As the end of the year approaches, Texas multifamily property owners face one of the most critical aspects of their financial planning: property taxes. With the real estate market fluctuating and tax assessments often unpredictable, preparing a solid budget for property taxes is crucial. Here’s how you can not only prepare for next year’s property tax bills but also position yourself for financial stability and growth.
1. Understanding Your Property Tax Estimate
The first step in any budgeting process is getting an accurate estimate of your upcoming property tax obligations. For multifamily property owners in Texas, this can be particularly challenging given the state’s relatively high property tax rates and the often-unpredictable swings in property values. Start by working with a reliable property tax consultant or appraiser who can help you anticipate the likely assessment for your property based on current market trends. This estimate will be your baseline for budgeting.
2. Budget Generously for Increases
Property tax bills tend to rise year over year, even without significant changes in your property value. This is why it’s essential to build your budget with a generous cushion. When estimating next year’s tax bill, don’t just look at last year’s assessment—plan for a potential increase. A good rule of thumb is to assume that your property taxes may go up by 10-15%, or even more if your property’s market value has surged.
3. Plan for Appeals, but Don’t Count on Them
While property tax appeals are a viable option for owners who feel their assessments are unfair, relying on an appeal to ease your financial burden is risky. The appeal process can be lengthy, sometimes taking years to resolve. More importantly, an appeal does not excuse you from paying the tax bill on time. If you fail to make the payment by the deadline, the appeal is automatically voided. For this reason, it’s crucial to plan to pay the full amount of the property tax bill on time, regardless of the appeal status. Consider any successful appeal a future windfall rather than a current budget saver.
4. Create a Special Reserve Account for Tax Savings
One of the smartest strategies employed by savvy multifamily property owners is setting aside the full estimated property tax amount in the budget and then allocating any savings from appeals or lower-than-expected bills into a special reserve account. This account can serve as a financial buffer for future tax increases or be used to fund property improvements, maintenance, or even acquisitions to grow your portfolio. By doing this, you ensure that any savings are reinvested in a way that enhances the value of your assets.
5. The Insider Secret of Top Multifamily Owners Looking to Expand
Here’s a powerful strategy that top multifamily property owners use to fuel their growth: cashing in on property tax savings from successful appeals to acquire new properties. In a cash-strapped industry where liquidity can make or break a deal, these owners are positioning themselves for expansion. When they receive tax savings or refunds, rather than simply treating these funds as extra profit, they immediately allocate them toward acquiring new assets, increasing the size and value of their portfolios.
The key to their success is partnering with a high-performing tax agent who can secure larger reductions on their property tax bills. The clients we represent have reported to us that they have achieved tax reductions that are 30% better than the reductions they experienced with their previous agents. These superior outcomes not only help them maximize their savings but also give them a competitive edge in acquiring new properties when opportunities arise. In an industry where access to cash is a major determinant of growth, these owners have found a way to turn tax savings into a powerful vehicle for expansion.
6. Avoid Financial Stress with Strategic Budgeting
By positioning your company to handle the full property tax burden upfront, you place yourself in a position of financial stability and power. This prevents the stress of gambling on the outcome of an appeal or scrambling to cover an unexpected shortfall. Planning for the worst-case scenario ensures you meet all obligations while keeping your business running smoothly. If the appeal is successful or the bill turns out lower than expected, you’re in a position of strength with additional funds to reinvest in your property or grow your portfolio.
7. The Long-Term Benefits of Tax Preparation
Over time, building a habit of budgeting generously for property taxes will help your business achieve long-term financial health. As property taxes are a recurring expense, it’s essential to stay ahead of potential increases and have a reliable system in place to handle both the payment and the potential windfalls from appeals or lower bills.
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