How Does The Property Tax System Work?

William Ryan May 27, 2021
3 min read
How Does The Property Tax System Work?

Property Tax Basics

Each year, multifamily properties receive a valuation notice and later, a property tax bill.  Property taxes are used to fund local schools, city and county governments, and other local projects.  Since Texas does not allow income tax, property taxes become extremely important for funding the local government.  

Every county has a Central Appraisal District and its responsibility is to determine the market value of each property in its respective county.  To accomplish this goal, they must use methods of mass appraisal and make many assumptions about properties as a group.   

The Central Appraisal District does not determine or tax your property.  They don’t even set the tax rates.  The local taxing units set the rates and collect the taxes.      

Inaccurate Valuations

As you can imagine, a process that makes assumptions for large groups of properties leaves a lot of room for mistakes.  For your Texas multifamily property, you should never assume that your property has been valued correctly.  The valuation should be reviewed within the 30-day deadline, giving you time to appeal it.  For established multifamily properties, they are most often valued on an income approach.  The income approach looks at the net income and a return rate in deciding what a potential investor would pay for the property.  Using market rents and market expenses produces a market valuation, known as Fee Simple.  Using contracted rents and actual expenses produces a valuation known as Leased Fee.  The goal in Texas is to determine the Fee Simple valuation of your property.   

Controlling Your Property Taxes

When you consider all the annual expenses at a multifamily property, property taxes are the largest, typically making up 33% of total expenses per unit in garden apartments and 39% of total expenses per unit in mid & high-rise apartments according to the National Apartment Association 2020 Survey of Operating Income and Expenses.  

Cost cutting measures can easily be swallowed up by increasing property taxes.  Fortunately, you do have options to combat property tax increases.  If you feel your property is overvalued for tax purposes, you can file a protest with the Appraisal Review Board in the county where your property is located.  During the process, you will need to provide evidence showing why your valuation is excessive.  Remember: this is an argument about the valuation being too high, not the property taxes.  Stating that your taxes are too high will not secure a reduction to the noticed value.  If the protest is determined in your favor and your valuation is reduced, this will have a direct impact on your property tax expense.  Paying close attention to property taxes can have a significant impact to your bottom line.

Don’t Ignore Your Valuation

It is so easy to get caught up in other responsibilities and forget the importance of the one little piece of paper stating your property value and appeal deadline.  Yet, that paper can potentially be one of the most significant ways to reduce your expenses and increase your profitability.  In the rush of everything else, don’t forget to look at your property taxes.  If you are overwhelmed by all you have to do, property tax appeals can be taken off your plate by giving it to a multifamily property tax specialist.  Done right, tax agents should expand your capacity while eliminating your stress. 

See How Wayfinder Can Help

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