Go ahead, convert to co-op and save

By Stephanie Feuss

To co-op or not to co-op. That is the hot topic among multifamily property owners and managers as they weigh whether to convert apartment buildings to co-ops (and condominiums) that are taxed at a lower rate.

Apartment buildings larger than three units are taxed at the higher commercial tax rate, while single family homes receive the state rollback. As a result, residential apartment buildings pay more property taxes (nearly double).

Even though the property owner writes the tax check, ultimately tenants are paying the property taxes through rent. In essence, renters throughout the area are paying the highest property taxes for their income. Many renters are in a lower income bracket than homeowners.

While these renters are paying the higher property taxes, generally, they have less demand

on local services such as fire, schools, streets and other city services than single-family homes, according to the National Multi-Family Housing Council.

So why should they pay the higher price?

In certain situations, property owners are being sucked dry by local property taxes. The local property tax is their highest annual expense beyond their mortgage, so why shouldn't they “co-op” to save money?

City government, county government and local schools will collect fewer tax dollars, but the benefits to renters, neighborhoods and ultimately the city should be considered. Until the state decides to make a separate property tax classification for residential rental housing, go ahead and convert either to a co-op or to residential condos, which is allowed and reduces tax liability.

Previously, our company completed a condo conversion that saved the property almost 50 percent on tax bills. This savings was used to begin doing deferred maintenance and improvements that had been put off because of a lack of funds.

We see this trend happening every day. Property owners procrastinate on preventive maintenance because of a lack of money. At the same time, the city of Cedar Rapids is forcing owners to clean up and improve properties. Since owners have prolonged this maintenance in the first place, the repairs are even costlier and now have to be done in a time sensitive manner. If property owners had the additional savings of lower taxes, maintenance wouldn't be put off and would be less expensive.

Once again, if the role were reversed, single family homeowners would do everything in their power to keep their expenses low, so why can't the property owners and managers of apartments do the same? We probably wouldn't be having this discussion if those roles were reversed.

Once again - go ahead and co-op.

Stephanie Feuss is president, Landlords of Linn County. Comments: feuss99@hotmail.com