Welcome to the 5 Minute Prime Podcast. Quick actionable tips to master personal finance and real estate investing. In just five minutes a day, we'll help you build wealth and achieve financial freedom. Hey Prime Investors, Martin Maxwell here. Welcome back to the 5-Minute Prime Podcast. You're 11 days into diligence on a single family rental in Florida. Nothing exotic about it. $385,000. Rent of $27.50 a month, 14 months left on the lease. Insurance, management, reserves, all checked. And here's the part that matters. Because you did the careful thing. You didn't take the property tax off the broker's flyer. You went to the county's own parcel page and pulled it yourself. $43.92 a year. Right number, right source, underwrote it, the deal pencils. Not spectacular, but it clears your bar and you're ready to close. Then your lender's underwriter sends back one line. What happens to the assessment at closing? So you look it up, and the number you verified turns out to be describing somebody else's life entirely. The seller has owned since 2015 and lives there. Florida has a cap called Save Our Homes that limits how fast an owner-occupant's assessed value can climb. It has held this seller's assessment at $264,000 while the market walked up to $385,000. On top of that, the seller has the homestead exemption. And here's the part almost nobody gets right. That is not one exemption. It's two, and they sit on two different bases. The first $25,000 comes off every levy in the bill. The second piece, $26,411 this year, because it's inflation index now, comes off the non-school levies only. It never touches the school portion. So split this county's 20 mills into the 5.3 that funds schools and the 14.7 that fund everything else. Run the two exemptions against the right halves. $1267 plus $3125. $4392, exactly the number on the parcel page, exactly the number you underwrote. You will not be living there. On the day you close, the cap comes off and the exemptions go with it, and the county reassesses the property at just value, $385,000, with no exemption of any kind. $385 times $20, $7,700. Your tax line goes from $4,392 to $7,700. That's $3,308 more a year. 75%. And before anybody writes in, yes, Florida caps non-homestead assessments too at 10% a year. But that cap governs how fast the number climbs after you already own the place. It does nothing about the reset itself. Year one, you pay the just value bill. The cap only starts protecting you from year two. Three options. Hit pause here, decide which one you'd take, then come back. Because I think the interesting part is which one you can defend. Option A, retrade the price. Option B, close at 385 and absorb it. Option C, walk. I take A, but I want to get there the honest way. Because the first reason people give for A is the wrong one. The instinct here is to think you caught an error. You didn't. Nobody made a mistake. The 4392 on that parcel page is exactly right. And if you'd queried it a hundred times, you'd have gotten it a hundred times. What actually happened is that you asked one question. What does this property cost to hold? And the county answered a different one. What does this owner pay? Those are two different questions. And in a state that resets on sale, they have systematically different answers. Which matters because it changes what kind of problem this is. A clerical error is a one-off you catch with more care. This is structural. It's on every listing in the state, it runs the same direction every time, and its size is computable in advance from three public facts. The capped assessed value, the exemption sitting on top of it, and the state's rule on what happens at a change of ownership. Three facts, all public, all free, all available before you write an offer. Now let me give option B its best shot because it's stronger than it looks. B says the reset is public law. Save our homes isn't obscure. You could have priced this before you offered. Retrading now is billing the seller for your own diligence gap. And with two backup offers on the table, argued badly, that is exactly the answer it gets. All of that is true, and it still loses. Here's why. The comp set is contaminated the same way. Every recent sale you price this against was also marketed on its seller's tax line. So the price you agreed isn't the market's considered view of a $7,700 tax bill. It's the market's view of a $4392 one. You aren't asking the seller to cover a private oversight. You're repricing an input the entire listing convention states wrong. That's an argument you can make out loud with a parcel record and a statute in your hand. Very different conversation from I missed something, please pay for it. And if you do take A, size the ass correctly, because this is where most people lose it. The damage is not $3,300. It's a permanent annual expense. And a permanent expense is worth price. $3,308 a year at a 6.5% cap is about $50,900. Ask for the $3,300, and you've negotiated one year of a cost you'll carry for as long as you own the building. The number that actually restores your underwriting is closer to $51,000. And you should be able to show that arithmetic on one page. You may not get it. A seller with two backups can hold firm. And then this stops being a formality and becomes a real decision on corrected numbers. And I want to say the obvious thing here because this is the part that stings. What you did was not sloppy. It is the most reasonable looking number on the page. It came from a government website, and nothing about it announces that it belongs to somebody else. Most of us have underwritten one exactly like it. It's a number with a footnote nobody prints. Which is where C earns its place. Option C is not the cowardly answer. If 276 a month is the difference between a deal and no deal, the margin was thin enough that the next surprise ends it. And there's always a next surprise. What C shouldn't be is a reflex. A deal that survives a 75% tax increase with room left over is a better deal than one that never had the increase disclosed. Because now you know the number. And here's the thing I keep coming back to on this one. We say a lot around here that a number the other side hands you isn't diligence. Ask who generated it. This deal passes that test. The county generated it. Neutral party, authoritative source, no incentive to shade anything. And it's still not your number. So there's a second question underneath the first one, and it's the one this deal is really about. Not just who produced this number, but what question were they answering when they did? So here's the challenge, and it's 10 minutes. Before the offer, not during diligence. Call the county or pull it up online and ask three things. What is the current assess value and how far below market is it? What exemptions are attached to it? And what happens to both when the property changes hands? 10 minutes with the assessor. That's the whole thing. It converts this entire episode from a retrade you might lose into a price you offered correctly the first time, which is the version where you keep the deal and the margin. And it generalizes. Florida, California, anywhere with an acquisition cap or a use space split, the rate you can look up is almost always the residence rate. Yours is a different number, in a known direction, and you can have it before you need it. The full write up, all three options side by side with the arithmetic, is linked right there in the show notes. I'm Martin Maxwell. This has been the Five Minute Prime podcast. I'll see you next episode.