All Forum Posts by: Mike Hanna

Same here Eric. If you do this after an initial purchase it really can help going forward.

I agree Ronald. Great points.

Yes. We are seeing it with the loan activity we are doing. Most is outside of any metro area. Thanks for the nice comments on Paul.  

Texas Real Estate Inventory (or lack thereof)

While most of us have spent the past year thinking about other aspects of life, Texas real estate investors have wondered what the market was going to look like when everything returns to normal. A year ago at this time we saw demand increase while supply levels dropped. Most experienced investors were surprised by what they were seeing, and anyone new to the business probably didn’t understand that this was not a normal market.

The Latest Numbers

Real estate professionals will tell you that a six-month supply of houses on the market is considered healthy and balanced. As of March 2021, available inventory was 1.5 months in Texas. Inventory levels at both the wholesale level and retail level are at historic lows, and the days on market for anything retail is averaging less than 30 days across major markets in Texas. This is causing prices to not only remain high but also to continue increasing. Most investors that are finding deals are going outside their respective metropolitan area and into tertiary markets. So what does this mean for the housing market and deal flow for investors, and when is this going to change?

Inventory Factors

There are two factors worth considering that may increase inventory levels for investors, as well as retail buyers, but to what extent is still to be determined. First, the number of homeowners in Texas that are behind on their mortgage payments as of March 2021 is 8%. Of this percentage, 13% believed that their chances of being foreclosed on were ‘somewhat likely’ in the next two months, according to Texas Housing Insight. While they didn’t give an exact number of how many mortgages this would be (this was a U.S. Census Bureau survey of some undisclosed number), these percentages most likely represent a large number of people just given the size of the Texas housing market.

Will there be any foreclosures in the near term? As of the date of this article, there is still a foreclosure and eviction moratorium in place through the end of June 2021. However, a federal judge recently ruled that this was unconstitutional, and the case will most likely go to the Supreme Court. The process to get there might be accelerated, as the impact of this on lenders, and the mortgage-backed securities behind all of these mortgages, is significant.

The second factor is the snowstorm that devastated Texas in February, resulting in billions of dollars in damages. Roughly 4.5M homes were without power, some for several days. While not every one of these homes experienced issues from pipe bursts, hundreds of thousands of homes were affected. Due to the record number of claims being processed by the insurance carriers, many of these homeowners have not received a check for their damages yet, let alone repaired all the damage they suffered. This may be due to the overwhelming cost to repair, and the fact that demand for contractors has outstripped supply. Many of these owners cannot afford to pay for their mortgage and pay for a temporary place to live. Others will not be able to afford repairs even after an insurance check is cut. Both circumstances may result in an owner’s decision to sell out of necessity.

Timeframe and Possibilities

So what’s going to happen and when? I don’t have a crystal ball, but I do think there will be some foreclosures that take place in the second half of the year, possibly in the fourth quarter of 2021 or maybe in the first quarter of 2022. If/when this happens, there will probably still be a tremendous amount of demand for housing. Coupled with very low mortgage rates that will likely be available and the continued influx of new residents from other states, those houses will quickly get absorbed in the market. Many homeowners that were victims from the storm might take their insurance check, not make the repairs, and move somewhere else, if they can find a place to go.

Intervention

No one wants to see anyone be foreclosed or have to move from their home due to costly repairs. While the latter will not be protected by the federal government, the feds could intervene and prevent foreclosures by mandating adjustments to mortgages (i.e., through forbearance agreements, loan modifications, extensions, etc.) thereby limiting an increase in inventory levels, and keeping the supply low.

Moving Forward

This is the type of market that can scare some real estate investors if they aren’t patient, not diversified, and/or have limited experience. If you are a wholesaler or flipper, it’s challenging to find deals. However, the rental property owners I know are having success. They are cash flowing better because rents have increased, and they have been able to get financing at record low interest rates.

You need to be able to implement all investing strategies (i.e., wholesaling, renting, and flipping), to be successful in this business and not walk away from a deal. Bouncing in and out of industries as the market changes, won’t lead to long-term success. Staying focused with a plan is the best course of action.

Sorry I forgot to include who I have used - Resolute Property Tax Solutions. 

Yes, I have used them for many years and they worked well for me. Protesting works much better on purchases than on property you have rehabbed and owned for over a year. Especially if the subject property required a significant rehab, and you purchased it well below market value. We are in an upward trending market right now, so it's going to be more difficult to protest. However, if you have comps that support a lower assessed value, and the appraiser at your district will not make an adjustment, you have the right to appeal to the appraisal review board in your district. It may or may not be worth your time to do this, but if it's several thousand dollars in savings, it's definitely worth a couple of hours of your time.

Hey Toni, I am so glad this helped you!

Over the past several years, the appraisal review boards have been raising assessed values across the state of Texas, with the major markets being hit hardest. I want to help you save some money, and be ready to protest as the window of opportunity is rapidly approaching.

My clients, friends, and associates know that, over the years, I have devoted time not only to protesting my taxes, but also teaching others how to protest their taxes. Since the protest season is right around the corner (May timeframe), let’s dive right in with an example and what to do.

Say you purchased a property that has a current county tax-assessed value of $200,000, with a tax rate of 2.67%. This would mean your annual tax amount would be $5,340. If you purchased this property for $100,000 because it needed a significant rehab, shouldn’t the tax-assessed value reflect the property in its purchased condition? Of course it should, but in most cases it will not. Why? Most property owners do not protest their property taxes, and if you bought this property off-market, the appraisal district isn’t going to know what you paid for the property, let alone the condition.

If you protested the property taxes in this example, and reduced the tax-assessed value to the purchase price of $100,000, you would now have a tax amount of only $2,670, or one half the current tax amount.

Let’s say the market rent for this house is $2,000/month. The principal and interest payments are $852/month (based on a loan amount of $150,000, interest rate of 5.5%, on a 30 year note), and insurance of $100/month ($1,200 per year). Your positive cash flow before protesting would be $603. After protesting, your cash flow increases to $825.50. This additional $222.50/month is a 37% increase!

Conversely, if you are flipping this house, and it takes you six months to get it sold, your savings on the tax credit you give the borrower would be $1,335. While that doesn’t seem like a lot of money, every dollar counts when you’re flipping a house. For a couple of hours work, you can decide if it’s worth the effort to protest.

Steps to Protesting

The first step in protesting your property taxes is to find the appraisal district website for the county where your property is located. For example, if your property is in Dallas County, go to www.dallascad.org. Once you are there, look for the menu, or search the site for tax protest guidelines. Many districts allow protest filing to be submitted online. However, each appraisal district has their own protest time window for when you can protest, along with their own procedures, and how the process works. All of it is quite simple and doesn’t consume a lot of time. Just follow the steps and you’ll be on your way to saving money.

Whether you protest online, by mail, or in person, be prepared to have the following four items ready to make your case:

1) Settlement Statement from closing. This shows the appraiser what you paid for the property. A copy is fine as they do not need your original.

2) Photos of the property that the appraiser can keep for their file. You will want to use pre-rehab photos. The uglier, the better. This illustrates why you were able to purchase at such a low price (“Mr. Appraiser, this property was a disaster when I bought it. Just look at these photos….”)

3) Estimates of work to be performed. This shows the amount of work needed to get the property in livable condition. If you have this documentation, it helps prove your case.

4) Sold Comparables (comps) in the subject’s area. You need these for a current understanding of the market in your subject’s area. The tax appraiser will certainly be looking at them online, when making a decision on your value. However, they will not be weighted as heavily as the other items if your property needed significant work. If you are not familiar with how to get effective comps, you need to get with a realtor or appraiser to help you.

After you file your protest, you will be sent a notice with a date and time for your ARB hearing. Prior to this hearing date, you will want to make an appointment for an informal review with a staff appraiser. This can be arranged by phone or going to the appraisal district in person.

At your protest appointment, your objective should be to get the tax assessed value lowered to the purchase price of the property. If the property needed significant work, the purchase price is justifiable for the new assessed value. My advice is don’t talk too much. Less is more in these situations, and the appraiser already knows why you are there. Merely stating that you want the value lowered to a specific amount due to condition, should suffice. Submitting your settlement statement, ugly photos and estimates of work to be performed, will illustrate that you are prepared and will provide appropriate data to make your case. The appraiser, in most cases, will lower the value, maybe not to the purchase price, but to some lower assessed value.

My advice is take what you can get. However, if you are not happy and feel that you were not treated fairly, you can refuse to sign the adjusted value form, and take your case to the Appraisal Review Board (ARB) at the scheduled time you received on your protest acknowledgement. This is a separate in-person hearing with ARB members, and the district website will explain the process for doing this. I’ve had success at an ARB hearing. They can be worth your time, if the savings are significant.

If you hold the property as a rental, you need to repeat these steps each year. You won’t be able to get the value down to the purchase price again though, so you will need to use your realtor or appraiser to figure out what the new comps are that year and be prepared to state the new value you are looking for instead of providing a settlement statement.

As real estate investors, we want the maximum return we can get from each property. I would highly encourage you to protest every property you purchase, including properties you are going to flip where the numbers and timeframes make sense. Even protesting just one property can make a huge difference in your returns. If you have multiple properties the savings can literally be thousands of dollars.

This is a great networking event with like-minded real estate investors. It's free to attend, but you must register here to do so. Please stop by our table to say hello. Hope to see you there.

I agree!  BP is the right forum for learning Ken.