The Quick Facts
- Cap rates on properties can be misleading without proper expense reports
- Many small to mid-sized multi-family buildings don’t have accurate expenses records
- By only looking at cap rates can cause you to lose out on potential good deals
- It is imperative to do your due diligence and analyze the expenses
- Pairing yourself with proper representation (commercial broker) can make a huge difference
- Learning standard expense multipliers can save you a lot of time and money
So, you’re looking to purchase your next multi-family building. You’ve selected a few perspective properties, gathered the financial reports, and are trying to decide which is the best investment. How do you know which one is the best deal? Many investors would run straight to comparing capitalization rates (AKA cap rates).
While this is a good start, I’d argue that you should be cautious when comparing cap rates. It is crucial never to take a cap rate at face value and always conduct proper due diligence and seek appropriate representation. Not only could you overpay for a property, but you could also miss out on some great deals. The answer to this dilemma lies in the expenses.
First, I will explain why cap rates can be inaccurate due to inaccurate expenses and then offer a more accurate and efficient alternative.
If you’re unfamiliar with cap rates, get caught up to speed by checking out my earlier blog post on cap rates.
To understand cap rates better, it is best to take a look at a crucial component, the net operating income (NOI).
To arrive at the net operating income, we must subtract gross operating income from operating expenses; but what if the operating expenses are misreported? That can have a drastic effect on the final calculation of a cap rate.
Most small to mid-sized apartments available on the market don’t have actual expense reports or profit and loss statements from the owners.
This could happen because the owner is:
- Hiding expenses
- Doing repairs themselves and not factoring in things like labor costs
- Miscategorizing capital expenses as maintenance expenses
- Keeping incomplete expense reports or in some cases, no reports at all.
Other times it can also be the broker’s fault because they don’t ask for the expense reports from the owner.
A failure to have actual expenses can lead to you, the potential buyer, to purchase an over-priced deal or worse, walk away from a great deal.
Here are some ways it can be inaccurate
I’d like to introduce Mr. Magoo, a carpenter, and the owner of a small apartment building that has recently been put on the market. He’s seen a couple of Martha Stewart shows and thinks he’s quite the handyman, so he decides to do all maintenance and repairs himself. He’s made some questionable decisions like when he mixed several leftover paint cans to paint the exterior of the building, or when he patched a leaky roof with plywood. He’s also read online about property management and decides he can manage the building himself.
By doing this, Mr. Magoo has been able to save thousands of dollars on labor and maintenance expenses. He’s able to avoid placing these line items on his expense report, which makes his NOI appear higher than it is.
So, one day you’re on LoopNet or Costar looking for commercial property and stumble upon his building and decide to give him a call. When you speak to Mr. Magoo, he tells you it is an excellent building with little expenses. He claims that maintenance and repairs only cost him 5% of total expenses, which is drastically different from another owner who may assign 25% of their total expenses towards maintenance and repairs.
After doing some math on the given expenses, let’s say you calculate the cap rate of his property to be 6%. You think this looks like a great deal and are considering making an offer.
This can pose a severe problem if you, the potential buyer, take his expenses at face value without conducting any due diligence.
If you were to look into the expenses on Mr. Magoo’s property, you would find his cap rate is inaccurate unless you plan to hire yourself to be the painter and the property manager. The reason his cap rate appears to be high is that he was not accounting for the labor or market costs of maintenance. Unless you’re making less money than a property manager or painter at your current job, you should hire professionals. You’re going to save more money by paying them to do these services, and a lender will always add these expenses to their underwriting criteria. Your job should be running the operations, finding more properties, or continuing your career that pays you more than painting or managing your property. So, in this scenario, the cap rate is useless because Mr. Magoo’s expenses do not represent what you, the new owner, would be paying.
Without digging into his expenses, you might end up paying far more for a property that doesn’t produce anywhere near the stated NOI.
Now I’d like to demonstrate how over-reporting maintenance expenses can drive you away from potential deals.
Let’s say you stumble upon a 6-unit apartment building that has everything you are looking for in a multi-family property. The only issue is that it has an alarmingly low cap rate of 3.5% and very high expenses. Many inexperienced investors or brokers may walk away from this deal without even digging into the expenses.
Upon further investigation, you discover the current owner has been overstating expenses because they don’t know how to accurately spread out repair costs over the life of the repair. When looking at the report, you see that there were two consecutive years of significant electrical upgrades that cost about $30,000 per year. This adds up to $60,000 in total expenses for new electrical that was meant to last 50 years. The owner should have spread out that $60,000 expenses over the life of the electrical rather than doing it up front. An experienced broker would be able to spot this and reallocate the expenses to the property area. After correcting the error, you will see that the cap rate will go up and expenses will go down.
As you can see, by the owner not understanding how to report expenses accurately, the property seems to be a bad deal. You may have walked away from a great opportunity had you not conducted a little due diligence.
Another way cap rates can be misreported is through property taxes. The property taxes for multi-family apartment buildings in San Diego is 1.2% of the purchase price of the building. Where many inexperienced brokers can make mistakes is by basing their cap rate calculation off the old property taxes which is not accurate of what the new owner will be paying. Here’s an example:
Let’s say you have a property that the current owner bought for $1,000,000 over ten years ago.
Currently, the owner would be paying $12,000 a year in property taxes. The property is then listed on the market for $2,000,000. Instead of calculating the new property taxes, which would be $24,000 per year, the broker decides to use the same $12,000 that the current owner is paying.
What results is that the expenses will be reported at less than what they actually will be. This has the unfavorable result of artificially increasing the cap rate. When the new owner acquires the property, they will not be receiving that same income as their property taxes will be based on the new purchase price.
Furthermore, this could cause you to pay more for the property than it’s worth. Take a look at the following spreadsheets.
The difference between the old and new property taxes comes out to be $12,000. If we value the $12,000 difference at 5% cap rate ($12,000/.05) we get a value of $240,000. Now, let’s say the property requires a 25% down payment. If you were to pay the original asking price of $2,000,000 assuming the old property taxes, your down payment would be $500,000 ($200,000 * .25). If, however, you took into consideration the reduced value given the updated property taxes, you would see the offer price comes down to $1,760,000 ($2,000,000 – 240,000). This makes your 25% down payment $440,000. That’s a $60,000 savings by accurately accounting the property taxes.
This is why it is crucial to pair yourself up with proper representation. An experienced commercial broker would realize this and account for it in the offer.
The pay between experienced commercial brokers and new ones is not far off, so why not pair up with one who is experienced?
So now that I’ve demonstrated some ways that cap rates can be inaccurate let’s look at a better alternative.
Standard Expense Multipliers
With properties that may not have accurate expense reports (especially small to mid-sized apartment buildings), I recommend that you use standard expense multipliers to learn the price per square foot. This puts you in a much better position to understand a properties performance and overall value. I have found the Institute of Real Estate Management (IREM) Apartment Expense Multiplier sheet to be extremely valuable when determining baseline expenses.
When used appropriately, this will allow you put a better estimate on what your actual expenses may look like on a price per square foot basis.
This will allow you to compare the owner’s expense report versus your estimate. Any significant discrepancies could be a red flag that requires further investigating. These calculations will save you a lot of time and potential money spent.
If you’re trying to look through 180 listings, you can’t underwrite every deal promptly. Instead, what you can do is quickly look at each deal and say, “okay, this is a $170,000 unit. It’s a 14 times GRM. If you put about a 40% expense on it, it is going to be in the 4% cap range”. Using this approach is going to make it much quicker for you to go down the line of properties. Also, sometimes you’re going to find very similar buildings. If you saw something that sold for a particular gross rate multiplier, that may be a better way to sort through properties quickly. It will become easier to make apples to apple comparisons because those rents that they listed are usually accurate as long as they’re not pro forma rents.
So, when do you use Cap Rates?
Well, the larger the property or, the more organized an owner is, the more likely it’s going to be accurate. Also, the more respectable and experienced the broker is, the more likely it’s going to be a precise number. If the pay difference between an experienced and new broker isn’t far off, why not pair yourself with an experienced broker?
Rarely, when you get down to it, will expenses be precisely what any owner says. The question becomes; how far off is it? So, my first piece of advice is to try to deal with people who are reputable and looking at the numbers. If everything you see in the market is at a 5% cap rate, and all of a sudden you find a property with a 7% cap rate – you should think to yourself, “that’s suspicious, why is it still on the market?”. Another example is if you see two comparable buildings with similar rents but drastically different cap rates; this could indicate something is off.
If you’re looking at larger properties or ones run by management companies, the numbers are more likely to be accurate because the owner is going to be able to print out a profit and loss statement. However, another problem arises.
What you could find is that the owner wants to write off as much money as they can on the property. Besides depreciation, they can achieve write-offs through two main ways.
- First is by doing maintenance and writing it off the in the year you did the work. This could be things like fixing your toilet or patching the roof.
- The second is capital improvements. Capital improvements typically have a long life but can range from one year to several years. A roof, for example, is a capital improvement because even though I paid $10,000 for it today, that write-off might be over the ten-year life of the roof. Because of this, I’m only able to write off $1000 per year against my income. Although this is the case, a seller may say, “no, that’s still maintenance, so I’m going to write off the entire $10,000 this year”, even though it’s very questionable if not outright fraudulent to do so – but it still happens more than you’d think. A good broker would be able to spot this right away and reallocate it to the proper area of the financial statement. This would change your overall NOI.
So, when working with cap rates where you get income/expense reports, it is imperative to take a look and identify which numbers are actual maintenance and which ones are capital improvements. You also need to see if they’re moving their maintenance into capital improvements. Sellers often do this so they can report more income in the year that they sell, which gives them a higher sale value. Doing your due diligence here can save you a lot of time and money.
Here’s a great example of a multi-family apartment building in San Diego that I bought a while back. The property had a very low cap rate, which typically means that it’s not producing a lot of income. Many investors would walk away right there without digging into the financials. However, after we got into the property, we realized the expenses were misallocated, and the CAP rate turned out to be higher than it was initially stated. We were able to turn a healthy profit on the building by not taking the CAP rate at face value right away.
The moral of the story is be careful when you rely on the CAP rates of small to mid-sized properties.
- Learn your expenses
- Learn the price per square foot
- Learn the market rents in the area so you can apply those metrics to buildings you are analyzing
- Take a look at who is listing the property. Is it somebody who has experience? Are they missing a lot of financial numbers?
- Do they have expenses listed out, or do they just give you a bottom line number?
- Do they have a marketing package? Are they seeming overly aggressive with what they’re proposing?
Sometimes the best deal you buy are the properties that were not marketed correctly. These can often be opportunities for you get a lower price if you conduct the necessary due diligence.
Please leave in the comments below any thoughts you have on cap rates and valuing a property or any stories you may have run into…
Curtis Gabhart, CCIM
Edited by: Blake Imperl
Disclaimer: I’d like to point out that none of the content in this article is absolute. It’s just food for thought and is based on my numerous years of experience dealing with commercial real estate.
These are just some things you may want to think about when analyzing commercial properties. It isn’t always advantageous to rely heavily on CAP rates when looking at properties where you don’t know their actual expenses. This post was designed to offer an alternative for when you’re looking at dozens of properties and trying to find the best deal available.
Looking for some more tips on buying multi-family properties? Click here to check out my multi-family inspection tips!
Want to get more return on your investment? Here’s a great article on how to increase your buildings’ property value fast by investing in a new paint job.
How to Value Commercial Real Estate 101 Slideshare – This crash course will take you through the basics of valuing commercial real estate. It has over 106,000 views so far!
You’re Invited to Learn About the New Tax Laws That Are Affecting Commercial Real Estate
Please join us for an informative live presentation with Dan Adams, Senior Vice President & Commercial Lending Manager at Wells Fargo. Dan will be taking us through the changes, how they affect commercial real estate, and also conducting a Q&A to answer any questions you may have. Come prepared and ready to learn how you can maximize your business, personal, and investment strategy.
Date: March 29th, 2018
Location: KW Commercial Del Mar/Carmel Valley
Seats are limited to 30! Sign up today to secure your spot!
Registration is free and we encourage donations to Autism Tree Project Foundation (ATPF).
The Autism Tree Project Foundation helps spread community awareness for autism. Their goal is to give children on the autism spectrum a voice and additionally aims to build community compassion towards the parents and families of these special children. ATPF helps thousands of families with autism create a roadmap for their child with autism and navigate a very complex system of care required for children with Autism Spectrum Disorder.
All monies donated to ATPF go straight to helping real families in our community through one of their 20 critical programs. These programs are on-going and provided to families at no charge, making the Autism Tree Project Foundation very unique. They are a grassroots foundation and have only 1 full-time employee on staff. They do not charge any of their families for ATPF programs.
Earlier this month we asked you for your top questions on the new tax law. Dan was generous enough to answer some. Here’s the top 5:
1. There are new rules for Sub S corp and LLC’s. Do they apply to real estate in single asset entities?
Yes, the new pass-through rules apply to single asset (real estate) entities. This means that the 20% deduction of pass-through net income applies to the rental real estate owned by a business, an individual, or a living trust.
2. Are there any changes in expensing acquisition costs that were capitalized in the old tax rules?
No, those rules remain exactly the same.
3. Are there changes in the Alt Min Tax rules for passive investors?
Yes, there are significant changes to the Alternative Minimum Tax (AMT). Generally speaking, the AMT has basically been eliminated. It would be extremely rare for an active or passive investor to be subject to the AMT anymore. I have read some comments that the IRS now expects the AMT to impact fewer than 1,000 individual taxpayers going forward.
4. Any changes in 1031 or installment sale rules?
Yes, we can now only exchange real property (not tangible personal property like improvements). That creates a difficulty for buildings which had a cost segregation study done, in that the short-life assets would be taxed as boot (taxable gain) in the exchange. Ideally, the replacement property would need to have a cost segregation study done immediately so that the additional depreciation from that could be used to offset the taxable gain from the exchange boot.
5. How are the taxes on each property affected as far as tax write-offs? It seems if they only allow a certain amount of taxes to be written off, it is going to affect the property prices?
The $10,000 state and local tax limit applies to state income taxes and property taxes paid on your primary, secondary, or investment properties only. There is no limit on business properties or rental properties that are owned by a corporation/LLC. There is a chance that owning a home is less lucrative now because of the tax limitations. This could artificially increase demand to rent a home instead of own it.
Click here to check out our tax article about the Tax Cuts and Jobs Act
Interview with Globest
In a recent article with Globest, Dan discussed some of the recent changes.
Below are a few highlights of the article, to view the full interview, click here
- Dan believes the new tax laws are positive for the industry by creating certainty.
- The tax policies ability to spur GDP growth is an indicator of the increase in the demand for office, industrial, warehouse, and other commercial property.
- The new tax law made numerous changes that will favorably affect commercial real estate as an asset class, including indirect changes such as reductions in tax rates.
- The law provides for a 20% reduction of business income for most pass-through entities.
- 1031 Exchanges are now only available with real estate.
- The increase in estate-tax exclusion to $11 million per person should be viewed as favorable since those are the assets that most often appreciate and are inherited by heirs.
- The demand for single and multi-family properties will go up as the tax advantage of owning a home has been significantly reduced.
- US-Based Manufacturing will increase, which could drive demand in that sector.
- Although it’s been said California was hit harder than other states, much has been exaggerated. The $500,000 capital-gain exclusion for sale of principal residence still exists.
- The new tax law isn’t a “one size fits all” situation. Brokers should consult their tax professional and figure out how to structure their business, their income, and their investments in a way that maximizes the advantages of the new tax law.
Daniel Adams – Senior Vice President, Business Banking Area Manager, Wells Fargo Bank – Dan leads a team that provides commercial real estate loans, treasury management, and credit lines to businesses in Southern California and Nevada. They provide loan structuring, underwriting and risk analysis for operating businesses and commercial real estate investors, and also offer working capital optimization technologies to help businesses operate more efficiently. Dan’s team originated over $300 million in loans in each of the past four years, including Small Business Administration, Healthcare Finance, Equipment Leasing/Purchases, and conventional lending products. Dan is a veteran U.S. Marine artillery officer with multiple deployments to the Middle East and Southwest Asia and also an adjunct Graduate Finance Professor at several local universities.
Wells Fargo’s Business Banking Group serves the needs of small- to mid-size privately held businesses throughout the country. They provide a proactive approach to a team of local Relationship Managers and others to provide customized service and rapid response to help our customers succeed financially.
Questions about the event? Contact us here
How My Views on Commercial Real Estate Are Changing
By: Blake Imperl
As I am approaching the end of my first month as an intern at Gabhart Investments, I’d like to reflect on what I’ve learned, and what has changed thus far.
What I’ve Been Doing
Over the past few weeks, I have been spending a lot of time reading the material Curtis has provided me on Property Valuation & Investment Analysis. Although it is mainly an overview of the subject, it has proved to be some highly valuable content. This material essentially picked up where I left off in my Real Estate Investment Analysis class that I took last semester at San Diego State. I have been brushing up on subjects like tax benefits, 1031 exchanges, expenses, leverage, returns, evaluating cash flow, and much more. I still have a great deal of learning to do on these subjects, but it is exciting to see how what I’ve learned in the classroom correlates to real world applications. It is my intention to continue to read up on these subjects and ask as many questions as I can.
I’ve also been observing how Curtis and his team assemble marketing packages for commercial properties they are listing. I was doing things similar to this at my last internship at Realty National, so I’ve enjoyed seeing how this translates in the commercial arena
Commercial Real Estate Blog Posts
Another task I have taken on is the editing of Curtis’s blog posts. My first edit was a post on property walkthroughs. One tremendous benefit of doing this has been the information I’m learning is sticking much deeper than if I just glanced over it. It’s proved to be a great learning tool for me and I’ve even taken on the task of researching some of the topics I was curious about. Writing has always been a passion of mine, so getting the opportunity to revise and write some stuff has been great. I’m excited that I will get to continue to edit blog posts during my time here.
This past week I had a great learning opportunity with Curtis to do a walkthrough of a 13-unit apartment building in Fallbrook. I was able to learn about some of the things you should be looking for in a property, both on the interior and exterior. This was a neat real life application after reading Curtis’s article on property walkthroughs. This is certainly the kind of stuff you’d never learn in a class room.
13-Unit Apartment Building In Fallbrook
La Jolla Multi-Family Building
Another property we looked at was a 5 unit multi-family building in La Jolla. This was a very intriguing property because it had great bones, was less than a block to the beach and offered several routes for renovation. When walking the property, we looked at things like the condition of the floors, the bathrooms, kitchens, balconies, electrical, etc… It was far from move-in-ready, however, at the right price this could prove to be a great deal.
Curtis and Abe inspecting the condition of the upstairs balcony
the interior of the detached studio
Co-Star Lunch & Learns
In addition to the property walkthrough, I’ve also attended two Co-Star lunch and learns with Curtis and his assistant Dianne. The one that stood out to me was on the housing forecast over the next few years in San Diego County. I enjoyed this meeting because this is a real problem we will be tasked with fixing over the next decade. This past semester in my investment analysis class I did a great deal of research on this subject, so it was neat to hear the industry take on the issue.
Lastly, I have very much enjoyed the opportunity to pick Curtis’s brain. He’s always offering me valuable tips and knowledge about real estate and just life in general. Whether it be tips on client relations, listing properties, or even just financial management, I’ve been trying to act like a sponge of knowledge. He’s always honest about things and I respect that.
My views on real estate are growing stronger than ever and I’m excited all the learning opportunities that lie ahead. I am finding that the San Diego Commercial Real Estate Market contains more possibilities than I ever could have expected. Stay posted for my final update in August!
In a bit,
Intern, Gabhart Investments
I received this email a few days ago from the 1031 exchange company I like. The article below describes some situations where people tried to do a 1031 exchange and turn it into there personal residence incorrectly and because of that not only had to pay the taxes but penalties in addition.
Doing it correctly can be a powerful way of getting some of your money out of your properties tax free but not without risk or planning. If memory serves me right (consult with these guys for professional advice) the property needs to be rented for 3 years before you move in. In addition there are other requirements involved and maybe Vince and Ryan can shed some light on those requirements.
Let’s just play this out and say you got all your ducks in a row you could potentially exchange into a single family home you wouldn’t mind living in, rent it out for the appropriate amount of time and get $250,000 if you are single and $500,000 tax free if you are married by moving in for 2Â years in a 5 year period.
I know quite a few people who have done this successfully and moved into there dream retirement home in San Diego using this method. Consider looking into it if you have an apartment building or other piece of real estate you would like to sell but don’t want to pay the taxes.
**BREAKING 1031 EXCHANGE NEWS!!!**
Goolsby v. Commissioner (April 1, 2010); T.C. Memo. 2010-64
How Soon After a Taxpayer acquires property through a 1031 exchange can the Taxpayer treat the property as a personal residence?
The Tax Court recently held that property acquired by taxpayers in a Section 1031 exchange did not qualify as replacement property when the taxpayers moved into the property two months after acquiring it.Â Taxpayers were also held liable for the accuracy-related penalty.
In October 2002 taxpayers signed a purchase agreement to acquire a single family property in Georgia (the Pebble Beach property). The purchase agreement was contingent upon sale of taxpayersâ€™ personal residence in California. In February 2003 taxpayers sold their principal residence in California and began living with their in-laws in Georgia. In March 2003 taxpayers sold rental property located in California and used a QI to structure an exchange. Taxpayers purchased the Pebble Beach property as replacement property.
The court ruled that taxpayers did not intend to hold the Pebble Beach property for productive use in a trade or business or for investment at the time of exchange, and therefore it was not valid replacement property. The court first noted that taxpayers moved into the Pebble Beach property two months after acquiring it. Further, they did not move into it temporarily until renters could be found. Their efforts to rent the Pebble Beach property were minimal. They merely placed an advertisement in a neighborhood newspaper for a few months, and no further efforts were made to gain more exposure for the Pebble Beach property. Moreover, taxpayers began preparations to finish the basement of the Pebble Beach property, having a builder obtain permits for construction, within two weeks of purchase.
The court surmised that taxpayers were contemplating use of the Pebble Beach property as a personal residence before the exchange. It noted that taxpayers made purchase of the Pebble Beach property contingent upon sale of their personal residence in California. They sought advice from the QI regarding whether they could move into the property if renters could not be found.Â Â Taxpayers did not research whether covenants of the homeowners association would allow for rental of the Pebble Beach property before the exchange. They also did not research rental opportunities in the area prior to the exchange.
Taxpayers contended that purchase of the Pebble Beach property was not extravagant when compared to costs of California properties. The court responded that the relative values of properties were irrelevant. Taxpayers also argued, as evidence of their intent not to reside at the Pebble Beach property that they lived with their in-laws upon their move to Georgia.Â The court dismissed this argument as non-persuasive.
The court also found the taxpayers liable for the accuracy related penalty due to a substantial understatement of tax.Â Taxpayers failed to present any evidence that they acted with reasonable cause and in good faith.Â The taxpayers did not use counsel and represented themselves.
This case highlights that taxpayers should not be too quick to move into property acquired in an exchange. They should make substantial efforts to rent the property and avoid evidence of intent to use it as a residence.Â Â The taxpayers asked the QI if they could move into the property if renters could not be found.Â You probably get this or similar questions from clients frequently.Â Be careful with your answers and let the client know about the fate of the Goolsbys.
If you have ANY 1031 Exchange inquiries, or questions relating to the above article, please contact our offices.Â Pacific Capital Exchange looks forward to meeting ALL YOUR 1031 EXCHANGE NEEDS!Â Call us today at 1-888-398-1031 or visit our website at www.pcx1031.com.
Visit our Website:
Ryan S. Auer, CES
Executive Vice President
Chief Operating Officer
Pacific Capital Exchange Services
(619) 246-7478Â Cell
(888) 398-1031 Toll Free
(619) 923 2524 eFax
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You regularly pay your property taxes but you are not completely sure about how they work. In this article we answer some of the common questions most folk have regarding property taxes in San Diego County.
First off many people are finding that their property valuation is higher than earlier while on the other hand the real estate market is pretty much in the doldrums. This is possible because your property valuation is done vis a vis the value of your property when you bought it. Therefore if the current value of your property is higher than when you bought it, your property is likely to be eligible for an increase in assessment.
Another reason your taxes may be increasing is because the tax is not pegged to your property but to the consumer price index. The consumer price index is a metric which measures the overall change in the cost of living. The good news is that the increase of taxes is capped at 2%. The bad news is that there have only been three years when the increase of the consumer price index has been less than 2%.
People are commonly finding that currently the property assessment shows a value than what may be greater than the current property value. This may be the case but it doesnâ€™t necessarily mean that you will automatically be eligible for an appeal. You will have to ensure that the value of your property as on the first day of the calendar year i.e. 1st January is what is being used for assessment purposes, and not any period thereafter.
If you still find that you are eligible for an appeal you have till 30th November to do so. In case you do appeal keep in mind that due to the current market scenario, there are more than 40,000 appeals filed this year which is 10 times the normal number of appeals made in any year. However, there is a two year time limit for a decision on your appeal.
You may also find that you had appealed your property tax assessment and won the appeal but are still being taxed on the old amount. This is most probably the case if you had appealed after July 1st. This is happening because it takes time for the system to be updated and it is best if you just pay on the basis of the old amount and you will be paid a refund in the first part of next quarter.
Before we get further into appeals you should know that the real deadline for payment of your property taxes is Dec 10th. Any delay after that and you straight away face a fine of $10 and 10% for every quarter that you are late. That doesnâ€™t mean if you rush to pay your tax bill in end December you save on the penalty; you will still be fined the full 10% plus $10. After a delay of 2 such quarters (i.e. July 1st) you will be fined 1.5% of the unpaid tax amount per month.
In case you are looking for a payment plan we are sorry to tell you that there is none. In every circumstance you must pay your first installment by December 10th and your second installment by July 10th. The only people who are waived from these deadlines are active-duty members of the military who are serving abroad.
So if you do find that you are eligible for an appeal then you can do so by December 1st at 1600 Pacific Highway, Room 402 in San Diego. Alternatively you can make an informal appeal between March 1st and May 30th by filing a written request. The result of this informal request can not be appealed but it must be reviewed by July 1st which is that start of the next fiscal year.
In order to support your appeal you should have comparable property sales data of your area. Alternatively, you can have completed a recent appraisal. The comparable property sales data should be from November of the last year to March of the current year. Such data can be acquired from your real estate agent, websites or the county assessorâ€™s website.
You should know that most of the time even if the original appeal is rejected, a compromise is sought with the property owner. You can also file fresh appeals every year as long as your property value continues to fall.
Finally, you should know that there are plenty of companies that offer to file your appeal for a fee. Itâ€™s best to actually do this process yourself as it is not complicated and there are a lot of scams like this in the market.
For the most updated information & news on real estate & Gabhart Investments go to our facebook & twitter pages