All “buy and hold” real estate follows the same, simple
equation:
rent collected – expenses
= profit (or loss)
Lowering expenses increases profit, and investor/owners like you
work hard to tame expenses. You can insulate and install energy efficient
lighting and timer thermostats to lower your utility costs. You can refinance
your mortgage to lower your monthly payment. But what about your property
taxes?
Nothing
certain but death and taxes?
Does the old saying still ring true? The answer is “yes and no.”
You will always have to pay your property taxes, but you don’t have to pay what
the government is currently charging you.
So how do we lower
property taxes? We lower your assessment by proving that the FMV has dropped on
your property and thus the assessment should drop correspondingly. Your
property taxes are a function of the “fair market value” (FMV) of your
property. The county uses a factor called the “Common Level Ratio” in
combination with the property’s FMV to arrive at your “assessed value” (AV).
Your property taxes are calculated by multiplying the AV by the total tax rate
(or “millage”) for your property’s locale.
Here’s
a real life example of a someone I helped:
My client owns 47 properties in Darby Borough, Darby Township
and Upper Darby Township. Through property tax appeals, he was able to save
over $40,000 per year in excess real estate taxes. That’s over $400,000 over a
10 year period, and $40k going into his pocket every year instead of the tax
man’s! He looked at me and said, “You just saved me two college educations over
the next 10 years.”
They
think it’s their money.
If you’re thinking to yourself, “The school district, the
municipality and the County must hate when people do this?” you are correct.
The solicitors (read: “lawyers”) for these entities will fight you tooth and
nail to keep what they think is their rightful claim to your money. It’s my
opinion that it’s not their money, it’s yours. You are the one who took the
risk to purchase and rehab your rental property, and you are the one who took
the hit when the value of the property dropped; why shouldn’t you get a break
from your real estate taxes when the law says you’re entitled to one?
Your real estate taxes
represent one of your biggest expenses. It is possible to lower your real estate
taxes through the appeal process, and an experienced attorney will help you
maximize the savings.
As a landlord or a property manager, move-in process can be a
little tricky at times. Sometimes unique circumstances create a move-in that
strays from the usual, but that may cause certain difficulties at the end of
the lease. No matter how friendly your new tenants seem, it’s always safer to
follow regulations at the beginning of each and every lease. This way, you can
avoid any surprise issues at move-out. The best way to protect yourself as well
as your tenants is to use a move-in checklist.
Use
Checklists
Before tenants move in, it is standard to take them on a move-in
inspection so that both of you are able to check out the amenities and quality
of the unit together. We’ve found it useful to create a list for your client,
so that you both can agree on which items do or not have previous damage. In
some cases, it’s useful to have your tenant individually rate the quality of
blinds, countertops, window locks, etc. It may seem redundant, but you’ll
definitely be happy you have a form of documentation should any disagreement
occur toward the end of the lease. Clients also seem to take comfort in having
that written document.
Have your tenants return the inspection list with the rest of
their lease paperwork. That way, the inspection is officially documented at the
time of move-in. In your lease paperwork, you’ll also want to clear up any
policies that typically cause disagreements between landlords and tenants. This
may include:
- Pet and pet fee policies
- Forms of payment accepted
- Putting gas and electric bills in their name
- Getting mail
- Renter’s insurance
Include these policies and procedures in the form of a
checklist, so that you can get clear, visual confirmation that your tenant
understands them. Listing them in addition to the lease agreement ensures that
your client will read them rather initialing and skipping them over.
Documentation
is Key
Putting in this extra time will save you many headaches further
down the road. Even the best tenant screening strategy will not stop anyone
from taking advantage of a lack of documentation. The checklist is a great way
to put everything on the table in a friendly, open manner.
