Property Taxes: A Taxing Expense

All "buy and hold" real estate investing 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. 

Coming Soon: The Appeals Process Explained Kevin J. McGarrey is a Delaware County based lawyer specializing in property tax reduction. Contact him at (610)521-1116 or Kevinm@mcgarlaw.com.