RV Park Mastery: Episode 78

Property Tax Strategies



Every RV Park in America gets an annual tax bill – but how you approach it makes all the difference. In this RV Park Mastery podcast we’re going to review the normal strategies that are employed to try and address your property tax obligations.

Episode 78: Property Tax Strategies Transcript

It's been said there are two realities to life; death and taxes. And that's true also of your RV park. This is Frank Rolfe, the RV Park Mastery Podcast. We're gonna be talking about taxes, property taxes, to be specific, where they come from, how they work, and strategies to mitigate them. So let's start off with what is property tax on an RV park? Well, throughout America, every piece of land in our entire country is annually taxed for property tax, as real property. And it typically comes through your county tax assessor. So if you have an RV park right now or you're buying an RV park, it's guaranteed you will receive a bill once a year to pay your pro rata share of the property tax for that county. Now, what comes out of property tax? Well, it does good things. It pays for roads, it pays for schools. It's not like IRS tax where it goes for many things you probably don't agree with. Most of the things your property tax goes for, you do agree with, so I have no problem with the tax itself. However, let's explore the ramifications of the tax and exactly how it works. So, your taxes are set based on an appraised value or an assessed value, excuse me, of your land, of your RV park.

And that's basically what some bureaucrat considers your RV park to be worth, there's no real greater science than that. These people are not all-knowing beings, these are just people who are tax assessors for the county, and they kind of guesstimate what they sort of think things are worth. And some things have much higher values than others, in their eyes, because they are impressed at the outward glamor of an office building or a shopping mall or a big, fancy house. So your RV park probably doesn't draw a huge amount of attention from them. So right off the bat, they're more likely to go low than they are high. So when they come up with their assessed value for your RV Park, which is just based on their own personal opinion, kind of an educated guess, you will get a notice annually of what they believe that value to be. Now, when you receive that notice of value, you have a couple options. One option is, you can just disregard it, and as a result, your taxes will be set at that amount. Or you can go to them either informally and formally and object to that valuation. Now, if you wanna go to them informally, then the way it works is you go down to the tax assessor's office in most counties, and you sit in a room with a whole bunch of other people and you wait and you wait and you wait until someone is available to talk to you.

Sometimes, you might be in there for hours. Finally, someone comes out and meets you and says, "Okay, come on into my office. So what's the problem, exactly?" And then you'll say, "Well, you assessed my RV park at X, and I think it's not worth X, and therefore I think I need to get a lower value." Now, these people already have an insider agreement, they're gonna be willing to drop the value a little bit just to get you to shut up and leave. Because the problem is, if you don't agree to the value, you can technically ask to have a hearing with a tax assessment board to determine what the value should be. And they really don't want you to do that, it clogs up the system. So if you go in there and you wait and you wait, typically just to make it worth your while to wait, they'll take a little bit off. So if your RV park was assessed at $450,000, they might say, "Okay. If I dropped it down to $400,000, would you be okay with that?" And you'll say, "Okay." And great, so now you got $50,000 of value off. Now, let's look at how much that actually got into your pocket. If you're in a 1% state, such as where I live, Missouri, that $50,000 decrease in assessed value is only gonna get you $500, which you'll say, "Well, that's still pretty good."

And it is, except you might spend a whole day there. So, based on what your time is worth, that may not be that great a deal for you. So that's how it works if you wanna do the informal way to do it. And we've done the informal way many times, but you're never gonna get any giant amount down on the informal basis. So then comes your next option, which is to actually formally request for a hearing, say that you totally disagree with the valuation. Now, before we look at that option, let's also understand the property tax is very different based on state. My State of Missouri is at 1%, but the State of Texas is nearly at 3%. So, your skin in the game, your danger from a tax evaluation is much, much greater in a state like Texas where your rate is high, than a state like Missouri which is lower. And the reason I point that out is that, even though you may in your request, desire to have that formalized hearing, beware, because in that hearing, the tax can go either direction. It could go up and it could go down.

You see, in America, we have states which you have to tell when asked what you paid for the property, those are called full disclosure states, and states where you don't have to say what you paid. So in Louisiana, when you buy a property, you have to tell them exactly what you paid, by law. So, Louisiana is a full disclosure state. But Texas, a neighboring state, is a non-disclosure state. You do not, nor are you ever required to tell the tax authority what you paid. So, those are the states. Your non-disclosure states are the ones where you have this uncertainty on value, where you might wanna ask for that major hearing. But let me give you a strategy concept here. If you paid $600,000 for that RV park and it was on tax assessor's rolls at $200,000 prior to the sale, and now you're re-assessed 'cause they got notice that it sold, the tax assessor knows you must have paid more than what old mom-and-pop had. So, they raise you to $400,000. If you ask for the formal hearing on that, they could very well take you beyond the $600,000 that you paid. That's the danger, it can go either direction.

So if you appeal that $400,000 valuation, bear in mind when you go to court, it might end up going to $500,000, $550,000, $600,000. So by and large, assuming that you paid $600,000 in that example, and it was assessed at $200,000 with mom-and-pop, and they raised it to $400,000, I would not suggest you necessarily are going to fight that. Because until it reaches what you paid, you're kind of poking the bear with a stick, because they will put a greater microscope on the valuation and it might not go your way. Now, there is an alternative, you can get a third-party group, like [0:07:25.0] ____ is a popular one in Texas, these people go and they try and get your taxes lowered, and they get paid a percentage of what is saved. So that is an option, to use a professional. Let them go, they're much less likely to poke the bear in a manner that it comes back to attack you, but instead, may get it lowered significantly. But again, if you do it, if you take the gamble using a service like that, you will share the savings from the assessment to what they get it set back at.

The bottom line to it all is that tax is just a given on RV parks, and yes, tax values are going up, because as we all know, governments across America are basically broke and they're looking for more sources to get money. But here's the key item I hope you'll remember as the takeaway from this podcast, and that is, when you set your budget in buying the RV park, you must use your estimate of property tax based on what you're paying. Don't let mom-and-pop's $200,000 value be what you have in your budget, because it's not going to happen. They will definitely, upon notice of a sale, they're going to raise your value, it's just a question of how high they go. Now, we know from experience, if you ask for the formal hearing and you bought the property at X, they will typically adopt X as the new value. So as long as you have that number in your budget, you can't go wrong, because that's probably your worst case scenario. But if it comes in under your budget, that's great, but your budget must be at the full amount.

Now, mom-and-pop will tell you, "Oh, they won't raise you that much," but mom-and-pop have no skin in the game at all nor any knowledge of how the tax assessor is working. So, sure, they'll tell you that, give you the warm fuzzy feeling up till closing, and then you'll get your notice they've raised you from $200,000 to $400,000. But mom-and-pop could care less, they've already got their money and they've already left the building. So, just be careful with tax assessments, make sure that you always utilize in your budget, the correct number, and that'll keep you out of trouble when the tax bill comes. This is Frank Rolfe, the RV Park Mastery Podcast. Hope you enjoyed this. Talk to you again soon.