Property taxes can have a real impact on your returns as a real estate investor. And based on where you own property, your tax rate can fluctuate wildly.
There are a lot of lists out there that show tax rates by state, but they don’t exactly tell the whole story.
There are two levels of property taxes (in most places). First, you have your state taxes. States like New Jersey and Illinois are near the top, with tax rates around 2%. Most of the western states have much lower tax rates—generally less than 1%.
These lists aren’t wrong, but they don’t factor in a pretty big piece of the puzzle: local taxes. States are not the only entities that can level taxes on property; counties and cities can as well. In order to get the most accurate picture of what taxes are going to cost in any given city or state, you have to factor in local taxes—which is exactly what I’ve done.
I took the actual taxes paid on a property and then divided that by the valuation of that property (what we estimate the property to be worth). I do this because the data from the last sale could be years old, and therefore likely less accurate. I then aggregated that data by state, and then by city.
Using the BPInsights database, I aggregated the actual taxes paid on almost every single property in the country. This combines both the state and local taxes into one number, which I’ve plotted on a map for you all below.
As you can see, the western and southern states do tend to have the lowest rates, with the Midwest and Northeast having the higher effective tax rates. On the top end of the spectrum is Connecticut, which has the highest rate according to our analysis, coming in at 3.81%!
Looking by state is helpful and fun and all of that, but if you want to get an accurate picture of what taxes you would pay on a prospective property, you need to look more locally.
You can scroll through the data below to look through the 500+ biggest markets in the U.S.
Taxes go to fund things like public schools, community services, and infrastructure, which all impact the quality of life in a city. Those things have an impact on property values over time, which is something to keep in mind.
Note By BiggerPockets: These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.