Investing in New Jersey Real Estate - 5 Things to Consider about Real Estate Taxes

Perhaps you’re ready to take the leap and purchase your first investment property. Or it could be an expansion of your portfolio. Maybe your business has outgrown your leased space, and the best option for you is to buy a new place. Here are five things to know about commercial property taxes in New Jersey when investing in New Jersey real estate:

1. Property taxes in New Jersey will be a major expense for commercial property owners.

OK, so maybe this is an obvious one, but it bears repeating and emphasizing. For many New Jersey commercial property owners, property taxes are the single biggest annual expense item. Particularly for investment properties where your NOI determines how much the property is really worth, failing to consider the impact of property taxes can dam up your income stream. Also, if all your business’s revenue is tied up in your tax expense, it will be that much harder to turn a profit.

2. As a commercial property owner, you have a target on your back.

In more ways than one, commercial property owners get the short end of the stick in New Jersey. Because most towns have many more homes than commercial properties, and commercial properties typically generate more taxes, tax assessors often evaluate and raise commercial tax assessments more often. Not only that, but some municipalities have also gone so far as to hire attorneys to file tax appeals to increase tax assessments for some properties. Guess which assessments are being appealed – you got it, commercial properties. The bottom line is that you’re far more likely to see an assessment increase on a commercial property than on a home.

3. Where you’re buying makes a big difference in future property tax increases.

Towns across New Jersey are strapped for cash, and they’re approaching the problem in different ways. One way is by conducting annual reassessments for either all or portions of the taxing district. This translates to annual changes in your property’s assessment to keep pace with market changes. Often, the increases are smaller to avoid provoking a lot of appeals. However, if you purchase for an amount substantially above the existing assessment, the increases will be more aggressive because the assessor isn’t worried about losing an appeal based on the property’s value.

4. You can appeal your tax assessment every year.

Every year, New Jersey tax assessors are required to value every property in their township. Every year, property owners can challenge that assessment if it is improper. It’s also important to know that, even though your assessment hasn’t changed from one year to the next, you may have a greater chance of having that assessment reduced if your town’s assessment to true value ratio has decreased.

5. Watch out for requests for financial information about your property.

New Jersey tax assessors can request financial information from commercial property owners. While an owner’s first instinct may be not to give them anything, you should be aware that failing to respond will affect your ability to appeal in the year *after* the request. Responses also must be timely – if you don’t respond within the required 45-day timeframe, it’s as if you haven’t responded at all. On the other hand, providing information on your property’s robust income stream risks an increase.

Owning New Jersey real estate can be very profitable, but success requires careful planning. In your planning, consider your real estate tax burden, and consider retaining experienced counsel to help inform your investment decisions. The Englert Law Firm can conduct an analysis of property taxes for those investing in New Jersey real estate. Please give us a call for more information or if you have any questions.