Saving Dollars on Your Biggest Real Estate Expense!
This chapter will talk about your biggest or at least one of your biggest real estate expenditures that any traditional owner or settler, and manager of a multifamily portfolio is going to experience and faced.
When talking about real estate expenses, what comes to one’s mind? Most individuals think of utility charges, cost of insurance and employee cost in the management and administration of your property, and a lot more. But the truth of the matter is that your property tax is your biggest expense. Are you shock?
About four (4) years ago, in the United States alone, more than five hundred billion dollars was paid in property tax, and somewhere around three hundred billion was paid by owners as well as multifamily portfolio investment and business organizations. Naturally, when speaking to multifamily owners, and asked them what they pay in their property taxes, it is typical to obtain an answer ranging from two hundred (200) to five hundred (500) million dollars. Safe to say, an average of three hundred (300) million dollars. And it is still quite a significant range for one of your biggest expenses. That is because individuals look at taxation a little bit differently. They have dissimilar outlooks when it comes to it. Verily, when you utter the words property taxes, eyes immediately roll and it is because one has no patience for tax or even property tax. They just recognize it as another payable. But truth be told, is not like just any other traditional taxes. Yes, that would be fair if you are talking about sales tax, income tax, corporate tax, and usage tax that are easily explainable based on fact. You are supplementing the individual taxing jurisdictions’ information in terms of your sales, your income, your profit, and that is a fact. That is result-based on why they are taxing you. But when talking about property taxes, they will tell you what the value of your property is, and practically, based on your value, that would be the tax you are going to pay the government.
Property tax is a cut above the rest. The same is very subjective since you are getting values from the individual jurisdictions and mind you, there is over seventeen thousand (17,000) different taxing jurisdiction all over America, so when you discuss standardization and transparency, it is all over the place. All the more reason that this needs to be controlled and maintained because there are huge opportunities for savings. Just to emphasize that principle for a moment, there was a study performed by an international entity that measured all the various jurisdictions both in the United States and all over the globe that found the average US jurisdiction just got a grade from a C to a D in terms of standardization and transparency. To reiterate, there are huge opportunities here.
So, whatever resources you need to control and mitigate this cost and expense you just have to regard it as it is. However, on the downside, there is a huge pressure on the department handling it to do something in terms of controlling this wide and broad expense property taxes are, also rising and such research has shown that even when values are pegged at a constant, meaning such values are not going up, the taxes are still appreciating because those local jurisdictions, such fees are not going down and they need to pay for their local improvements.
Another interesting fact about property tax is that it surely impacts your organization in several different manners across all facets of each department. It will be very traditional or typical to look for a couple of individuals within a property tax department sitting anywhere in the office. Again, which department they belong to is somehow questionable, but sitting there doing their thing and maintaining their taxes as well as presenting some information to the accounting department. In other words, as you can see the whole property tax management method is very tedious and complicated. It is linked to all facets of different departments.
As soon as you verify your payments, you will transmit them off to accounting. On the side, you have your finance department performing their forecasts and budgets. They also perform isolation in a silo with the use of their data and spreadsheets to find out what they think property tax is going to be at. You will have acquisitions in terms of buying more properties for your portfolio. Sometimes performing their work up or not even looking with property ta as to what the tax impact is going to be. At this point, this is now becoming a requirement. Specific companies are letting their acquisitions team obtain without having some sort of a suggestion or a report from property tax.
And the long list goes on. It affects operations as well as your leasing in terms of initializing your rent or even recovering tax from those portfolios. It all boils down to one thing; it affects the entire department. And at this point, it is done in silos each with its own. That sets of data without one talking to one another and that is where they are coming from.
And this, it is being assessed that the property tax itself is going to be one of your biggest expenses. It is a known fact that there are significant opportunities in terms of saving a good amount of money. At this point, people know that it is fairly mismanaged and it is all done in solos all over the place. And there is a ton of data included in the process itself. Truth be told, from a data perspective, you are getting data from a lot of individual jurisdictions. It is common for an individual property to have at least hundreds of pieces of individual data every year. Again, deduce this to a portfolio of more than three hundred (300) properties you are easily dealing with approximately thirty thousand (30,000) pieces of data every year. That is an issue.
But how do we address such an issue? Everyone has to rethink the way you manage your property taxes and that is frankly some firms like ____________________ come to the rescue and give you the freedom to optimize and manage the entire process and bring everyone together on common ground. And that is going to attain and allow you to empower your users to come up with smarter and better decisions in terms of each aspect of your operation that includes or addresses property tax. These are not just buzzwords.
It is very essential since all these technologies exist nowadays and they fit naturally and property taxes can blend in with those other departments like the ability to automate the workflow. And as soon as you obtain a new forecast in terms of the value and budget, they would know exactly what they can adjust and amend. You can integrate in real-time with other systems so you can apply an eye to aid you in determining whether the values are out of sync maybe specific values and certain properties. This should be the focal point to appeal to drive savings.
The bottom line is, we are all trying to attain a similar goal. The objective is to optimize the value of the portfolio. Instead of paying much attention to the revenue side which a lot of systems and usually some of the easy pickings so that one can acquire the excellent properties to ensure they are fully rented out to maximize and drive the revenue coming from individual locations. That is a great way to drive revenues and value. But another way to come right is by looking at the expense side and being able to manage the costs especially something as huge as the property tax. The same is going to have a noteworthy impact on the value.
Conclusion. The meat of this article is to not ignore your property tax. There is a huge potential saving in it. If they control all tax, you just need the proper tools, information, and data available so you can properly assess it and come up with well-informed decisions that will impact not just the tax side but all other departments within your system.
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