Capitalization Rate

2020 Low and Moderate Income Housing Capitalization Rate

Pursuant to Sec. 11.825(r) of the Texas Property Tax Code, the Limestone Appraisal District gives public notice of the capitalization rate to be used for tax year 2020 to value properties receiving exemptions under this section. The capitalization rate is 6.5% Interest Rate + 4% Rate of recapture = 10.5% capitalization rate. The interest rate portion of the capitalization rate is higher than most interest rates for this type of property, according to The Valuation of Subsidized Housing/IAAO. This publication states “that actual loan payments are based on 1% as long as the property is in compliance”. The assigned interest rate is within an acceptable rate for typical commercial properties in the market area. Rent restricted properties vary widely and these variations can have an effect on rate used in the valuation process. The typical interest rate for these type properties range from 1% to 8%. The recapture rate is recalculated calculated per age range and remaining economic life of certain developments. The above recapture rate is based on a remaining economic life of approximately 25 years. Newer units will yield a lower recapture rate.