The most significant source of profit for most property management companies is the fixed management fees, typically 7-10% of each unit’s monthly rent. However, most property management companies have multiple revenue streams from their auxiliary services, including management applications, finding new tenants for the property after a tenant leaves, administration fees, and more. However, some nationwide sources indicate that the market value of the property management industry is shrinking, going down 1.91% in 2022 after seeing 5% annual growth for the previous decade.
While Texas has a bustling rental market, that decline may add stress to your forecasts and business operations. Add another revenue stream that provides real value to your clients and gives you a reliable source of profits every year: property tax appeal services.
With the recently passed property tax legislation, non-homesteaded properties such as commercial and rental properties are seeing new benefits, and there are more reasons than ever before for all property owners to protest their property taxes. Learn more about how to provide this service, profit from it, and act in your clients’ best interests.
The State of Property Taxes for Property Investors
Currently, property investors have very few protections against rising property tax bills. Between 2017 and 2022, property tax revenue increased by over 20%, and a disproportionate amount of the collections came from increasingly in-demand real estate markets and, even within those markets, property investors. For example, Dallas residents saw an average 63% increase in their property tax bills between 2016 and 2021. This unevenly impacts non-homestead property owners because there are few to no protections currently in place.
Suppose a Texas resident has a primary residence and an active homestead exemption. If their home is appraised at $250,000 one year and $325,000 the next, the local tax office can only assess the taxable value at $275,000; the taxable value cannot increase more than 10%.
On top of that, the first $40,000 of the property’s value is waived from school district taxes (which generally make up at least half of the total property tax rate). But if that same property owner doesn’t have a homestead exemption in place or if they rent out the property, they don’t receive either protection.
For owners of non-homesteaded property, like the ones property management companies oversee, protesting property taxes is a business necessity. It’s the only way to ensure the owner isn’t overpaying taxes due to an improper appraisal value and tax assessment. However, many property investors need more time or expertise to manage this process effectively. In fact, if they live out of state, they may have a limited ability to participate in the process.
The New Legislation Opens the Door to Property Tax Savings for Non-Homesteaded Properties
In July 2023, the Texas legislature passed sweeping property tax reform. Provided the measures are approved by voters this November, these changes will take place:
- Homesteaded properties will receive a $100,000 exemption against school district taxes—compared to the current $40,000 exemption.
- Non-homesteaded properties valued at less than $5 million will have their annual appreciation capped at 20% growth. Currently, there is no protection, which means non-homestead residential properties, such as buy-and-hold rental investments, and commercial properties can drastically increase in taxable value each other.
- In districts of a specific size, three members of appraisal review boards will be elected instead of appointed.
These changes offer actual savings to the vast majority of property owners. Some non-homesteaded property owners may look at the legislation and think that the pressure to protest their property taxes is off because the cap offers protection.
Related: How the New Texas Property Tax Legislation Will Impact Your Property Tax Bill
However, that’s not the case—and thinking so can dangerously impact their profits and costs in the future. The 20% cap is just a three-year experiment for properties valued at $5 million and over. If it’s not renewed, property tax assessments will skyrocket back up to the appraised value, and the program will just have been a temporary discount with a big sticker shock in year four.
Property owners who continuously protest property taxes regardless of the pending legislation can temper rising property appraisals and enjoy compounded savings.
Property Managers Can Offer Property Tax Protest Services for Their Clients
The value to property owners of protesting their non-homestead property taxes is clear. Even a cursory reduction in appraisal value of $10,000 can save them approximately $200 annually. However, many property owners may not know they can protest or may be overwhelmed by the thought of handling the process for multiple doors, let alone a single property.
As a property management company, you’re uniquely positioned to act on their behalf and bring them significant savings—without taking on the legwork of protesting the taxes yourself. You can sign up the properties in your care for property tax protest services. The service providers will:
- Calculate the appraisal and taxable value of the property
- File the protest notice with the proper appraisal district
- Manage communications throughout the protest process and represent the property at informal meetings or a formal hearing
Property management companies can appoint these service providers to act on behalf of the property to argue down the appraised value of the property and pursue any potential savings. Your team and the property owner do not take on additional obligations; everyone shares in the resulting savings.
Consider these critical benefits for everyone involved:
Benefits for Property Managers
You can offer to provide this service to your clients. All you have to do is choose the property tax protest service you want to work with and sign up the property/ies. In return:
- Adding line-item services to your catalog can offer your clients more value.
- Client satisfaction increases because you offer investors a unique way to save money. Since many of your communications with property owners are maintenance requests or notices that a tenant is leaving (all of which cost money to the property investor), communications about savings opportunities can bolster the relationship.
- You may get a commission. Look for a property tax protest service that offers you a commission fee for signing over blocks of properties. This can become a small but low-cost and low-effort revenue stream that grows as your business does.
Benefits for Property Owners
Property owners receive these benefits when you offer third-party property tax protest services:
- Potential savings: While not all properties will receive reduced appraisal values, many will. Even small reductions can result in significant savings immediately, and property owners will see the accumulated savings of having property values kept in check over the years.
- Peace of mind: Even when the protest process does not result in a noticeable reduction, property owners will know that their property management team is doing what they can to keep taxes low. This means no money is left on the table or savings opportunities are ignored.
- Efficiency: Property owners often hire property management services in the first place because they don’t have the skills, time, or interest in managing tenants or maintenance considerations. Protesting property taxes often falls into the same administrative tasks that investors don’t want to manage themselves. Accepting your offer of third-party tax protest services keeps their business running efficiently with low overhead and predictable costs.
A Surprise Benefit for Tenants
Tenants indirectly pay for increased property taxes, whether they know it or not. When the rent climbs yearly, that covers increases in maintenance and materials, staffing costs, insurance, and property taxes. This is especially true in Texas, which does not cap rental increases. So, tenants also benefit when the property they live in has a successful property tax protest: they don’t see as steep of a rental rate increase to adjust for increased costs.
Related: How to Choose a Property Tax Protest Company
This benefits you and the investor by generating less turnover and turbulence—smaller rent increases lead to happier, longer-term tenants. Property investors may attribute this reduced turnover to your services; everyone wins.
Sign Your Properties Up for Property Tax Protests With Home Tax Shield—And See the Benefits for Yourself
Adding property tax protest services to your list of available sources does more than help your clients save money. Partnering with a reputable service like Home Tax Shield can give you another revenue stream, add more stability to your business, and strengthen your client relationships.
At Home Tax Shield, we offer a property tax appeal partner program to Texas property management companies. When you have more than 20 properties, you receive $30 for the first year and continue to receive additional commissions as you add more properties to your account. We also make it easy to sign up your properties, as you can have your investor clients sign up through your partner page, or you can sign up the homes yourself and bill back the annual fee to your clients.
We’re committed to working hard and protesting property taxes for each homesteaded and investor property in our care so you see more revenue and your clients see more savings. Sign up today to strengthen your business with more options.