Real Estate Taxes

Real Estate Taxes, often referred to as property taxes, are taxes that property owners are required to pay based on the value of their property. These taxes are a significant component of the operating expenses of a commercial real estate property.

The amount of real estate tax due is typically determined by two factors: the assessed value of the property and the tax rate set by the local government.

Assessed Value: This is the value assigned to the property by the local taxing authority (usually a county assessor's office), often based on a percentage of the property's fair market value. The method of assessing value can vary by jurisdiction, but it typically involves consideration of factors like the size, location, use, and condition of the property, as well as the sale prices of similar properties in the area.

Tax Rate: The tax rate (often expressed as a millage rate or mill rate) is determined by the local government and is typically a per-dollar amount for every $1,000 of assessed value. The tax rate can vary depending on the needs of the local government and the services it provides.

The real estate tax for a property is calculated by multiplying the assessed value by the tax rate.

It's important to note that real estate taxes can vary significantly by location, and they can also change over time due to factors like changes in the property's assessed value, changes in the tax rate, or the addition of special assessments or levies. For this reason, property owners and investors need to carefully consider the impact of real estate taxes on their property's cash flow and profitability.

In commercial real estate leases, it's also common for tenants to be responsible for a portion of the property's real estate taxes, especially in net lease structures where the tenant agrees to pay for certain operating expenses in addition to their base rent. The specific terms regarding the payment of real estate taxes would be outlined in the lease agreement.