How to Reduce Property Taxes: Insights To Increase Your Profits
Don’t let high taxes drain your profits. Protect your investment – ASAP!
With the big jump in property values we’ve seen in the past few months, property taxes have also been skyrocketing, and real estate investors are feeling the pain.
The pinch extends beyond just an annual bill. It can impact the size of your DSCR loan. There is a direct relationship between your property tax and your Levered Yield (that is, income after financing costs). Assuming all other things being equal, if you reduce your property tax by 5%, your Levered Yield would go from, say, 13% to a healthy 14.2%.
Even seasoned BRRR investors may not appreciate the opportunity they have to impact property taxes during the rehab period of their work—nor what an impact it has on life after rehab. Luckily, there are steps you can take to alleviate this burden.
The Easy Button
Cut to the “Easy Button”: The easiest way to reduce your taxes is by engaging a professional property tax consulting firm. Many consultants operate on a contingency basis, meaning they get paid from the money they save you.
However if you want to do it yourself, or at least know how to, here’s a 3-point plan to help you tackle sky-rocketing property taxes. And by understanding the protest process, at least you can rest assured you are not overpaying on your taxes; ‘cos who wants to do that?
1. Understand How Home Values Are Assessed
Your county determines property taxes based on the value of your home, but the assessments are not conducted in real-time. Assessors often have extended gaps between updates and when they do reassess, they base their evaluation on a specific time window that has ended. The assessment uses house sales data during that period, adjusted to reflect prices at the end of the period. While this process may reflect the market accurately at the time of assessment, it may not account for any subsequent drop in prices in your area.
2. Analyze Your Assessed Value
You can analyze your assessed value by carefully reviewing the details provided by your county, including the comp analysis, which should be included in your notice. If the county does not provide this analysis, ask for it. Pay attention to any discrepancies between the assessed value and the condition of your home. If the condition was overstated at closing, you may well be overpaying on taxes. Take photographs and note details like finishes to provide evidence of the actual condition. You can even conduct your own analysis to compare and challenge the assessed value.
3. Protest Your Assessed Value
If you believe your home is wrongly assessed, you can protest it. Keep in mind that most counties have specific deadlines for filing objections, and they may be coming–so make sure you don’t miss yours. The county reviews objections on a case-by-case basis, and you may need to attend a hearing to present your case, so gather supporting evidence, such as receipts and documentation. If you purchased your home during the assessment window and obtained a lower appraisal than this assessment, be sure to provide this information to the county. Finally, await the board’s decision, hoping for a favorable outcome. (If that all seems overwhelming, find a property tax consultant or tax reducer in your area.)
Dealing with property taxes is painful, but understanding the process empowers you to action and ensures you are not overpaying. By following these steps and being aware of your rights, you can navigate the appeals process and potentially reduce your property tax burden.
Tip: Denver-area REIs should read Travis Talaric on the subject in his newsletter.