NY Self-Storage Owners: Cut Costs with Property Tax Appeals
As a self-storage facility owner, you are probably quite familiar with the fact that your property tax bill is one of the largest annual operating costs for your business. In NY this is exacerbated by the fact that out of the top 8 counties with the highest property taxes in the US, 4 of those counties are in New York State. Self-storage facility owners in other states do not have to assign such a large chunk of their budget towards property taxes, which allows more room for building maintenance, improvement, and other strategic business expenses that can help fuel growth.
So what can self-storage owners do to determine if their property is fairly assessed, and if it is over-assessed, to lower their property tax bill? NY commercial real estate values have been on a real roller coaster ride over the last few years. If your property hasn’t been assessed in several years, or even if it was assessed last year, the current real market value may be very different from the assessment that your property taxes are based on.
You might think a higher valuation is positive when it comes to potentially selling the property, but the valuation for tax purposes and the real estate market value are based on two different calculations and don’t always correlate. It actually increases your self-storage facility’s value to have a lower assessment and therefore a lower tax bill, because a higher tax bill works against your income, which means a buyer may pay less for the property.
As tax bills are on the rise across the country, but especially in NY, you don’t want to let an unexpected tax increase throw your operating budget into the red. The self-storage market has seen real estate property values rise much faster than most other CRE markets, especially since the start of the pandemic. It is a good idea to put aside money in your annual operating budget to account for possible property tax increases. A 5% yearly increase is a reasonable place to start.
If a jump in property taxes does happen, it is important to note that working with a consultancy like Realty Tax Challenge to appeal the increase does not cost you any money upfront, so you don’t need to budget for that. RTC only receives payment if the appeal is successful and your assessment is reduced, so it is always in our best interest to make the strongest case possible for appeal.
The first step to determine whether you should appeal the valuation that your taxing municipality is basing your property taxes on, is to check the assessed value assigned to your self-storage facility. You can check your assessment here at the NYS Dept of Taxation & Finance website. Some commercial business owners worry that if they go through the appeal process, also known as the tax grievance process, their taxes will increase, but that is not the case. It is actually against NY State law for property taxes to be increased as the result of a grievance.
Valuations for commercial properties in New York, such as self-storage facilities, are calculated using the income approach. The income approach is a method of estimating the value of a property based on the income it generates. This approach is based on the principle of capitalization, which states that the value of a property is equal to the present value of its expected future income. This takes into account the income generated by the property, such as rental income, as well as the expenses associated with the property, such as taxes, insurance, and maintenance. The value of the property is then calculated by dividing the net operating income (NOI) by the capitalization rate (CAP rate).
Even if you think your assessment looks relatively accurate, it is still a good idea to have a professional real estate tax grievance company like Realty Tax Challenge review your assessment. Utilizing our extensive experience in the New York commercial real estate market and our exclusive, proprietary database, we are able to accurately determine real property value. If your self-storage facility looks to be over-assessed, we will work with you to start the tax grievance process and dispute your assessment. We can also let you know if your business may be eligible for tax exemptions. If you would like to schedule a free consultation, please contact us today.