If your facility is new and has not had a chance to develop an income stream, the cost approach may be the most appropriate. A protest should include information as to the actual cost, including copies of your land closing statement and construction contracts. However, a market comparison may indicate that while your property is new, the valuation of other properties may allow your valuation to be reduced to be more in line with comparable properties. The Code provides that your facility’s valuation must be equally assessed with comparable properties. (Remember the chart outlined above?) However, the AD compares only those facilities in your county. Facilities in nearby counties are not relevant.

In most cases, (I’d say 95% of the time) the income approach is the most appropriate method of valuation. When you go in for your informal meeting with staff, the appraiser will always look to his sales comparables, regardless of their sale date in an effort to use this information as an appropriate approach and to defend their position. You should know these comps, but keep your focus on income, expense and the capitalized value!

The Code provides that you should supply rental income along with expense data pertaining to the property. It is suggested that you prepare two to three years of income and expense (I & E), if possible. Pay close attention to "rental income." Perhaps rental income should not include miscellaneous income from the sale of locks, boxes, insurance, etc. Perhaps other fees should be excluded as well. Is each of these items really attributable to the real estate, or should they be attributed to the business? Consider setting up another company to handle item sales so that they will not be included in the I & E statements. In addition, consider the result if you charged neither late fees nor registration fees. Rental income is just that...rental income! Income as it relates to the appraisal of real property differs from that as it relates to Uncle Sam. The two should not be confused.

With respect to the income approach, you may not include interest or depreciation in your I & E. However, the rules of appraisal require that you do include reserves for replacements. Improvements do wear out. Some ADs argue that reserves should be included in maintenance and repairs. I argue against this position every year and believe it is a proper separate line item. If the item, say the roof, is replaced in a given year, you may not expense the entire cost in that year. ADs have amortization schedules that apply to capital expenditures. If you have such a cost, determine how your county AD treats that particular item and act accordingly.

The final step is capitalizing the net operating income at a fair market rate to achieve your value. Your "cap" rate may differ from that of the AD. They have guidelines, but you know the market! With respect to your tax valuation, you should consider compromising the valuation somewhere between your value and that of the AD.