By Rob Minton & John Mazzara
In today's real estate world, cash flow is king. True, some markets around the country are experiencing a recovery in home values, but overall we're not seeing the huge jumps in appreciation that made real estate such an attractive short-term investment during the real estate boom that ended a couple of years ago.
But with lower prices overall in addition to low interest rates, lower mortgage payments mean bigger cash flow for investors. I've heard of investors earning $400 and $500 per month in cash flow on single-family homes, which was rare when real estate prices were escalating rapidly. A property that cash flows that kind of money is a solid long-term investment, even if we're not seeing the jumps in re-sale value that had so many investors jumping into the game during the "bubble."
But another cash flow boost the down economy is providing is one I have a feeling many investors are letting slip by: lowered property taxes.
As home values slide, so should what you pay in taxes on any property -- including your primary residence. If you are paying more than you should be in taxes, you are hurting your monthly cash flow. It's that simple.
The good news is that you can attempt to boost your cash flow by challenging the value of your home on which the tax assessment is based. The process for doing this varies by area, but you should definitely check your local government's way of handling this, and if you believe your home's value is below what you're being taxed on, follow your area's appeal process.
Let me give you an example: The county where I live this year reassessed property values (they do it every three years). I know somebody whose new "fair market value," as determined by the county, is $30,000 less than the market value his taxes have been based on for the last three years. His 2009 taxes will be about $600 less than they were the three years prior. Because his tax payments are built into his mortgage payment, his payment will go down about $50 a month.
But what if he had appealed last year, when values were down? Or in 2007? Could he have saved $50 a month two years earlier?
And think of this scenario with an investor who owns multiple homes. It is worth the effort to challenge the value on every home you own, in order to boost the cash flow of all your properties.
Again, appealing your property's value varies by location, so check your locale's website or auditors office for specific information, but here are some general things to know:
1. You must prove that the value of your home was less than the assessed value as of the assessor's date, which is usually Jan. 1. It's not the value NOW; your assessed value is determined by what your house was worth when the tax period started.
2. You must be able to prove your case at an appeal hearing. That means you must provide comparable sales, or "comps," that support your argument that your home was worth less on Jan. 1 of this year. Generally, five comps are sufficient. They should be within a mile or so of your address and preferably not more than two months prior to the tax assessment date. Do not use foreclosure sales or "short" sales, as most locales won't consider them.
3. Check your home's status for any factual errors your town might have for your home. For instance, if the tax record says you have four bedrooms but you only have three, include that in any appeal, as that fourth bedroom automatically increases the assessed value of your home. Look for mistakes in the tax record -- no one else is going to do it for you.
4. You will most likely have to attend a hearing to dispute your value. After yours is scheduled, it might be a good idea to sit in on someone else's, just to see how the proceedings work. The more familiar you are with the hearing the better off you'll be when it's time for yours.
5. Beat the deadline. Most locales allow you to dispute an assessed value for only a period of time after the date the value is determined. Make sure you meet that timeline. For example, if your town says you only have 30 days after Jan. 1 2010 to appeal your 2009 taxes -- make sure you beat that deadline, or you will be out of luck.
6. It's worth it. In the past, I have heard homeowners and investors say the time it takes to dispute an assessed value isn't worth the savings. But consider this: Most locales do not re-assess every year. So if you can get your value adjusted, the tax savings might very well be for multiple years, not just one. And remember, multiple years of savings on multiple properties -- if you're an investor -- could mean a substantial boost to your cash flow.
The down housing market has affected everybody who owns property; you simply may not have the equity you had at the market's peak. But if you have a chance to use the down market to reduce your taxes and boost your cash flow, you are making the situation a bit better.
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