Archive for March, 2010

Contesting Tax Assessments

Wednesday, March 31st, 2010

The actual process of contesting a tax assessment is very easy. In fact, there is nothing particularly difficult about any part of it. The only issue is that your preparation time may be a little time consuming. Bear in mind as we discuss this that each county is likely to have its own process. I suspect most counties will be similar. In Tulsa County, if you wish to protest the assessment value of your property, all you have to do is call them and ask them to send you the form to protest. They will mail it to you or you can go in and fill it out there. You will then, be contacted by phone and will be given a date to appear at an informal hearing. On one occasion, I was able to have my informal hearing over the phone. I don’t believe they do the informal hearings over the phone at all anymore. However, I don’t think it’s a good way to get what you want anyway. On the date of your informal hearing, you will meet with an employee with the assessor’s office to present your case as to why you believe your assessment value is too high.

It is important to know that the employee you meet with will have computer access to view the home sales in the neighborhood you are contesting. If you tell the assessor that homes in your neighborhood are selling for $15,000 under what yours was assessed at, they will easily be able to verify your information. Most of the employees in the tax assessor’s office will be fair and will give you a good opportunity to present good reason as to why they should lower your assessed value. However, “I want my taxes lowered”, is simply not going to get you anywhere. You will need some data to reinforce your belief that your home is valued too high.

If you win your informal hearing, you will be finished with the dispute process at the end of that hearing. If you do not win the informal hearing, you will have the opportunity to file for a formal hearing in order to present your case again. You will be given a date to appear for this formal hearing, if you can’t be there on that date, you lose.

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Holding Costs Revisited

Friday, March 5th, 2010

I want to spend a little more time explaining the importance of holding costs. Let’s say you purchased a $100,000 property for $70,000 and you expect it to cost $10,000 for repairs and $6,000 to list the property with a real estate agent. Let’s suppose you did not use a real estate agent when you purchased your investment. That leaves you a profit of $14,000, right? I’m aware these are not necessarily the numbers that professional real estate investors are looking for. I chose these numbers because it makes the point well. Now suppose you expect your rehab time to be two months. Also, your research shows that 60 days is the average amount of days on the market for homes in the neighborhood. Therefore, if everything goes as expected, you will have a holding time of four months, two for rehab and two for the sale. Now let’s throw some holding time expenses into the mix. Keep in mind that these expenses vary drastically from city to city. If my numbers are greatly different from those in your area, just keep in mind this is merely an example. The same concepts apply anywhere.

Acquisition Price 70,000
Rehab Expense 10,000
Real Estate Agent 6,000
______________________
Total Expenses 86,000
(Excluding Holding)
Expected selling price 100,000
Profit Amount 14,000

During the rehab you will need electricity, water, and trash service (all which total $300 per month). You also have to keep up with your mortgage payment which is $665 per month. The taxes average $100 per month and the insurance averages $50 per month.

Utilities- 300 per month X 4 months = 1,200
Mortgage Payment- 665 per month X 4 months = 2,660
Taxes- 100 per month X 4 months= 400
Insurance- 50 per month X 4 months= 200
______________________________________________
Total Holding Expenses $4,460

Now let’s see this amount deducted from the profit amount displayed above-
14,000
- 4,460
_____
$9,540 Total Profit

Now this amount of profit may be fine for you. For many of us, that would not be enough profit. Keep in mind that the costs above are expected costs and the holding time is the time expected. If it takes longer to do the rehab or longer to sell than you expected, obviously, the holding expenses would be greater. I like to keep a good buffer in order to make up for any mistakes and/or unexpected expenses. What if you had not considered the holding expenses? I’m sure you can see how such a mistake could make a drastic difference? Always include holding expenses when running the numbers. One thing many people are guilty of when calculating their holding expenses, is that they don’t like the outcome, so they change the numbers. Make sure to be true to yourself and calculate using accurate numbers. Don’t get too excited about the property, only get excited about the deal if the deal is right.

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