Buyer beware: Better know the valuation

So you decided to buy a 10,000-square-foot, 30-year-old industrial building south of downtown as an investment for $100-per- square-foot, and you financed the deal with 1031 exchange money last November.

It looks sharp, offers easy access to Interstate 25 and is occupied by three tenants. Except for the heating and cooling system, which needs a serious overhaul, the deal makes sense based on income and expense projections.

Sounds like a pretty sound investment -- but wait.

The HVAC repairs end up costing $30,000 instead of $10,000. Then at tax time, the building's valuation, based on the state's every- other-year assessment and mandated 29 percent tax rate, reflects the building's new value -- which has increased 100 percent since the sale.

Your tax bill has now grown accordingly, and it's time to pass the increase through to the tenants in their monthly common area maintenance fee.

As a result, however, one of the tenants leaves, and you are suddenly looking at a 33 percent vacancy rate, not to mention the unexpected cost of repairs.

So, should you just tough it out and pay the higher-assessed rate and hope to find a new deep-pocketed tenant?

Not if you're a smart investor. You appeal.

"A lot of people just figure it's too much trouble, but it's really not if you have a legitimate case," said Bob Hoff off Hoff & Leigh, who also is an advocate for proactive conversations with Mark Lowderman, the El Paso County Assessor, prior to purchase.

Copyright 2008 Dolan Media Newswires
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