How are Today’s Cap Rates Affecting Your Property’s Assessed Value?

When it comes to property tax appeals, several factors play a crucial role in determining their success.? Considering a property tax appeal for cap rates in commercial real estate, requires review of several important issues:

?Market Volatility, Interest Rates and Cap Rate Impact:

• The economic landscape for investment properties has become less predictable in recent years. Increased volatility and uncertainty mean elevated risk, which should be reflected in higher capitalization rates.
• Climbing interest rates have led to a spike in capitalization rates. As interest rates rise, property values tend to decrease.
• Assessors often use capitalization rates from market surveys, but these may not accurately capture the current risk environment and economic conditions.

Income Volatility:

• If a property’s income is more volatile than typical market expectations, it can impact the capitalization rate used for valuation.

• Assessors may not be aware of this volatility initially, leading to incorrect tax assessments. Adjusting the cap rate based on the property’s risk profile is essential.

Band-of-Investment Argument:

• Property tax appeals can benefit from the band-of-investment argument. This approach estimates the value of a real estate investment property by calculating the weighted average of capitalization rates for its debt and equity components.

• As markets and available financing change, the cap rate used for valuation should reflect this. Assessors may need to adjust their cap rate assumptions.

Property-Specific Factors:

• Consider any unique characteristics of the property that affect its income stream or risk. For instance: changes in income stream, property condition, location-specific risks (e.g., environmental factors, market trends), these factors can justify adjustments to the cap rate.

With approaching appeal deadlines in various jurisdictions, now is an opportune moment to thoroughly review your portfolio and identify any potential cases of excessive property tax assessments. Taking proactive steps can help optimize your tax liability and ensure fair valuations. When it comes to property tax appeals, it’s more than just valuation—it requires a strategic approach. Our experts understand the numbers, provide crucial market knowledge, and consider the risk factors specific to your property.

At Property Tax Resources, LLC, we believe that property tax consulting should be based on a deeply embedded relationship with our clients. Our goal is to align ourselves completely with our client’s objectives and to deliver the results they are seeking. We are a team of seasoned professionals with the necessary jurisdiction and valuation expertise to produce exceptional results across the country. Visit our website for more information: www.ptaxresources.com

Property Tax Resources, LLC

www.ptaxresources.com

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