Incorporating Real Estate Tax Expense Forecasting Into Offers to Purchase

When deciding what to offer for a commercial or residential property, you need to estimate your carrying costs.  When there is doubt, you probably estimate on the high end, which may cause you to offer too much and lose out on a potentially good investment. 

Real estate taxes often make up the largest non-financing expense, so an accurate prediction of taxes extending into future years- also called property tax forecasting- is crucial.  There are two components to calculating real estate taxes: the value of the real estate and the tax rate. 

The price paid in an arms-length transaction often is the best indicator or value, but not always.  It may make sense to pay more than market value for an abutting property.  Or maybe the price of the real estate is secondary to the expected revenue from the business to be operated on the site.  (Drug stores are a good example.)  Assessors also often equate the cost of improvements to market value, when that often is not the case. 

The trickier part in property tax forecasting is predicting the tax rate. 

Most tax consultants simply project historic rates forward in a straight-line or modified straight-line manner. At Allobar, we take a different approach. To reach more about Allobar’s approach to property tax forecasting, click here.

So the next time you are looking to expand your real estate portfolio, consider incorporating real estate tax expense forecasting into your offer to purchase. You may discover a gem, or save yourself unnecessary expense!

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