The Adams County tax reassessment will de-value investment properties due to increased taxes. It may be intuitive to some depending on their real estate education or maybe not so much if investment properties are a foreign concept. You see when you purchase an investment property the most important figure is the net operating income.  Net operating income refers to the money left over after you’ve paid all of your expenses.

Typical Operating Expenses include: 

  • Accounting
  • Advertising
  • Property Insurance
  • Property Management
  • Property and School Taxes
  • Repairs and Maintenance
  • Laundry
  • Lawn Care
  • Snow Removal
  • Legal
  • Licenses/Permits
  • Cable T.V.
  • Trash
  • Electricity (common areas)
  • Gas
  • Oil
  • Water and Sewer

So to clarify you start with Gross Operating income, subtract the Operating expenses, and are left with Net Operating Income.   The Gross Operating income is the total amount of income a property generates in one year.  The Operating Expenses as listed above are all the expenses are property has in one year.  The Net Operating income is the total money left over after all operating expenses are paid.  Are you starting to see how higher taxes would effect the value?….Keep reading.  The net operating income is used to pay a mortgage or any debt related to the property.  The higher the operating expenses on a given property the lower the net operating income.   The lower the net operating income the less money that is left over to pay a mortgage.

So how does this effect the value of the property? 

When real estate professionals and investors figure out what to pay for a property they often consider the net operating income because it is a real life figure that can quantitatively show how much money a property can support per month.  An increase in taxes of $1,000 to $1,500 could effect the value of the property by $10,000 to $15,000.  Tax increases while potentially good for the taxing body can be quite harmful to property owners, especially investment property.

 

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