Tax vs Taxes

12 Replies

When crunching numbers to figure out if a deal is good or not, I find myself realizling that aside from property taxes, I have to factor in school & county/borugh taxes. This is probably why so many homes are still for sale for over 200 days. My father in law informed me that in the Philly area: the only tax you pay is property tax! I could't believe it. I'm now ditching my initial idea of buying & holding in the burbs to now looking into the city. Any thoughts on this? 

Ayodeji Kuponiyi MBA, A&K Investment Ventures

Every area is different. We own in 4 different cities located in 3 different states and we only have property taxes (at least how it shows up, I am sure the break down could be different). So it is important to know your area and other areas. That being said still look at the return. Some areas have "ridiculous" income tax (3%) and insurance so it makes up for it in other ways. 

I look at areas based on my cash on cash earnings. Since we highly leverage our properties I look at how much I am making based on the money we have to put in on the deal.

I heard there are  10 year tax abatements on some new developments in or right outside of Philly right now!!

Chris

@Ethan Giller LoL good point. I know all you have to do is include add up monthly rent - expense (PM, Taxes, Insurance, Vacany, Repairs) = Cash Flow. My problem is figuring out/finding the total taxes to factor in. In terms of mortgage, would I have to reach out to local bank to find out what my mortgage would be first?

Ayodeji Kuponiyi MBA, A&K Investment Ventures

Ethan,

The main reason I invest in Philly verses the burbs,  cheaper taxes which equals better profit margins, however since the new property assessments I got hit pretty hard.

I hate paying tax on tacks, that I buy to tack up my tax notice, to terminate tenants on tacky properties that I take in tax sale.

Don't worry about what you pay in taxes. Focus on what the profit is. If rents are higher or prices are lower, it may overcome higher taxes.

Medium crab1 copyNed Carey, Crab Properties LLC | http://baltimorerealestateinvestingblog.com/

Originally posted by @Jamal Pitts :

Ethan,

The main reason I invest in Philly verses the burbs,  cheaper taxes which equals better profit margins, however since the new property assessments I got hit pretty hard.

 @Jamal Pitts agreed! got hit some a bit in Old Kensington with taxes as well.

BTW @Carlos M.  in order to make the "@" function work properly, do the following:

Type "@" followed by the first couple letters (3 works for me) of the persons user name (no space or quote marks) then look at the bottom of where you're typing, you should see some names appear beneath the window. Click whichever you're looking to communiate with, and it'll get added in blue. Hope that helps!

See here for how it's supposed to look: http://imgur.com/KW0n2Jd

So I guess it's safe to say it is better to invest in rentals in the Philly area (near universities and good neighborhoods) as oppose to the suburbs( Lansdowne, Drexel Hill, Springfiled, etc) where the taxes are ridiculous. 

Ayodeji Kuponiyi MBA, A&K Investment Ventures

Originally posted by @Ned Carey :

I hate paying tax on tacks, that I buy to tack up my tax notice, to terminate tenants on tacky properties that I take in tax sale.

Don't worry about what you pay in taxes. Focus on what the profit is. If rents are higher or prices are lower, it may overcome higher taxes.

 I agree with this wholeheartedly! There are burbs where the taxes are higher but you can buy great property with better tenants and higher rents = less drama. There are tradeoffs of course but I wouldn't write the burbs off totally. 

@Ned Carey  @Troy S.  that is very true. In the end 'profit' is the deciding factor.

Ayodeji Kuponiyi MBA, A&K Investment Ventures

Originally posted by @Ayodeji Kuponiyi :

@Ethan Giller LoL good point. I know all you have to do is include add up monthly rent - expense (PM, Taxes, Insurance, Vacany, Repairs) = Cash Flow. My problem is figuring out/finding the total taxes to factor in. In terms of mortgage, would I have to reach out to local bank to find out what my mortgage would be first?

 Philly Office of Property Assessment has a website that will tell you the taxes and all sorts of other info for properties: http://property.phila.gov/ For the mortgage, there are many online mortgage calculators that will help you estimate the costs. I like Zillow's. Just be aware of whether the calculator is also including a tax and insurance estimate, which is often a default option that needs to be turned off. For ball parking, you'll be paying roughly $500 per $100K financed.

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