Now Forget About Taxes and Just Make the Money

I was reminded that yesterday’s post was a little pessimistic. 

Rock On

One [tag-tec tax]person[/tag-tec] thought I dwelled entirely too much on taxation.  He was right.


That brings up an incident I remember many years ago when my father and uncle were having Christmas dinner and talking business.


“I never thought about taxes,” my [tag-ice tax]uncle[/tag-ice], a car dealer said.  “I just went out and made the money.”


My Dad agreed.  The first thing anyone can do is make the money.  Then go out and find the very best experts to walk you through the tax process. 


How does that relate to real estate investments?


We need to concentrate on our investments.  We shouldn’t lament about taxes too much and too often.  Basically tax is something we can’t control.  And it gets us off balance if we obsess on the subject too much.   


However, as I pointed out in the last few  posts, I think a trend is developing.  I think the windfall days of increasing property taxes almost indiscriminately is about over.  When the saturation point is reached, the public will protest.  In my opinion, we’re almost there. 


In the meantime, what should we be thinking about? 


The new market for 2007.  New goals, new opportunities. 


What are the new opportunities?


Affordable housing, rehabs in pre-trendy neighborhoods, REO’s.


But here’s an additional bonus that may come our way.  Should interest rates rise, even a tad, many  may panic and start selling their second homes and condos.  Should that flooding occur we’ll see some fantastic  deals.       


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The Single Reason Property Taxes are Rising Alarmingly

Scrape-offs is probably the  major reason property taxes are rising at alarming rates.


What are they? Lonely Penguin


A scrape-off is when the house next [tag-tec house]door[/tag-tec] is demolished and a larger  McMansion goes up in its place.  These new fancier big houses are the fuel behind the appraisal fire.  As county appraisers raise the taxes on those houses, everyone’s taxes go up also.  It’s a rising of all boats concept. The [tag-ice appraiser]tide’s[/tag-ice] going up and we’re stuck with it.    


Why has it always been so important concerning what your neighbors do? 


That’s the nature of real estate.  It’s a neighborhood investment.  That’s why new buyers take so much time evaluating neighborhoods. That’s why you don’t need to be too concerned about what’s happening in Phoenix if your  properties aren’t located there.   


What about zoning?  Can’t this be controlled? 


Yes and no, but mainly no.  Belle Meade, as we mentioned in the earlier posts, is a very exclusive old money area of  Nashville.  In fact, it’s really a conveniently located bedroom town, separate from Metro.   If Belle Meade can’t control this explosive kudzu growth, it can’t be   controlled.


However, there’s another interesting element hidden underneath the surface.  Maybe Belle Meade officials  don’t want to control it.  As this  wave of new construction reverberates throughout the old streets  more money will be coming into the coffers.  That’s because the next property reappraisal is scheduled for 2009.  It’s my guess city officials are more than a little excited about that.


So here’s what has happened in Belle Meade.  Of the 100 most expensive homes in Nashville, and most of them are located there, 51 are worth less today on paper than they were a few years ago.   The city of Belle Meade has even had to hire a full time building official just to keep up with the scrape-offs.  Now he says he needs an assistant.


What’s the solution?


I honestly don’t know.  I wanted to be smart and have some ideas to give you, but I don’t.  As always, get in ahead of the trends.  This trend started a few years ago.  How long it will run is anybody’s guess. 


But mostly we always need to set aside money for  the tax budget.  As with  one of our properties we have the “tax tenant”  whose unit only pays our taxes for that property.  Unfortunately even his rent is not keeping up with the increases.  Now we’re having to take profit from another tenant to make up the difference.   


When the population gets enough of high property taxes, something will be done.  My prediction is we’re almost there, but not quite there yet.  When we get there, city officials across the country will know about it because we can still vote.  It’s a trend they’d had better see coming. 



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Four Ways to Get Your Property Taxes Reduced

happy people around computer

You can do more about  your property taxes than you think.  Don’t give up next time you think your property has been appraised too high.  Here is how the experts protest successfully.


1. Get the facts

Compare your property to the neighbors’ properties.  Hire a professional appraiser to do a [tag-ice taxes ]rundown[/tag-ice] of your property.  You can get a lot of [tag-tec appraiser]useful[/tag-tec] information that can go a long way to helping you win your case.


2. Look for Mistakes in your record

County assessors may be in a big hurry when they examine your records.  That means they’ll miss a lot. They’ll make mistakes.  You can bet the Rolls those mistakes will be in their favor and not yours.  Ask to see the records.  Mistakes probably happen more readily than many people realize. 


3. Make an  Appeal to your county’s Board of Equalization

Once you’ve got all your ducks in a row it’s time to go to “court”.  This works very similarly to the legal system.  If you have the facts and can make a strong case, you’ve got a good chance of winning it.


Another tip is to hire a professional property tax representative who is registered with the State Board of Equalization.   He can  carry a lot of weight with the Board. 


The Board of Equalization meets in Davidson county every June. Check your own area to see when your board meets, but it will probably be early summer.


(Where to find the agents?  is where to look if you are in Tennessee.  For other states go online and look up your comptroller).   


4. Bonus- Appeal the Board’s Decision

Unhappy with the decision?  You can appeal in most areas.  Davidson County’s system is set up so that you can appeal before August 1, or within 45 days of the date you received notice from the Metro board. 


You can fight city hall.  A little homework and due diligence can  go far.  If more real estate investors and homeowners would take up the fight change  for the good could happen.   


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Beware, Your Dirt is Being Taxed at a High Rate

This is the first part of my new [tag-tec property taxes ]series[/tag-tec] on property taxes. 


Senate Majority Leader Bill Frist’s brother, Thomas Frist, used to own the most expensive house in town (Nashville).  In 2003, it was valued right at $15 million.  Today the Belle Meade mansion is only worth a paltry $7.4 million. 


What happened?Diamond


It all has to do with the way properties are assessed in parts of Davidson County.  And I’d wager this problem is becoming more widespread across the county  based on the reports we are getting. 


Belle Meade, the “old money” wealthiest neighborhood in town,  determines property values based on land values first. Then house values.


So it’s not uncommon  to have a property where 75 percent of its value is in the dirt and 25 percent value is actually in the house. 


Thomas First’s property has 37 acres which were assessed at $2.9 million in 2003.  Now the same acreage is worth $7.4 million. 


As I’ve alluded to in earlier posts, I see this as a way to get older, less affluent people out of in demand neighborhoods that are hotting up.  These folks are being replaced with younger newer money.


And as we know, new money spends more easily than older money. 


Example in Point


Belle Meade City Manager Beth Reardon talks about seeing one permit for a kitchen gutting.  What was unusual, or in affluent Belle Meade, not unusual, was that the previous owner had recently renovated the kitchen with  a six figure price tag.


Here’s the  real problem as I see it.  The first thought that goes through the minds of city officials is we can tax them more.  Why not, they can afford it, can’t they?  But is it a fair tax?


We can say with no reservations those [tag-ice]kitchen[/tag-ice] gutters  had already paid taxes to the hilt as they remodeled.  In Davidson County they paid close to 10 percent sales tax on every piece of lumber, nails and fancy granite  that went into it.  And they will continue to pay almost 10 percent sales tax on every bite of food that comes out of their new heavy duty frig. 


Yep, in a prosperous land like ours you’re going to have people who make a lot of money.  And they’ll be spending it.   So what?  Let them. 


The problem is  in the thinking of county assessors across the country.  They assume everyone  who owns any property is fair game.  If a middle class family saves up and adds a room out back, they will have to pay more tax too.  And as the way  things are going now, their tax bills are getting not only significantly higher, but almost beyond their  paying  ability.    Where will  it all end?


In the next post, I’ll delve deeper into scrape-offs which is the real fuel behind today’s property tax assessment  upheavals.   


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Real Estate Tax Burden Changes Hands?

Golden egg in nestHow’s this for a [tag-tec tax ]statement[/tag-tec]?


“That’s the cheapest way to grow a government,” said Robert Lang, director of the Metropolitan Institute at Virginia Tech in Alexandria, VA.  “It’s  like found money.”


No more.  Times are changing.  The golden goose is on life support. 


We all know he was referring to our real estate.  Dare I say it?  It’s been far too easy for city governments to reap our real estate harvest.  Times were good.  Cities got too greedy.  And now that windfall for [tag-ice tax]local[/tag-ice] governments is about over. 


The past booming real estate market raised a lot of tax revenue in a lot of places.  It’s been an exhilarating, exciting time.  And real estate investors  bore most of the tax burden. 


Douglas Gourley, of Pembroke Pines, Florida is a good example.  He watched his tax bill rise 60 percent on his house.


He was not alone.  In some areas if you moved from a $200,000 house to a $400,000 house you may have found yourself paying double the taxes. 


What’s next? 


No one really knows, although we can certainly take some educated guesses. 


City governments  will cry and make a stir on the Six O’clock News. They’ll try to scare people by cutting services.  911 services will be discussed more and more.


My prediction is it will all level off.  Cities will have to find other ways to collect tax revenue.  Not only was it unfair to place such a tremendous burden on real estate, but it was bad for business.  Killing the golden goose is absolutely the stupidest thing they could do. 


What does this mean for us?


I think it’s good news, more or less.  The secret is out.  Cities won’t be able to slap dramatic taxes on us quietly. In other words, they’ll have to find other  areas to mine the money.   Like everything else, tax collection moves in cycles.   


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