Accounting for property management fees in appraisal district's cap rate calculation
Member since 2026 · 4 posts · 2 votes
Accounting for property management fees in appraisal district's cap rate calculation
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Realtor · Hanover Twp, PA · Member since 2018 · 3k+ posts · 3k+ votes
8mo@Daniel Smith, a few thoughts:
1. Where is this? This is the first I ever heard of residential 1-4 unit properties being valued primarily based on income even for assessment purposes.
2. Did you see what their values were before you provided them information. In most places, you are NOT required to provide the assessor access or data for assessment purposes.
So, for example, your rents might be HIGHER than they estimate. If so, you would be better off NOT giving them any information because your true rents would raise your value.
3. When you are filling out rent from the worksheet, what are you using? I hope not (monthly rent * 12)?!? You don't collect 100% of rent in the long term with vacancy. I would either use data from several years to calculate the number of months collected or find a standard % to use.
4. Where are you getting your numbers for cap ex and maintenance?? These numbers can be wildly inconsistent. You might have no cap ex in 2025 but in 2026 you might have a huge cap ex hit!
Do you use a long term average? Do you get to redo these numbers every year so that when you get a huge cap ex his in 2026 your 2027 taxes will be greatly reduced?
11 Replies
- Realtor · Hanover Twp, PA · Member since 2018 · 3k+ posts · 3k+ votes8mo
@Daniel Smith, a few thoughts:
1. Where is this? This is the first I ever heard of residential 1-4 unit properties being valued primarily based on income even for assessment purposes.
2. Did you see what their values were before you provided them information. In most places, you are NOT required to provide the assessor access or data for assessment purposes.
So, for example, your rents might be HIGHER than they estimate. If so, you would be better off NOT giving them any information because your true rents would raise your value.
3. When you are filling out rent from the worksheet, what are you using? I hope not (monthly rent * 12)?!? You don't collect 100% of rent in the long term with vacancy. I would either use data from several years to calculate the number of months collected or find a standard % to use.
4. Where are you getting your numbers for cap ex and maintenance?? These numbers can be wildly inconsistent. You might have no cap ex in 2025 but in 2026 you might have a huge cap ex hit!
Do you use a long term average? Do you get to redo these numbers every year so that when you get a huge cap ex his in 2026 your 2027 taxes will be greatly reduced?
- Member since 2026 · 4 posts · 2 votes8mo
1. This is in New Braunfels, TX (Comal Appraisal District). Property appraisals have been skyrocketing here and this seems like a new tactic to justify the increases.
2. Yes, we did see what their values were. We were asked for that information by the Appraisal Review Board (ARB) at our protest hearing, but we didn't have it prepared. We actually did some research on cap rates in the area and found many comparables with much higher cap rates. We presented this information to the ARB, but they didn't seem to take it into consideration. In all of our past protests, we've used comparables to good effect.
The next time we go in to protest, we were going to see if we could provide the information on their "Income Calculation Worksheet" in a way that reflects reality.
3 & 4. Good point. I plan on being a lot more careful with recording the time I spend on maintenance and including that info in the expenses. They don't actually state if it's supposed to be for that year or an average, but it makes more sense to provide an average.
What an interesting and also stupid way to calculate property taxes. Is it based only on rent actually collected? (Do you pay zero property tax during vacancies and if tenants don’t pay?) if you rent it out to a parent for $100/months do you pay virtually no property taxes?
Your initial question about being able to include management costs make it seems like, ann even worse idea. Are you saying it’s based on net income after all expenses? If so, do they write you a check when you show negative income?I can imagine flippers flocking to the market. They’d pay zero or negative taxes, if that a thing while’s it’s empty and they do rehab. Then they can rent it out without property taxes because of all the expenses if they weren’t allowed negative property taxes before.
- Real Estate Agent · Memphis · Member since 2026 · 608 posts · 354 votes8mo
Good question — this comes up fairly often with owner-managed properties.
Even if you self-manage and don’t actually pay a management fee, many appraisal districts still expect a “market management expense” to be included in the income approach. The idea is that the valuation should reflect how a typical investor would operate the property, not just your personal structure.
In practice, some owners enter a reasonable market management percentage (often in the 6–10% range depending on the area) to reflect what it would cost if the property were professionally managed. That can make the NOI calculation more realistic.
If you’re leaving management at zero, the model assumes the property operates with no management expense, which can skew the cap rate and valuation.
It’s usually worth checking the district’s guidelines or speaking with them directly — many will allow a standard market management expense even if the owner self-manages, since the goal is to reflect typical operating costs rather than tax structure.
- Member since 2026 · 4 posts · 2 votes8mo
@Bill B. Good points. I'm sure they'd switch to another appraisal method if the calculations didn't work out in their favor.
@Jim Johnson I'll check with the appraisal district to see if they will allow that. Thanks!
- Rental Property Investor · New Braunfels, TX · Member since 2021 · 290 posts · 257 votes8moWe own a duplex here in New Braunfels as well and I don't give the county any information whatsoever about any of my rental properties. They do send a request form when you buy a new property asking how much you paid etc but it isn't required and I never fill it out and send it back.
Quote from @Daniel Smith:
I own an LLC that holds title to a duplex which my wife and I manage ourselves. Our tax appraisal district started using a new method for assessing our property value last year. They use an "Income Calculation Worksheet" with a bunch of different parameters used to calculate the "Overall Cap Rate" which determines how much we pay in property taxes.
One of these parameters is "Management". If we had our own management company and paid ourselves for management, I would be able to enter the amount that we paid for management. I don't want to do that because we'd have to pay Self Employment taxes on that income, so our Management value is 0.
We're doing the work to manage the property, but I'm not sure how to account for that. The appraisal district is overestimating the property's cap rate.
What do other people do in this situation?
In 2023 they raised the valuation of our duplex to $450,000 when I had comps from my realtor on all duplexes sold in New Braunfels that year that showed that $390,000 was the right number. I went to the review board to protest and even though I had the data to prove my valuation 2 of the 3 board members acted like kings and shook their head no, we believe it should be $450,000. The 3rd member did agree with me so they ended up lowering it to $431,000 which was still $41,000 too high. There was nothing said about income calculation in my review board meeting so this must be new.
I hired Ownwell to protest in 2024 and 2025 and they got the valuation dropped to $418,000 in 2024 and down to $404,000 in 2025.
There is another company in town now that specializes in protests. He used to work for the Guadalupe county tax office. Property taxes suck is his website. I used him for two of my river properties in Guadalupe county last year and was very happy with the results.
I ended up getting a total of $503,897 lowered in valuations in 2025 using these two companies on 17 properties. I highly recommend using them. They don't charge up front, you just pay 25% of what they save you. I was very happy to pay them $4,000 to save me $12,000 and I didn't have to do anything.
Another interesting fact is 80% of the people in Comal and Guadalupe county don't protest their taxes. Crazy! - 8moDrew SygitBusiness MemberProperty Manager · Royal Oak, MI · Member since 2012 · 13k+ posts · 9k+ votes
Check your state and local assessing laws.
A few cities in Metro Detroit tried to use this method over 20 years ago. We were able to show that the statutes didn't allow it. Of course the arrogant/desperate board members ruled otherwise, but Michigan has a State Tax Appeal tribunal we appealed to and won.
Logical Property Management4.9469 Reviews Fannie/freddie and other lenders value duplexes on comps. Valuing them on NOI goes against federal guidelines. When you go to sell, the property will be valued based on comps just as it was when you purchased the property. Valuing a duplex on NOI is simply incorrect. They might as well state they pick a value at random because it would be no less correct than basing a duplex value on NOI.
How can they justify a valuation that is contrary to federal guidelines, not consistent with the purchase price or consistent with the value the property can be sold for?
I question if you can get a class action suite on this arbitrary valuation.
good luck- Member since 2026 · 4 posts · 2 votes7mo
@Mike Kirby It's really interesting to hear from someone in a similar situation here in New Braunfels. Your experience with the ARB "kings" sounds a lot like what happened in our most recent protest hearing.
The evidence that Comal Appraisal District provided to us contained a table of results from real-estate analytics websites containing five columns: Source, Website, Area, Quarter, and Cap Rate. Four of the 13 rows showed the national cap rate and 9 rows showed the cap rate of various investment properties (without addresses) in New Braunfels. All of the data on New Braunfels properties came from Mashvisor, which uses AI to generate their estimates.We were confused as to how they could provide the cap rate estimates as evidence without showing which properties they were referring to nor any of the data used to calculate the estimate.
They also provided a HUGE Equity Comparison table, containing the current year's unprotested valuations for half of New Braunfels, which they apparently used to get the value for "GBA Price per Sq Ft" for the "Income Calculation Worksheet".
So their "Indicated Value" was based on an inflated "GBA Price per Sq Ft" value and zeroed-out "Vacancy", "Management", and "Collection Loss" values.
During the protest hearing the appraiser went through some of the data, but he constantly found and (supposedly) fixed many mistakes on-the-fly during the hearing. He didn't even mention the Equity Comparison table. Overall, we thought they presented a very weak case and we were genuinely surprised by the outcome.
I was curious about the ARB appointment process and found the relevant section in the tax code.
So the ARB is hired by an "appointing authority", which, in Comal County is the Comal Appraisal District Board of Directors. I'm not sure how this isn't a conflict of interest. It could explain why we're seeing apparent collusion between the ARB and Comal Appraisal District. It wouldn't be their first scandal in recent years.
There is an appeals process, but I don't think it would be cost-effective for a small-time landlord.@Drew Sygit @Dan H. Unfortunately, our tax code allows the income method of appraisal.
Quote from @Daniel Smith:
@Mike Kirby It's really interesting to hear from someone in a similar situation here in New Braunfels. Your experience with the ARB "kings" sounds a lot like what happened in our most recent protest hearing.
The evidence that Comal Appraisal District provided to us contained a table of results from real-estate analytics websites containing five columns: Source, Website, Area, Quarter, and Cap Rate. Four of the 13 rows showed the national cap rate and 9 rows showed the cap rate of various investment properties (without addresses) in New Braunfels. All of the data on New Braunfels properties came from Mashvisor, which uses AI to generate their estimates.We were confused as to how they could provide the cap rate estimates as evidence without showing which properties they were referring to nor any of the data used to calculate the estimate.
They also provided a HUGE Equity Comparison table, containing the current year's unprotested valuations for half of New Braunfels, which they apparently used to get the value for "GBA Price per Sq Ft" for the "Income Calculation Worksheet".
So their "Indicated Value" was based on an inflated "GBA Price per Sq Ft" value and zeroed-out "Vacancy", "Management", and "Collection Loss" values.
During the protest hearing the appraiser went through some of the data, but he constantly found and (supposedly) fixed many mistakes on-the-fly during the hearing. He didn't even mention the Equity Comparison table. Overall, we thought they presented a very weak case and we were genuinely surprised by the outcome.
I was curious about the ARB appointment process and found the relevant section in the tax code.
So the ARB is hired by an "appointing authority", which, in Comal County is the Comal Appraisal District Board of Directors. I'm not sure how this isn't a conflict of interest. It could explain why we're seeing apparent collusion between the ARB and Comal Appraisal District. It wouldn't be their first scandal in recent years.
There is an appeals process, but I don't think it would be cost-effective for a small-time landlord.@Drew Sygit @Dan H. Unfortunately, our tax code allows the income method of appraisal.
I clicked on the link: “If the income method of appraisal is the most appropriate method to use to determine the market value of real property …”
The income approach is not the most appropriate method to determine the market value if a duplex. Fannie/freddie do not accept it, certified appraisers cannot use it because conventional lenders will not accept it on a duplex (will not accept it on less than 5 units).
I had an appraisal a few years ago. Comp value that the appraiser used valued the property at $1.45m (I think it was close but a little low). He included an income approach for informational purposes only. The property had $160k/year rent where typical monthly rents are barely above 0.5%. His income approach indicated it had income that compared with properties of $2.8m. I could get a loan on the $1.45m estimate. If I went to sell it the value would be based on comps.
The very first line that indicates they can use an income approach is NOT valid. You are being taxed at a rate that is only loosely related to its actual value and will not be achievable at selling
I also question their cap rate. Their cap rate should come from recently sold duplexes only. also how did they obtain NOi? If they are going to use income approach they must do in correctly by obtaining actual noi that would include PM, Vacancy, insurance, tax, etc and by determining the cap rate on similar properties (in this case duplexes in the area of you duplex ideally with similar BR and bathroom count. If they applied this technique properly, it would still be wrong, but should not be drastically off if you are managing efficiently.
If you sued, this would seem like an easy win. Go you have a large RE association there. Maybe a national one like AOA, except AOA is mostly over 5 units (where NOI and cap rate valuations are correct).
Few things irk me as much as people in power who abuse that power. It happens all the time. My city in recent times is famous for it and the courts recently passed judgement on something with a rationale that is shocking (basically because the council kept something secret that was not allowed long enough that reversing it is difficult the courts are allowing it to continue to paraphrase the verdict).
At this moment I am deciding if I want to escalate a battle with some a-hole state rangers. I have already decided at a minimum I plan to piss them off further.
The valuation is not right in any way. It would not be recognized by anyone. It only has a loose relationship to the value of your property. This means you will be taxed at one value but when you sell it you will receive substantially less. I know I would be going to RE meet ups, have my VA send post cards to other small MF owners, etc to obtain others to join me in fighting this. I would do this in part because few things irk me more so I would get pleasure from the fight (I also usually win - 2 legal wins in the past 1.5 year but one I have yet to collect (asset hearing has been scheduled)). 3+ years in legal battle with the city of San Diego that I only contributed $5k of what I last heard was $160k of collected fees toward the legal battle (I suspect it currently is near $200k). The city has a lot to lose but their process was arbitrary and wrong. By the way I am no longer impacted, except for possibly collecting for some damages (very unlikely there will be damages).
Good luck
Quote from @Dan H.:
Quote from @Daniel Smith:
@Mike Kirby It's really interesting to hear from someone in a similar situation here in New Braunfels. Your experience with the ARB "kings" sounds a lot like what happened in our most recent protest hearing.
The evidence that Comal Appraisal District provided to us contained a table of results from real-estate analytics websites containing five columns: Source, Website, Area, Quarter, and Cap Rate. Four of the 13 rows showed the national cap rate and 9 rows showed the cap rate of various investment properties (without addresses) in New Braunfels. All of the data on New Braunfels properties came from Mashvisor, which uses AI to generate their estimates.We were confused as to how they could provide the cap rate estimates as evidence without showing which properties they were referring to nor any of the data used to calculate the estimate.
They also provided a HUGE Equity Comparison table, containing the current year's unprotested valuations for half of New Braunfels, which they apparently used to get the value for "GBA Price per Sq Ft" for the "Income Calculation Worksheet".
So their "Indicated Value" was based on an inflated "GBA Price per Sq Ft" value and zeroed-out "Vacancy", "Management", and "Collection Loss" values.
During the protest hearing the appraiser went through some of the data, but he constantly found and (supposedly) fixed many mistakes on-the-fly during the hearing. He didn't even mention the Equity Comparison table. Overall, we thought they presented a very weak case and we were genuinely surprised by the outcome.
I was curious about the ARB appointment process and found the relevant section in the tax code.
So the ARB is hired by an "appointing authority", which, in Comal County is the Comal Appraisal District Board of Directors. I'm not sure how this isn't a conflict of interest. It could explain why we're seeing apparent collusion between the ARB and Comal Appraisal District. It wouldn't be their first scandal in recent years.
There is an appeals process, but I don't think it would be cost-effective for a small-time landlord.@Drew Sygit @Dan H. Unfortunately, our tax code allows the income method of appraisal.
I clicked on the link: “If the income method of appraisal is the most appropriate method to use to determine the market value of real property …”
The income approach is not the most appropriate method to determine the market value if a duplex. Fannie/freddie do not accept it, certified appraisers cannot use it because conventional lenders will not accept it on a duplex (will not accept it on less than 5 units).
I had an appraisal a few years ago. Comp value that the appraiser used valued the property at $1.45m (I think it was close but a little low). He included an income approach for informational purposes only. The property had $160k/year rent where typical monthly rents are barely above 0.5%. His income approach indicated it had income that compared with properties of $2.8m. I could get a loan on the $1.45m estimate. If I went to sell it the value would be based on comps.
The very first line that indicates they can use an income approach is NOT valid. You are being taxed at a rate that is only loosely related to its actual value and will not be achievable at selling
I also question their cap rate. Their cap rate should come from recently sold duplexes only. also how did they obtain NOi? If they are going to use income approach they must do in correctly by obtaining actual noi that would include PM, Vacancy, insurance, tax, etc and by determining the cap rate on similar properties (in this case duplexes in the area of you duplex ideally with similar BR and bathroom count. If they applied this technique properly, it would still be wrong, but should not be drastically off if you are managing efficiently.
If you sued, this would seem like an easy win. Go you have a large RE association there. Maybe a national one like AOA, except AOA is mostly over 5 units (where NOI and cap rate valuations are correct).
Few things irk me as much as people in power who abuse that power. It happens all the time. My city in recent times is famous for it and the courts recently passed judgement on something with a rationale that is shocking (basically because the council kept something secret that was not allowed long enough that reversing it is difficult the courts are allowing it to continue to paraphrase the verdict).
At this moment I am deciding if I want to escalate a battle with some a-hole state rangers. I have already decided at a minimum I plan to piss them off further.
The valuation is not right in any way. It would not be recognized by anyone. It only has a loose relationship to the value of your property. This means you will be taxed at one value but when you sell it you will receive substantially less. I know I would be going to RE meet ups, have my VA send post cards to other small MF owners, etc to obtain others to join me in fighting this. I would do this in part because few things irk me more so I would get pleasure from the fight (I also usually win - 2 legal wins in the past 1.5 year but one I have yet to collect (asset hearing has been scheduled)). 3+ years in legal battle with the city of San Diego that I only contributed $5k of what I last heard was $160k of collected fees toward the legal battle (I suspect it currently is near $200k). The city has a lot to lose but their process was arbitrary and wrong. By the way I am no longer impacted, except for possibly collecting for some damages (very unlikely there will be damages).
Good luck
“Sec. 23.0101. CONSIDERATION OF ALTERNATE APPRAISAL METHODS. In determining the market value of property, the chief appraiser shall consider the cost, income, and market data comparison methods of appraisal and use the most appropriate method.”
For a duplex there is clearly one incorrect answer and it is an income approach. The other 2 methods are appropriate. A open market transaction between 2 unrelated parties can determine a fair market value. A market data comparison can determine a fair market value.
The income approach applied to a duplex is not correct. Unless policy changes, income method will never be “the most appropriate method” for valuing a duplex.
By their own rules, they should not be using an income approach. If you get another hearing get the appraiser to state his qualifications. Then ask him if in any of his training he was taught that the income approach is “the most appropriate method” for valuing a duplex. If he states he was taught this somewhere ask where. Ask if it is compliant with Freddie/fannie policy for valuing a duplex. This should be an extremely easy appeal because it is the wrong method (far from “the most appropriate method”) for valuing a duplex.
good luck
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