In an online forum, I and other very experienced real estate investors exchanged our lists of threats that landlords face. Almost everyone had “taxes” at the top of the list. Not only do landlords have to worry about income taxes, they also have to worry about property taxes. I’m dictating this article as I’m on my way to court to participate in a mediation for a property tax dispute appeal I filed on behalf of a long-time client. There are some things you need to pay attention to regarding real estate taxes for all of your investment properties and your personal residence.
Are you current on your tax payments?
You can find that information by going to your county auditor’s website and doing a property search.
Is the information they have regarding the nature and characteristics of your property accurate?
In my client’s case, the county used information from the first set of blueprints when my client built their house instead of using the information from the updated second set that was supplied to them, which is the set that was actually used to build the house. The wrong information was put into their system which resulted in my client being taxed on 1,308 square feet that was never constructed.
For those of you with personal residences or short-term rentals with loft space or vaulted ceilings, please make sure the square footage of each level of the house is accurate. Some computer programs used by county offices automatically assume that the square footage of livable floor space is the same on each level, which ignores the architecture of vaulted ceilings, lofts, and other open areas.
When evaluating property taxes – Location, location, location!
For single-family homes and duplexes, the approach that will be used by the taxing authorities is to look at comparable sales. For properties with four units or greater, it’s going to come down to income. In each situation, I strongly suggest you hire an independent appraiser to prepare a thorough report that evaluates the property using the comparable sales method, the income approach, and what it would cost to rebuild/restore the property. They should then come to a conclusion and explain which method they used to set their value. This may seem confusing to some of you, but a good appraiser will use multiple methods to determine the value of a piece of property.
Part of evaluating a property’s location is looking at what the neighborhood is like. Is it easily accessible? Does the house blend in with others around it or does it stand out? These factors are often overlooked but can matter.
I hope this gives you an additional tool as part of your overall asset protection and tax defense strategy.
