Hotels/Motels are generally recognized as one of the highest taxed real estate assets. Property taxes could account for up to 30% of a hotel’s cost of occupancy. Still, property taxes are not always high priority issues and seem to be an uphill battle for owners. This can be a costly presumption. Below are tips for minimizing property taxes for hotels/motels.
- Know where your assessment value is compared with your competitors in the area.
- To accurately budget for property tax expenses and to seek opportunities lowering property taxes, owners should be familiar with the property tax system and how that tax system is implemented in the local jurisdiction. Property tax appeal procedures vary greatly from jurisdiction to jurisdiction.
- Local assessing authorities are responsible for assessing hundreds of thousands of parcels. Inevitably, there are errors made in the municipal’s property records. Thorough review of those records can bring significant property tax reduction.
- Property tax assessment may not recognize or give weight to intangible values. Values attribute to name branding, national reservation systems, hotel management, and franchise agreements should be excluded from the property value.
- Hotel restaurants sometimes are assessed as separate parcels. In that case ensure their incomes are not included as secondary income of the hotels.
- Discounted room rates via Expedia, Hotwire, etc. can be significantly lower than typical room rates. This downward income should be reflected in the net operating income.
- Due to health and cleanliness reasons hotels/motels require quicker turnaround reserve for replacement for personal items such as toiletries, bedding, and furniture. Reserve for replacement should be allowed in the income approach.
- Understand economic trends and the principle of supply and demand. Air BnB, HomeAway, and vacation rentals are an increasing competition to hotel/motel industry, not just negatively affecting the occupancy rates but secondary incomes as well. This should be reflected in the capitalization rate.
Call AdSatis Management at 1-888-352-9888 or 403-483-9888 for a free, no-obligation analysis of your hotel valuation