Increased property taxes as a result of your improvements is a typical concern. You need to be proactive about it. This topic has lots of moving parts and depends highly on your area and downtown district. Property taxes are factored very differently throughout the nation. If you are not familiar with your area, I encourage you to do a little research. In this article, I will attempt to provide you with the basics that I use in Iowa.

It is important that you understand that property values can be determined by a number of angles. The county assessor typically determines your value by comparing your building with other similar properties. This may be an advantage to you today; however, once you make an improvement to your property, the assessor can have a difficult time finding a proper comparable. In lieu of a comparable property, I have seen many times where the assessor will determine the increase of your building’s value based on the cost of the improvements. Most times they will know how much you spent because you had to state the cost when you received your building permit. They have other methods in which they can determine an approximate construction cost. In Iowa, the marketplace is very tight. In other words, it is often hard to sell the building for a profit right after you make improvements. Downtown buildings don’t normally work well as a flip project because of this, however this could vary in your region.

Another way to determine the value of you property is based on its potential income. For example, if you have two apartments and a lower level office space, what is the marketplace rental rate in which you could receive? Factor in all expenses like utilities, etc. Subtract these expenses from the monthly income and multiple by 12 for an annual income or return on investment. Now take your annual income amount and multiply it by 15 years. This amount is what I might consider as my building value. A normal investor does not want to pay for a building for over 15 years. Your area might have a more or less aggressive time table. Use this principal to your advantage.

If you simply sit back and wait for the increase, I’m pretty confident you won’t like it. I highly recommend you give the assessor a phone call. Going in to talk directly with them is more effective. Have your rationale predetermined, prior to your discussions. Find a simple way of trying to determine a fair increase in value. I typically use one of the two examples above and then make the discussion simple by asking for an assessed value based on a % of my total construction costs. For Iowa, I have found an increase in value close to 60% of construction costs is a win for me. Keep in mind that all it takes is a Governor and a pen to change the rules on you, so do your best to be persuasive based on today’s circumstances.