AIPIS 257 - Reducing Property Taxes Through Tax Appeals with Keith McIntosh

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It's my pleasure to welcome Keith McIntosh. He is President of McIntosh & Associates Real Estate Tax Consulting and founder of HomeTaxSavings.com Many of you have asked over the many years we've been doing this and helping people build nationwide portfolios about the best way to appeal property tax assessments. And it has been very difficult to find a source, a firm, a vendor that can do this nationally. So we're going to dive into that topic today and help you save money on property taxes. We are in a highly appreciated market in virtually every place in the country. This can definitely save you some money if you can get those assessments down, down a little bit. Keith, welcome. How are.

You? Thank you. I'm great, Jason, and thank you for inviting me. Looking forward to this podcast. It's actually my, my first podcast.

So.

Okay. I'm a.

Newbie. Good stuff, good stuff. It's just a conversation, so no big deal. Okay. So Keith, you're in Washington, D.C. give us the very high level view of property tax assessments and how they work and how someone may want to dispute what the assessor says their property is worth in order to save money on property.

Taxes. Yeah, absolutely. So here's the deal. When most jurisdictions assess property annually, some do three, five, seven years, but most do it annually. And that's for commercial and residential property. And when they do it, they're using mass appraisal techniques. So clearly their resource constraint, they're not able to individually value each piece of property in their respective jurisdiction. So they go to mass appraising and they have various programs and methodologies for doing this and they're fraught with errors. And until you can really get in and make sure that that jurisdiction understands your property and uniqueness of your property, you're just going to continue to be assessed at whatever the numbers they come up with. And so there's a process to challenge that value, typically on an annual basis. And there are very short windows of opportunity. So essentially an assessment will come out. You will have, you know, 30, 45 days to file an appeal. If you don't appeal, then that assessment stays for your upcoming tax year. But if you do appeal, you have basically three opportunities. The first level appeal is typically again, you'll get your assessment, you'll file a form back to the jurisdiction indicating the fact that you want to challenge this assessed value. And the first level of appeal starts with an assessor. You'll either have a phone hearing or a sit down, and you'll have the opportunity to share with that assessor your opinion of value for your home and be able to share intricate details about the condition or the market surrounding your property and things of that nature or the tenancy in the building. But you have to have a sort of a well established sort of value position, meaning you're not going in there with just pictures, you're going in there with data, which is comparable data, comparable home sales. Or if you have a commercial property, you're looking at rents, achievable rents, and actual vacancy. But on the homes, you'll go in with comps, you'll go in with pictures, as much detail as you can bring the market, the condition of the home, and you'll end up with not right there, but you'll get a decision from that first level appeal and you know, you may get a reduction at that level. Or if the assessor deems that their value is justified, you'll have another opportunity, and that's typically with a tax appeal board. And these boards are made up of appointees that sort of arbitrate between the state assessment office and, and the taxpayer. And you'll present your case to that board and the assessor will present its case to that board, its valuation position, and that board will make the determination. And if you are still aggrieved after the board's decision, you can take it to tax court, which is a more expensive proposition. Typically, you know, most commercial property owners go this route, but on the.

Residential side wouldn't be worth.

It. Yeah, the economics aren't worth.

It.

Right. Given the amount of tax dollars we're talking.

About. Okay, so, Keith, a couple questions. You're talking in a very traditional way, if you will. And what I mean by that is you say things like, you go in there and I want to just unpack that and make sure the listeners really know what that means. Okay, so do you actually have a live hearing, like where you show up in person and do this, or do you fill out a form and attach a, you know, a comparative market analysis, maybe from a local realtor? Or you look on the online and look at some comps and say, hey, look, my property is a piece of junk. It's not worth anything, so lower my taxes. You know, it's sort of the opposite of. You're in the opposite role of when you're a seller, you want to say your property is worth the most. Of course. Right. What are the mechanics of.

That? Sure. The mechanics are when you get your new assessment. So you'll get a letter in the mail from the jurisdiction basically saying your new value for tax year 2019 will be, you know, $200,000. And you have the opportunity to challenge this value by either submitting a written presentation or you can request an in person hearing. And those forms, you'll typically, my suggestion is that you do it in person because that's, you know, it's more personal. You'll get a chance to meet the assessor who developed a value for you. So you have the.

Option. Perfect. Okay. So the real of the vast majority of people listening though are that they're not going to be able to do it in person because, you know, they're building nationwide portfolios of property. And even if they were local to their properties, you know, if they, they lived in, in one city and the property was in that same city, who has the time? I mean, you know, if you're a small fish and you got lots of time on your hands and, you know, you're sort of living in the regular world. Yeah, I get it. But for most people, they just don't have the time to do this. So you offer a solution for that, Right? That's what your company.

Does. Yeah.

Absolutely. Okay, so I want to talk about that, of course, and hear what you do and how you handle that process and how much it costs and so forth. But the first stage is the appeals board.

Right? Well, the first stage is the assessor level, and then the second stage is the appeal.

Board. Okay, and. But didn't you say tax.

Court? Yeah, that's the third stage. There again, there are three levels. Successor board.

Tax. So tax court would only be done on really expensive properties where, you know, you could be talking about tens of thousands or maybe even hundreds of thousands of dollars in tax savings. And I'm just curious, is that the same tax court that you go to for IRS.

Disputes? No, this is state and local taxes. IRS is federal taxes. These are state and local property.

Tax. Right, but is it the same kind of formality where you're literally filing a lawsuit and you got to have a lawyer and at the court.

Level?

Yes.

Yeah.

Wow. Okay. That's probably not going to work for anybody. Got it. Okay. How do you do this for people? You know, say someone owns a dozen properties or, you know, two dozen properties there may be in three to five markets around the U.S. that's the typical plan. We suggest that they diversify in at least three markets, but not more than five. What do you do for them and how does it work? They get their tax bill, and they say, hey, I want to reduce this tax bill. What do they do.

Next? What we do for clients. You know, I've been in the business 25 years and run a commercial tax practice, and we handle commercial property tax appeals for owners around the country. But when I'd go into hearings in my market, D.C. maryland or Virginia, I'd run into homeowners, small investors, who want to challenge those values. And so what I decided was that we needed sort of a national platform that uses big data that can help, you know, that small investor with multiple properties and multiple jurisdictions challenge their values without too much heartache. So we developed hometaxsavings.com and essentially what that does is allows the investor, homeowner to come in, type in their home address, put their assessment in our analytics, run comparables, and we run analytics on those comparables online, and we come back to you with a recommendation to appeal or not appeal based on our algorithms. And so if we identify appeal opportunities, we charge you for that. All the comparable data that you'll need to submit to the jurisdiction, with adjustments, along with all the requisite appeal forms that are required by that jurisdiction. And so if you have, you know, five or six properties or, you know, different jurisdictions, I'd say the process for each Property takes about 10 to 15 minutes. And so you'll have all the documentation you'll need to put in the mail and file to the.

Jurisdiction. Okay, so basically, you provide the data, and then the individual property owner mails it in themselves to the jurisdiction. Right. Or, of course, they could appear in person. Now, why is your quote, unquote, big data, unquote, better than the county assessor's big data? I mean, isn't it the same data? Or, you know, is your assessment going to come in lower than theirs or your opinion of.

Value? I should say their analytics are run on a very broad sort of number of properties, whereas our analytical data really zeroes in on, you know, what's occurred within a few blocks or within a half a mile of your property, because you can have pockets of neighborhoods that are appreciating faster than others. And those are sort of included in your assessment and our data, really, we do have the same sale comparables sometimes, but we're looking at those comparables and we're making adjustments against our property versus their property that they used. So there's our broad economic data, and ours are individualized. We have five comparables we're going to generate for you with adjustments to each of those comparables based on size, number of bathrooms, condition, and that sort of data. So it's a much more finely tuned analysis of your property than the jurisdiction typically.

Provides. Okay. How much does it.

Cost? There's no charge currently for the review, and we think there's value there for the owner just to understand whether or not they're paying their fair share in taxes. Once we complete that review, if we identify disparity between our value and the assessment, and it's got to be greater than 5%, typically, jurisdictions won't allow an appeal unless it's more than 5% of the assessed value. So if you're within that range, it's not likely that you're going to appeal. And so the charge is about $60 up to $99, depending on the level of savings we can generate. So if we're, you know, $2,000 or more, the document, the all the documentation comps is a little costlier at about $99. So it's $60. You're getting the report, you're getting all your requisite appeal forms automatically filled out and ready for you to submit to the.

Jurisdiction. Okay, so the simple answer is $60 to $99. Is that.

Correct?

Correct. Okay. And then a percentage of the.

Savings? Well, we don't charge a percentage of the savings. So this is for the homeowner to do themselves. You know, they go online, they put in their address, they generate the report, they download the files, print the files, and put them in the.

Mail. Got it? So. So that's it. It's 60 to 90 million dollars. Okay, that's great. Now, so it's a totally automated service. I'm guessing there's no human totally automated. Okay. Because most of the companies that do this are localized. They don't do it nationwide. Are you in every.

Market? No, we are. There are thousands of taxing jurisdictions across the US and so we are in about 12 states right now. And within the next few months, we'll be in 20 states and working our way around the country. I'd say by the end of next year, we should have, you know, 90% of the states covered, but not all of the counties, you know, in some counties are, you know, two, 300 counties that require different appeal forms. And, and so we're building all along the way. So if you go to our site and you put in your address and we're not covered, you're in our database and we'll be reaching back.

Out. Yeah.

Right. Yeah. Be.

Notified. Okay, so in addition to providing, you basically provide, it sounds like comparable data and then you provide the forms for each specific jurisdiction.

Right?

Correct. Yeah. Isn't it? You know, I always say when it comes to real estate investing for the, you know, middle and upper middle class person. Right. You've got to embrace the fragmentation. That's my line. I've said it many times. And the reason is, you know, it's such a hassle that all these jurisdictions are different. They have different forms, they have different processes. But that's the thing that makes it hard for the big Wall street institutional investors to come into our market and eat our lunch because. And they are dabbling in it a little bit. Obviously we've seen huge companies like Invitation Homes and so forth with, you know, thousands and thousands and thousands of homes, but largely this is still a market that belongs to mom and pop investors, thank God, because the return on investment is so high, even if you're overpaying on your property taxes, you know. Right. But, but it is fragmented. So I say invest in at least three markets, not more than five. So, you know, once you do this a couple of times, you know, you'll kind of get it. And it can be automated. Now, do you offer a non automated service as well, or is that just prohibitively expensive for someone that's going to save, you know, a few hundred bucks a.

Year? Well, you know, on my commercial business, I have appeals pretty much across the US pretty much in every state. And I represent, for instance, with the US Postal Service and all of the post office branches that they lease, they have to pay taxes on those branches at state and.

Local. They pay taxes on the lease.

Right, on the leased properties, yeah. Not the owned.

Property. Now, whoa, whoa, wait a second. Isn't it fascinating, dear listeners, that the government has to dispute taxes against the.

Government?

I mean, the two different.

Governments. I get it, I get it. And the post office isn't exactly the government either anymore, but you know what I mean. Right? We all got. The irony is just amazing. Yeah. Okay, go.

Ahead. Well, a number of years back, you know, I had met with Fannie Mae after the financial crisis and I said, guys, you know, there's millions of properties that You've taken back and were assessed and we can appeal all of them. And they love the idea. And then at the end of the day, they said, well, you know what? This is taking money away from the states. We should probably shouldn't be doing.

This. Yeah, that probably would be a pretty bad press release if the, if the, if all those taxing jurisdictions said, hey, look, here's this pseudo governmental agency. Fannie Mae. Right. You know, and Freddie Mac, I'm sure, did the same thing, saying, look, they're trying to cheat the municipalities. But it's not really a matter of cheating. I mean, it's just a matter of getting the value right. And, you know, our legal system is built on the adversarial process. You know, one side thinks one thing and the other side thinks the other thing. And, you know, I've learned, maturing in business over many years, that there's two sides to every story. Okay. You know, there really are. So you got to tell your side if you want to have a chance at saving on your taxes. Do you have any metrics that you can share with the listeners for the typical savings in disputing? I mean, and by the way, before you even answer that question, if you can, this is a moving target because, you know, it depends on the market cycle, if it's a highly appreciated market or, or a declining market. Usually in the declining markets, where you're really going to want to get ambitious about disputing, I would guess, but correct me if I'm.

Wrong. Well, you know, in the markets that are increasing, you have assessment jurisdictions are being very aggressive and maybe sometimes too aggressive in their valuation. So you want to appeal and look at those values. And the declining market tends to be the same way. They're looking at losses in revenue. Their school districts are losing tax revenue, and so they're trying to hold on to the values that were there prior to the decline. So in either circumstances, it's when the market's not really moving at all is when, you know, there's not much to do, but it's going up, it's going down. You should be filing an appeal or just looking at.

It. Right. Any metrics? How much do people.

Save? 10% is usually what we end up when we look at if we actually file an appeal on behalf. And we do this for clients around the country with multiple properties, and we do the appeals for them using our network of providers. And so if you had, let's say, 10 properties, four jurisdictions, and the economics made sense for us to look at that portfolio we would handle that for you. We would charge a percentage of the savings and we would engage our local consultants because we have a network of providers around the country. So we would engage our local consultants to take that appeal through the process. We would take a percentage of the savings. But typically we find if we file an appeal, 90% of the time we're going to get some relief. 90% of the time, if we file an appeal, we're going to get.

Relief. Okay, so you're going to get something just for asking. It sounds like 90% of the time, but it may not be enough to have made it worth it. Like you May. You spend $99 with your company, you spend some time doing it. And by the way, I want to ask you, how much time does it take the user to do it? And then you'll think, eh, you know, I saved 200 bucks, whoop de doo. But I would think that there's a bit of a, kind of a processional effect here. In other words, if you get the assessment down lower, then maybe in the following years they build on that old assessment. Is that true? Or maybe you don't.

Know. No, absolutely true. I mean, and that's what we tell our users. Basically, you get it down this year, it's likely that your following year's assessment is going to start with a lower basis. Absolutely. And yeah, it's something that you really do have to focus on. Now. Our system basically will recommend filing only when we find at least 5% or more discrepancy between our value and the assessed value. So you're not going to pay the $60 to file with the potential of only saving, you know, $100 or $200. We set the limit at least 200 on the lower value homes and you know, $800 on, on the higher value home. So there are mechanisms built into our system that deal with.

That. Good, good. How long have you had the automated system going? I know you've been in the business a long time as a, probably a very expensive Washington D.C. consultant, you know, for, for big deals and big commercial properties. But how long have you had this automated system.

Going? We just started, launched it last spring. And so it's, we're coming up on one year. It's really, this is really our first year. We're learning more about our, that have issues and we're, we're fine tuning all along the.

Way. Yeah. How many assessments have you done so.

Far? We've done about 120 so far. I mean, of properties that had, you know, Appeal potential. And so our goal is to sort of get a social media campaign going, PR campaign. It's very expensive to market individually, and so we just need to get the word out to owners, investors that this is something they should be looking at annually on their portfolios or.

Other. Sure, sure. Do you have a competitor that does the nationwide or. I mean, you're not nationwide yet.

But, you know, we're the only ones that. We're the only.

One. That's what I found. We have looked and looked, and there are lots of them that do it locally, but we have. That's why I wanted to get you on the show, Keith, because we have not been able to find anyone that does it more than locally, at least so far. So, yeah, Good. Good stuff. Are there any questions? I didn't ask you anything. You just want to share with the.

Audience? No, I think we covered most of what I wanted to touch on. I mean, the idea that, you know, starting with. Get in the habit of looking at it, because a lot of times, you know, property taxes are paid through your escrows. You know, you get the notice of assessment in the mail. You're not paying attention to it because, you know the taxes are being paid out of escrow and it's not immediately coming out of your.

Pockets. Pay attention because you're still paying.

Them. Yeah, yeah, you're still paying them. And so that's the deal. You know, there are only 5% of homeowners that actually file appeals on their property.

Assessment. Wow, that's a tiny number, isn't.

It? It's a tiny number, and so we're trying to change that.

Paradigm. Good. Good stuff. All right, Keith, the website hometaxsavings.com thanks again for joining.

Us. Thank you, Jason. Appreciate.

It.

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