There’s been a lot of talk about new tax rates since President Donald J. Trump took office. At the same time, there’s been an influx of new self-storage properties into the marketplace. As a result, some facility owners may be feeling a lack of control over their own destinies. Well, fear not. You’re able to control something significant when it comes to your property taxes: lowering your assessment.
That’s right, it’s very possible to put money back into your pockets simply by contesting the assessment to get it lowered. Though this involves filing a petition and a doing little homework, the truth is property owners can and should be their own advocates. You simply need to understand that arriving at an assessment isn’t an exact science. Trust me; this is a good thing.
Most taxing districts use mass-appraisal methodologies because departments typically don’t have sufficient time or money to inspect each property individually. Thus, they rely on things like aerial photos and Google Maps, which simply don’t give a full and accurate representation of a property's value. Now, let’s talk about how to combat this.
Paint an Ugly Picture
Property owners can influence their assessment value by pointing out contrary conditions during a hearing before a special magistrate. All the bad news about your facility can be converted into good news regarding your tax value. After all, as the owner, you’d better have thoroughly inspected your own property and clearly understand all the onsite issues.
Inform the magistrate about your property’s overall condition in detail. You can even come armed with letters of complaint from tenants and a laundry list of capital improvements that may need to be made. Remember, it’s in your interest to paint the darkest, thickest cloud over your facility to lower the assessment from what the government estimated.
Criticizing your property won’t be held against you during this hearing. If you have a roofing problem, for example, and it doesn’t get fixed during the calendar year, you can and should complain about it year after year. When it comes to tax assessment, owners are under no obligation to fix anything. The property stands by itself. The appraiser can’t say that because you were given a reduction the previous year, none should be warranted for the current year. Poor conditions that carry over from year to year should still negatively affect and reduce the assessment, regardless of who the owner is at any given time.
Rebut Arguments
The appraiser may attempt to refute your arguments at the petition hearing by pointing out the sale prices of comparable properties. Be prepared for this. Do your homework and look at your competitors’ websites, photos and glowing reviews. You should be able to come up with something to illustrate how your property is inferior to theirs.
Also, remember that your understanding of the self-storage business will probably be much better than that of the magistrate hearing your case. Explain why you believe your competitors’ properties are superior to yours to justify a lower dollar-per-square-foot assessment. The sky is the limit as to what you may want to bring up.
It’s important to understand that self-storage properties don’t have a sticker price when it comes to assessed value. Value can vary depending on condition of the premises, income generated and the overall performance of the market. As new facilities open, they create more competition. This could create more vacancies, which could translate into negative rent growth for you. When talking to the magistrate, explain how the overbuilt market is casting a shadow on your income potential.
Understand BEV
Your self-storage property also has a business economic value (BEV). The Appraisal of Real Estate defines this as a value enhancement resulting from intangibles, goodwill, franchise rights and other non-realty-related items. In self-storage, this could include the sale of tenant insurance, RV storage and truck rentals.
Although the BEV of a purchase may not be easy to estimate in any meaningful way, it’s still in your interest to provide your best estimate by extracting the value of the business component. Establishing even a small portion of the total value of your property as attributable to BEV can lower your ad valorem assessment.
Most taxing jurisdictions agree BEV shouldn’t be taxed as part of the real-property tax base. Instead, it’s an intangible personal-property component. Many investors purchase self-storage assets based on the overall income potential of the business rather than looking at it only as a real estate transaction. Therefore, for property-tax purposes, the BEV should be extracted.
Help With Your Case
Many are under the impression that a tax appeal is costly and time-consuming, and that you you’re likely to lose in the end. The truth is the exact opposite. You can get a lot of free help from others just by asking. Your real estate broker, banker and accountant should all be able to assemble the “negatives” you’ll need to prepare your case. Presenting letters from these professional sources will help make a compelling presentation. The odds are actually good that you’ll receive a big tax return for your efforts. They’re certainly better than any you’ll find in Las Vegas!
During the presidential campaign between Hillary Clinton and Trump, Clinton complained that Trump wasn’t paying all his taxes, to which he responded, “That makes me smart.” The fact is, the law still allows property owners to contest assessments, so why not take advantage of your right to do so?
According to the National Taxpayers Union, a nonpartisan citizens’ group, just 5 percent of property owners bother to file a petition to contest their assessments. Property owners who try it once are amazed at the big savings. Many continually appeal year after year. There is certainly a lot of money to be saved.
Brian Sharpe is president of the Miami Commercial, Miami Realtors Association in South Florida. He’s also the managing member of the Property Tax Appeal Group, which petitions property-tax assessments, and Sharpe Properties, which owns a portfolio of industrial and commercial real estate assets. To reach him, call 305.693.3500; e-mail brian@ptagflorida.com.
