Real Estate Articles » Taxes

Consider The Taxes When Evaluating Operating Expenses

By: Robert McComb
Submitted: 10:45AM on Friday 22 August 2008

Real estate taxes are an important operating expense to consider when evaluating the cost and potential of any property. When making economic projections of an asset, you need to know the rules of the property tax game in your market.

When reviewing a financial analysis on a property offered for sale, it’s not uncommon to find that the current taxes have been left in as if they are the correct expense for the new buyer, when it is actually certain that they will change. I suggest you contact a local title company in your market or go to the county assessor’s office to find out the real story about what happens with property taxes in your market area when the title to a property transfers hands. Many properties are re-assessed upon sale. If this is the case in your area, you need to know how that will occur. If the new taxes are based on the sale price, as in many areas, you need to call the county assessor or a title company to find out what rate will be applied to the sale price in order to calculate a new set of “post-sale” real estate taxes that you can include in your financial analysis.

In addition, there may well be other taxes or assessments that affect the bottom line that do not appear in the financial analysis. For example, some areas levy taxes on personal property such as furniture in furnished units or appliances such as refrigerators, stoves, and laundry equipment that are not considered fixtures. Some cities and counties charge a transfer tax when the property is sold; in some areas this can be quite high, equaling 1/2 percent of the purchase price or more. You must make sure you know about any such assessments before investing or making an offer on any property.