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Publication VIII |
By Michael McCune, Argus Self Storage Sales Network |
Good Times Are Here! It seems like our phone is ringing off the hook with self-storage owners asking for, “low recent comparable sales”. Both the good news and the bad news is that we don’t have many such “comps”. Obviously, along with the rest of the real estate industry, owners have heard from the tax assessor. In order to give owners a hand in their tangle with the assessor, we put in a call to the expert in self-storage tax evaluation, Michael Donohue, of Coopers & Lybrand, LLP. Michael has focused on our industry for several years and has broad knowledge of these tax problems across the country. He points out that the old days of chronic underassessment are gone because 1) self-storage has gained market recognition and is now on the assessor’s radar screen and 2) the assessors are not the old political hacks of times past, but for the most part real professionals with knowledge of real estate valuation. If you need more information on property sales comparables and what the tax man might have in store for you, call either your Argus broker listed below or Michael. They can give you the latest sales and tell you how the tax is really calculated. Michael can be reached at 703-918-3124. |
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Don’t Get Blind-Sided by the Tax Man As we all are well aware, self-storage facilities have been selling at record prices across the country, which is great for the owners who want to sell. What about the owner who doesn’t wish to sell? Well, he may be in for a surprise when the tax man makes his rounds. Many owners across the country are experiencing increases in their property assessments which will result in more taxes paid. The primary reason is due to all of the sales activity that has taken place over the last two years. Most owners have been approached by at least one interested party, sometimes making an offer they can’t refuse. The people who do refuse, however, have a potential surprise coming. When a buyer calculates an offer, he usually makes adjustments to the seller’s income and expense statements to reflect what his/her income stream might be. Most of the time, depending on the geographic location, the largest adjustment will be real estate taxes. The typical buyer understands that the property taxes are likely to increase after the county discovers what he actually paid for the facility. The buyer is protected when the taxes go up because he has already calculated the increase, or at least a portion of the increase, into the income stream that he based his purchase price on. The buyer is even better off if the taxes do not go up. All taxing jurisdictions value property in one of three ways: the income approach, comparable sales/market approach, or the cost approach. Depending on where in the country you operate, most jurisdictions use the income or sales approach to value. This means that if there have been some sales activity in your area, the assessor may decide to revalue all or some of the facilities that appear to be far below market value. A revaluation could be quite a surprise to an owner who has been under assessed for many years. The difference between the buyer and the “keeper” (non-seller) is that the “keeper” in most cases has not prepared himself/herself for the tax increase. To better prepare for this, an owner needs to keep abreast of the sales activity in his/her market. Know who is selling and who has sold. Simple research can be done to inquire on what properties have sold for on a per-square-foot basis. If your assessment is far below this per-square-foot value, you may want to set up a reserve account in case the assessment moves up. If and when this increase takes place, you are not helpless. Each jurisdiction has an appeal process that an owner can go through to challenge their property assessment. Again, take the time to research the process: there are strict rules and deadlines that need to be met in order to secure your right to appeal. There is much more to keep up with in today’s changing marketplace than just your competitors’ rental rates. Don’t let the tax man blind-side you! By Michael Donohue, Coopers & Lybrand LLP. |
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