Why is property taxes in arrears unattractive?

Question

Hi,

I currently go to school in Illinois and l understand that this state has property taxes in arrears. As a rookie investor l have heard that is unattractive. I am wondering why? The principle of putting off debt until later sounds like a good idea…. I am confused on this and could use some help.

While I’m here what makes a state unnatractive to invest in (other than high property taxes) compared to other states?

Thank you and God Bless!

Jonathan Klemm · Answer

@Trevor Bond - I personally don't think it matters when you pay your taxes or rather I think that's a small-potatoes item to be worried about. To answer your question I'd rather pay my taxes in arrears so I can keep my money longer and invest it elsewhere...I would look at it similarly to how much money you want to be taken out of your W2 job. It's more of a preference would you rather have them take less and invest that money but then get a bigger bill when you pay taxes or would you rather have them take out more now so you don't have to worry about it later. - Not the perfect example but hopefully you get the point.

I think the right answer for a savvy investor is to keep their money from the government as long as possible...and leverage it. I am here in Chicago so you know Illinois is going to get their tax money, but for me, it is what is and if the numbers work, you are Gucci haha.

John Warren · Answer

@Trevor Bond paying property taxes in arrears seems to have little to do with your returns in real estate investing. I have invested in two states and both handled taxes that way.

When it comes to picking an area to invest in, I think the first place to look is always where you currently live. The idea of picking national markets to compare when you are buying your first two flat is kind of a waste of time. Real estate markets are inefficient, so you can pick that 1 in 100 deal that makes sense for you. Combine that with hands on management/ownership, and you are highly likely to be financial successful.

Here in the Chicago area, we do have higher property taxes than in some areas of the country. With that being said, you can easily look up assessed values so you can tell where your taxes are likely to go in the future. If the numbers work with the taxes in place, then great! Its not like investing in comparable markets like New York or Los Angeles is going to be any cheaper!

Scott Swanson · Answer

BTW, Illinois property taxes are going up AGAIN, shortly. So brace yourself.

Michael Ablan · Answer

@Trevor Bond - Edit ** I misunderstood the question. Deleting my post

Scott Swanson · Answer

Trevor,

Quite a few states taxes are in arrears. It's a long story, but goes back to the 1930's. Why did you say that that's unattractive? When you close, the taxes that are due, are paid by the seller and then you take over. Actually, paying in arrears can be a huge plus, when you sell. If a properties taxes go way up and you happen to be selling, you're not responsible for the huge increase that is coming up. So that can be a big plus for you. You're really not "putting off" any debt, because the state would have an extremely hard time telling homeowners they have to bring taxes up to date, because that would be double taxation. So even though you're paying the year prior, it all comes out in the wash. I hope this helps.

Why is property taxes in arrears unattractive?

Why is property taxes in arrears unattractive?

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