Choosing between high real estate tax vs high transfer tax

[Maurice Etienne]

Hi,

I am currently an investor in the Philadelphia suburbs and I am trying to hone in on my next property. The problem is that in this area, real estate taxes vary widely and so does transfer tax. As I am close to and willing to invest in Delaware, PA, and NJ, this calculation becomes even more of a headache. Transfer taxes range from 0% (in NJ) to 2.139% (in Philadelphia). These numbers are what's required of the buyer. There are places in the region that have high transfer tax but low real estate taxes and vice versa. I wanted to see what the BP community's thoughts were on which I should aim for. Since this is an investment, I am always factoring RE taxes into my hold calculation but the risk of being in a high tax area is a bit worrisome as taxes have the propensity to raise faster than rents could keep up. But if I am being honest I kind of prefer higher taxes to higher transfer taxes because I can do my best to past this recurring cost on in my rental calculation. Where as a higher transfer tax is harder to recoup. Also with low transfer taxes, I am able to obtain a higher cash on cash return.

With all that being said though, it seems hard to justify a yearly 5k difference in property taxes (Philly vs NJ) to save 4k (based on a 200k property) in upfront costs. I would love to hear what you guys think about this.