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Why You Need a Property Tax Estimate Before Finalizing an Acquisition

Finding a new asset that will truly complement your growing portfolio is always exciting to think about. You have done your homework, forecasted out income and expenses, and the IRR on this deal looks great . . .  or does it?

Gone are the days of increasing the property tax line-item expense by 2-3 percent per year. Gone are the days of trusting the property tax projection in the offering memorandum (the broker is trying to sell the property after all). One sure fire way to put a big dent in that double-digit IRR projection is to underestimate your deal’s future property tax expense. If you have seen a deal sour quickly due to unexpected property tax exposure, this should resonate.

While there are many considerations that need to be addressed prior to an acquisition, accurately forecasting your largest line-item deal expense – property taxes – is of extreme importance. Having an experienced property tax professional embedded into your due diligence process is not just good practice, it is good business.

It is crucial that a provider has expertise in the local marketplace, as there are several factors that need to be considered to get the most accurate estimate, such as:

  • The local assessor’s approach to valuation in their jurisdiction
  • Whether the sales price will affect market value or not
  • The specific reassessment cycle and appeal procedures on a jurisdictional and state level
  • Historical tax rates and local market trends
  • If there are any opportunities for assessment reductions, tax incentives, and/or abatements

A quality pre-acquisition property tax estimate will provide a four-to-five year detailed forecast with salient facts, detailed tax calculation, equalization factors, and explanation of variables and assumptions. Both an equity analysis and a sales price assessment analysis should be performed.

An analysis with ample detail and supporting documentation can be used for underwriting, preparation of pro forma analyses, and provide a solid basis for post-acquisition property tax accruals.  An experienced tax consultant will be able to provide a property tax analysis for all acquisition, disposition, development and redevelopment activity.

With proper due diligence, you can protect your deal’s IRR and avoid being blindsided by unexpected property tax exposure. If you are considering an acquisition and would like more information about Paradigm’s robust tax estimate platform, please don’t hesitate to contact me.

Hunter_Color

Nick Hunter
National Director, Commercial Property & Strategic Accounts

(312) 493-3691
nickhunter@paradigmtax.com

 

Topics: Real PropertyParadigm Info

As you are aware, we are all facing an unprecedented health event involving COVID-19. We here at Paradigm Tax Group consider the safety of our employees, as well as our clients, our top priority. We want you to know that during this major event, we are still open for business and ready to serve the property tax needs of all of our clients and will do so with the health and safety of everyone concerned at the top of our minds. READ MORE…

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  • Paradigm Tax Group does not service single-family residential properties at this time. We apologize for any inconvenience.