One Thing Good About Bad Market
Problem with real estate investment is that it drains your cash regularly as in maintenance expenses, property management fees, mortgage interest, insurance and a property tax. Property tax is usually one of the big ticket items.
Game strategies
A few things I picked up from my favorite video game “Build-a-lot”, a real estate investment simulation, include the importance of positive cash flow. Cash gives you liquidity and strategic position to acquire assets, assets have sustainable value and help generate more cash flow, and so on.
Cash flow is the driver of the wealth accumulation cycle. It goes without saying that you need to control the expenses associated with investments. However, property tax happens to be something we have little say in it.
Interestingly, in my game, you can come to a town where local government has passed legislation that allow certain business entity to own real estate and pay no property tax. All you need to do is to form a company to hold your real estate assets.
Real world strategies
In the real world, people do use LLC or S-corporation to hold their real estates, but strictly as a strategy to shield liabilities and separate investments. As far as property tax is concerned, Californian voted in 1978 to cap the property tax to 1% of assessed value. This is the famous Proposition 13, which is awesome.
Well, the only thing the governments still control is the assessed value of the property. In good time, when the real estate market is booming, property owners will get a big bite in property tax because the high assessed value, which is supposed to be linked to market value.
Now comes the good
We are now in a depressed market. Your guess is right – it a time for a comeback. We should demand a handsome reduction in property tax. Your county tax assessor office do not automatically re-assess your property unless it is a change of ownership like in a sale, so you have to take the first step. (Need an analysis with numbers? Read on here.)
To do that is very straightforward. No, no, don’t go protest in front of the county office. Just give a call to the assessor office to get the a simple application form. The important thing is to support your claim for lower property value with latest sales of similar properties in your area.
Comparable sales
In the pre-internet days, you have to get a real estate agent or a friend works for title company to help you get some comparable sales data. Now you can obtain such data easily from websites.
Resources:
www.eppraisal.com
www.redfin.com
www.zillow.com
I am sure you can find a lot of actual closings with lower selling prices these days. The application should be a smooth sailing, and your county office will issue you the credit or reduced tax bills. Be careful, each county has different window of time for such application, it is normally around September through November. That is it, you should celebrate on this new found cash inflow, or technically, reduced cash outflow.
Last tip
While we are on this, one more thing to tell you. There is a deduction of $7,000 from the “accessed value” if you live in that property, make sure you have it if qualified because this is very often missed by many home owners.
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