There are many reasons why commercial property holders may wish to refinance their mortgage - but one frequent reason is that they are looking to open up some cash flow.

When property values in the area increase, it could be a good time to get a new appraisal on your business if you are looking to refinance to take out an equity loan.

Likewise, if property values are decreasing in the area, people may also want to take advantage of this to get a new appraisal and pay less on property taxes. Property taxes are first determined by the assessed value of the property as compared to the surrounding properties.

Here’s what you need to know about assessing property taxes.

How Commercial Property Taxes Are Assessed

Different property types will have different levels of the assessed tax. Vacant land will have lower property taxes as a result of not using any city amenities.

Property taxes are often one of the largest sources of income for cities, and these proceeds go toward schools, hospitals, roads, emergency services, recreation, libraries, and parks.

Every state, county, and the city will have its own policies with regard to property taxes, but there are quite a few standard practices across the board.

Local governments will often income and expense forms for commercial properties. These returns inform the year’s property assessment.

These valuations consider the components that typically makeup appraisals, like rental income, structural integrity, improvements, and so forth. Any big changes to the property results in a change in property tax levels.

In Texas, for instance, taxes are based on 100% of the market value of the property, and properties are assessed annually. The property owner then has a window of time within which they may dispute the property valuation. After the valuation is agreed upon, taxes are typically collected in October.

The appraisals go through the governing body and are also reviewed by the county.

When a New Appraisal is Helpful

When property values rise in an area, this is when property taxes will also rise. This is why some will refute their property tax appraisal so that taxes are lower.

However, a higher valuation may be the desired outcome if you are re-appraising to refinance.

Refinancing is about using money from a new loan to pay off an existing loan or mortgage. This is a good choice when lending rates are lower so that a loan at a higher rate can be repaid with a loan at a lower rate. This decreases the total repayment amount.

There are more pros than cons to refinancing the commercial property. Refinancing can lower monthly loan repayments (especially if you also succeed in getting a lower interest rate), and the loan can be tax-free with a cash-out refinance.

Cons include potentially high upfront costs, potential penalties, and not all commercial property loans will apply. But it all starts with a new appraisal.

Preparing for a Refinancing Appraisal

A higher appraisal means there is more built-up equity at your disposal to borrow on. For this reason, it could be pertinent to consider making some improvements to the property to increase its value.

If the building is a rental property, increasing the number of units, renovating units, or making large repairs like replacing the roof or the elevator can be extremely costly, but if they are needed anyway, this could be a good time to do it with the added benefit of a higher appraisal.

Opting for a re-appraisal can often be a quick decision in response to dropping interest rates. This requires a quick turnaround on the appraisal and immediate access to the appraisal report.

Using appraisal software services like Valcre is a best practice for appraisers. With Valcre, appraisers can make reports and findings easily accessible in a digital format in a way that is organized and efficient.