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What to expect when expecting to make a commercial real estate investment

How to avoid surprise real estate tax bills.

Underwriting real estate taxes during an acquisition of or developing a building is one of the most important yet overlooked aspects of real estate investing.

Smart investors will take the time to understand and project accurate real estate tax liabilities over the life of their investment. After all, real estate taxes are the single largest operating expense incurred when owning and operating a piece of real estate. But simply estimating year-over-year growth isn’t enough. Estimating tax rate growth and assessment changes based on property performance are important, but there are numerous other factors to consider that if missed can drastically impact your returns and cash flow – on both the left AND right side of the ledger.

For example, many investors overlook non-ad valorem taxes that may impact their tax bill. Non-ad valorem is a fancy way of saying taxes and fees not derived from the assessed value of the property. It could be a stormwater fee, solid waste fee, gypsum moth infestation tax (yes that’s a real thing), bay restoration fee, etc. They come in many forms and can be as benign as a few hundred bucks or as serious as 20-50% of your total tax bill. In some cases, those fees can be appealed and in future blog posts (and product rollouts!) we’ll talk about and show you solutions to reduce those fees – potentially saving you hundreds of thousands of dollars. We do it all the time!

Another oft-overlooked area that can present an opportunity are tax credits and incentives. Many taxing jurisdictions have tax credit programs that can reduce your tax bill significantly, especially if you are making investments in your property, redeveloping a site, or pursuing ground up. At Cavalry we closely track these programs across thousands of jurisdictions and any time we have a client whose project qualifies we will quickly work to qualify, apply, and secure those tax credits.

In some cases, incorporating those savings into your investment underwriting can put you in a position to safely outbid the competition or simply outperform your anticipated returns.

The range of programs could be “on menu” such as enterprise zone, empowerment zone, brownfield, green building, etc. There are also numerous “off menu” credits and incentives where our team would proactively work with a jurisdiction to negotiate credit and incentives on your behalf, even if they have not been formally established by the jurisdiction. Regardless of the project, pursuing any one of these types of credits and incentives can lead to significant savings that could put your project returns on steroids.

In short, talk to us or your trusted tax advisor when making investment decisions – it could be the difference in a great investment or a load of unwanted fiscal surprises.


One Response to “What to expect when expecting to make a commercial real estate investment”

July 13, 2021 at 12:54 pm, Why solid waste appeals may be solid gold for your portfolio | Cavalry Real Estate Advisors said:

[…] additional fees and charges you see on your tax bill are lovingly called non-ad valorem taxes (see my previous post on that). That’s a highbrow way of saying that it is a “tax not based on your assessed value.” Those […]

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