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Boosting NOI – Negotiating Taxes and Insurance Can Lead to Big Savings

November 13, 2013 Leave a comment Go to comments

The relationship between an owner and the local assessor can be tricky to navigate.

The county assessor tends to measure property valuations at higher levels, while the owner, obviously, wants the opposite. It’s a timeless dance. But through diligent preparation, and the ability to come to a fair compromise, owners can save hundreds of thousands of dollars on a typical 100-unit property.

“One of the things that the assessor isn’t privy to because they’re doing this on a mass basis – they might not be doing site visits,  just lots of internet work – is the physical state of the property,” says R. Lee Harris, president and CEO at Overland Park, Ks.-based Cohen Esrey. “Unless the property is brand new yesterday, there will obviously be things that need to be repaired or replaced.”

Typically, the assessor will need to be educated about what the property actually looks like, and its condition, or else the owner will get a very general valuation that doesn’t speak to the property’s individual strengths and weaknesses. By maintaining a thorough inventory on the property and documenting the cost necessary to put it in appropriate shape as valued by the assessor, an owner stands a good chance of lowering their property taxes.

If a property is valued at $5 million, but you need to spend close to $500,000 to reflect that value, you’ll likely receive a lower assessment, Harris says.

There’s also the obsolescence factor. It can be difficult to pinpoint, but when you’re in a very competitive market, sometimes your property just can’t compare. Something as outdated as shag carpets or an ancient kitchen design could decrease the functionality and value of the building, lowering an assessment, and thus lowering taxes.

Lowering Premiums The same negotiation skills need to be applied to insurance, as well. Owners can easily become over-insured, resulting in higher premiums, if they don’t pay attention to the coverage.

The costs are dependent on a general square-footage formula, and it’s easy to say that it covers the property’s attributes, but “that might be grossly overrated,” Harris says. For instance, a property’s foundation will typically not have to be replaced after an event. “If a tornado comes, you still have slab,” he adds.

By providing solid evidence that these insurance standards are flawed, generally by speaking with architects and contractors, you can get your evaluation down, thus dropping the insurance premium, which can add more than $35,000 in overall value to a typical 100-unit community.

Reprint from MultifamilyExecutive.com       By Linsey Isaacs

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