capitalization

In some states, assessors consider an investment property's rental income as a factor in arriving at its value for property tax purposes. This doesn't necessarily mean, however, that your assessor will rely on your actual rental income if potential rental income is greater.

Replacement cost

Another method of valuing real estate is the cost of re lacing it.

Which method should be used?

Which method you use depends largely on the law in your state, but absent laws requiring otherwise, any reasonable method can show evidence of value.

For a detailed discussion of valuation, see RHOL's Valuing Income Property e-Course.

Only " excessive or disproportionate " valuations are usually deemed improper

The fact that you and the assessor come up with a different value won't necessarily result in a reduced assessment from your local review board or the court.

Approaching the assessor informally .

In most jurisdictions, property assessors may be agreeable to discussing and reconsidering a valuation without a hearing.

Right to notice of assessment

You can't complain about the assessment if you don't know what it is.

Conclusions

The bottom line is simple: Your property may be over - assessed. If it is, you are paying taxes you should not have to pay. If you follow the proper procedures for challenging the assessment, and do it in a timely manner, you will likely be rewarded with lower property taxes and a better return on your real estate investment .

The above topics are discussed in much more depth
on our members' Propety Tax Assessments page.

Invest Web Homepage