Income Properties
Lease Structures: NNN, Partial Net, Gross
As a property tax agent you have to handle all of the above. Consider, though, that the MAJOR differences in the above structures relate to property tax and whether the taxes are reimbursed NNN, reimbursed partially, or paid by the owner out of gross rental income.
The reason [distinction] is that property taxes are the ONLY expense item that is a function of property value. And, as such, property taxes are the ONLY operating expense that can be loaded onto the base overall capitalization rate.
As a function of value, property taxes present a unique challenge of 1 equation with 2 unknowns. More on that later.
The other question or impact is not about the method or procedure of loading a cap rate with the effective tax rate. The question and impact to the value of your properties relates to the reimbursement structure of property taxes from the tenants.
If your analysis overstates property tax reimbursements, phantom excess net income before taxes is created thereby increasing the value of the property and increasing the property taxes to the detriment of your client.
If your analysis understates property tax reimbursements, net income before taxes and value are inappropriately reduced. IF realized by the assessor’s appraiser or ARB, your protest fails, your client pays higher taxes, and your client might commence the search for a new agent.
Your analyses templates, our templates, and those of the appraisal district/assessor all have rental income, secondary income, reimbursement income, occupancy adjustments, operating expenses, capitalization rates, and values.
Our templates give you the flexibility of analysis per per unit that you define (i.e. SF, units such as would be appropriate for mobile home parks and others).
We believe that you will like the ease of use and efficiency of the PTaxEval income templates while also appreciating some ‘extras’ – extras such as consideration of costs to finish or remodeling costs, costs to hold and lease to attain stabilized occupancy, and any costs for ‘unique’ other deductions to value that might exist.
Returning to property taxes for a moment, realize that because the taxes are a function of value, you should not simply use last year’s actual taxes in your expenses. Over or under stating property taxes or reimburses have potentially substantial negative impacts to your clients.
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NOTE:
This overview of income properties does not include complex properties (i.e. properties with high levels of both income and value attributable to both tangible and intangible assets). Nor does this discussion address analyses relating to bulk portfolios (i.e. subdivision inventory lots, inventories of homes, or work in process).
See Services and the sub–menu items for those types of properties.