In general, the higher the assessed valued of a self-storage facility, the more you’ll pay in property tax. In addition, the higher the appraised value, the greater the borrowing capability. What most self-storage owners want is a low assessed value for tax purposes but a high appraised value for refinancing purposes. In my experience, you can’t usually have it both ways. The answer to the value question really lies in the concept of fairness.
Normally, property owners receive an annual property-tax bill. Most don’t contest it, which is perfectly acceptable, although there are instances when they should. The property tax is based on an assessment value provided by the local taxing authority. Your local taxing authority, usually the county tax assessor, has a tax-identification card for each parcel of property in that particular county, including your self-storage store. The value placed on your site by the assessor multiplied by the tax rate yields the annual tax bill (though sometimes this calculation is a bit more complex).
Every three to eight years, the county tax assessor will revalue all the parcels in the county, normally to account for an increase in value. Most counties or municipalities derive anywhere from 50 percent to 75 percent of their annual operating budget from property taxes, so it’s a very important source of revenue. Although you can challenge an assessor’s value each year, you normally have a more forgiving set of procedural rules in a revaluation year.
If your self-storage store is in a large county with many tax parcels, your new value may be based on the application of a mathematical formula, not on an individual appraisal. It’s simply impossible to individually revalue hundreds of thousands of parcels in a particular county in a short period of time (normally one year) with limited resources. This can lead to inherent inaccuracies in the valuation of individual parcels, even though statistical safeguards are applied to the formulas.
What all this means is you need to double check the tax value of your self-storage store, especially during a revaluation year. You should be checking for errors, inaccuracies and inequities. Remember, we all just want to be treated in a fair, accurate and equitable manner. Here are three items you need to evaluate as a self-storage owner to see if your self-storage property has an accurate and fair value for tax purposes.
The Property-Tax Card
First, is the property-tax card accurate? You can normally look at this on your county’s website. Does the tax card reflect the correct net leasable square footage, proper acreage, type of construction, type of use and any improvements (or lack thereof)? Does your site have any inherent issues like power lines, right-of-way easements, wetlands or other site challenges that may significantly change the value? Is the self-storage store listed as a retail building, which potentially carries a much higher value?
Assuming you’re in a revaluation year and you discover inaccuracies, you’ll want to file a written notice of protest as described by the county assessor’s office. You may consider hiring an independent third party, such as an attorney or commercial appraiser specializing in self-storage valuations, to represent you; however, this article assumes you’ll represent yourself.
Request an informal meeting with the assessor or the county appraiser assigned to your self-storage store. In the informal meeting, point out any inaccuracies in the property-tax card. Be professional and courteous during this meeting. Remember, the county employee wants to get the value right as well. This may correct the value issue, or it may require further action and discussion.
An Appropriate Capitalization Rate
If the tax card is correct, does the value still look wrong because of the application of inaccurate appraisal techniques? In other words, did the county appraiser use the wrong capitalization (cap) rate for your self-storage store? Assuming you gave the county assessor your actual income and expense statements, did he apply a “fair” cap rate based on the age, size and level of competition for your property?