The Great Recession was wrought with balance sheet issues. There was very little liquidity and capital to be deployed into the real estate investment market. It was driven by excessive risk-taking by financial institutions and credit fraud in the subprime mortgage industry. The pandemic, on the other hand, was not manmade. The economy was brought to a halt by state and federal governments due to a virus. There is liquidity and cash-on-hand ready to be deployed into the real estate marketplace.
Property taxes are at the mercy of assessments. Taxes, more specifically, property taxes, ebb and flow and assessments are based on yearly valuations. The primary similarities between the Great Recession and the COVID pandemic are, as relates to the real estate market, both experienced delinquencies and vacancies. This ultimately moves values downward and lessens NOI. Tax reductions traditionally follow suit.
Overall, the economy is poised to rebound in a more expeditious manner. In 2009 the lending markets came to a screeching halt. Simply put, there was no money to be deployed. Conversely, today there is liquidity. Banks are willing and able to lend as long as there is yield to be had on an investment.
We expect the pre-pandemic values to bounce back in a shorter amount of time compared to the scenario experienced before and after the Great Recession. It is possible to see a substantial drop in 2021 property taxes followed by a shorter recovery period in valuations. The Great Recession recovery lingered for several years as the credit markets improved and investors adjusted to its new normal.
The near-term outlook is positive regarding a reduction in property taxes. The outlying years are more of an unknown. There are several causations that go into predicting what could possibly happen. Unfortunately, the future is still somewhat murky. However, it is important to align your practices with an expert. This knowledge is crucial to narrowing variances in property taxes and preserving cashflows.
To learn more about how property tax issues can affect your investing strategies, please reach out to Tim Feagans directly at firstname.lastname@example.org.