bodhipooh t1_ja8zvsd wrote
Reply to comment by DirectorBeneficial48 in Anyone else get a 'Chapter 91' notice from the city assessor demanding rent & expense info on income property? by Blecher_onthe_Hudson
Dafuq? How is cash flow, or even rental profit, indicative of what a property is worth if it was to be sold? Lots of people live in properties that could potentially bring in much more money if they were rented out (as opposed to lived in) or sold on the market for someone else to live in. Imagine if we taxed real estate based on its potential rental value! Very few people, particularly long time residents, would be able to afford their tax bills.
I get that some people here just love to hate landlords and shit on their choice to buy and rent properties, but this is ridiculous. If you spend even a minute to actually think through the implications of adjusting property taxes to reflect potential rental revenue, you would see why that’s an absurd idea. Besides, OP's rental income is already taxed in other ways, both by the state and the feds. It’s not like some sort of secret, tax free scam he is trying to hide.
micmaher99 t1_ja9cl6a wrote
Cash flow is the main determination of market value for most commercial real estate. For 4 unit multifamily and smaller properties, you usually do a sales approach and an income approach. For single family homes or condos, you do a sales comparison approach, but that reflects that some people will buy these and rent them out.
Cash flow is 100% a great indication of market value.
bodhipooh t1_jaccva9 wrote
>Cash flow is the main determination of market value for most commercial real estate
OP is in residential real estate, not commercial real estate. Though, your 4-unit example is obviously very much on point and something I had not considered. Those types of properties are obviously meant as rental businesses, but they are still considered residential real estate, no? Ultimately, the landlord is getting taxed on rental business income, so I am still not understanding why the city needs all that accounting information.
micmaher99 t1_jacgviq wrote
>OP is in residential real estate, not commercial real estate
OP has owned "rentals for decades.". Based on that, plus the fact JC is asking OP for property financials, I'm assuming OP doesn't just own a random condo or two.
4 unit multifamily is really where banks and the industry make the switch in talking about "residential" vs "commercial", but with multi-million dollar companies buying up single family homes to rent them out, that line has gotten blurry. It's really a difference without a distinction for OP.
The city wants accounting info to sharpen their income approach value to ensure the property tax assessment is correct. Yes, real estate that is rented for income pays property taxes, even though the landlord gets taxed on that income.
Blecher_onthe_Hudson OP t1_ja9g7ix wrote
It's the way it's always been, and typically the tax on a commercial property is lower than what you'd think for a similar residential. Residential is subject to what Alan Greenspan called "irrational exuberance" in the market, whereas a commercial property is a business and businesses are valued according to how profitable they are. Unless you're a tech startup of course!
The real arbiter of all this is the banks. If you try to borrow money for a commercial property that their appraiser says isn't producing enough income for that price, they're just not going to loan you what you want. Most residential properties and especially condos in JC have prices that are unsupported by their rents.
bobomerk99 t1_jacb822 wrote
>and typically the tax on a commercial property is lower than what you'd think for a similar residential
Really? Can you pull some examples of commercial properties and their property tax?
Blecher_onthe_Hudson OP t1_jad7a6d wrote
Very easy, just compare the assessment of a local property with a store vs similar ones without. https://oprs.co.monmouth.nj.us/oprs/External.aspx?iId=12
265 8th st, AKA 'Walt's Liquor", commercial property with store and 3 units $964,600
267 8th st 4 units $1,284,600
269 8th st 4 units $1,419,600
Note that 265 is a corner and obviously worth more just in land value.
vocabularylessons t1_jaa066a wrote
Cash flow is the basis for determining the value of an income generating property (the income approach). Sales approach isn't as good a method when you have the income information, cost approach isn't nearly as useful in this context.
bobomerk99 t1_jacb29d wrote
>I get that some people here just love to hate landlords and shit on their choice to buy and rent properties, but this is ridiculous.
They'll be crying as soon as they realize it gets reflected in their rent though.
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