I am in the process of looking for some smaller multi-family properties (4 to 12 plex) to buy. In one of my "farm" areas in Iowa, anything over 3 units is typically taxed as commercial. Here are 2 examples of the cashflow-killing RE taxes being assessed here:
Deal 1: 4 plex, $2200 gross income, $110K asking price, tax assessed value of $149,500. The taxes on this property are $6,432 per year. Almost 6% of the asking price!
Deal 2: 6 plex, $3800 gross income, $230K asking price, tax assessed value of $262,500. Taxes are $11,292 per year. 5% of the purchase price.
I know there are some other pretty highly taxed areas out there (Texas? New Jersey?)... What are the highest rates around? Makes it pretty tough to buy anything that will cashflow when your taxes run almost 25% of your gross rents!
I haven't looked at rentals in NJ... but when I lived in South Jersey I bought a house for $330,000 and the taxes were about $11,000 a year.
From what I recall... taxes on investment properties in NJ can be 3 - 4 months of rents.
NJ has one of the highest property taxes! But renting in the right area would make that a non-issue. Its all relative.
NJ is no bueno! NH is also high BUT no income taxes which can help negate some of the burden(assuming a resident of course).
NH has no income tax or sales tax. it does have an interest/dividends tax, however. It is pretty small in the scheme of things.
Look at the no income tax states :) We personally love California because of its LOW property tax. While they have high income tax, real estate is great about allowing you to "hide" profits through depreciation. We buy expensive houses so they really don't show large cash flows right away. We own houses in Charleston, SC and are shifting out of the area because of what you describe.
I'm actually surprised by the high taxes in Texas and Chicagoland area. Here in NJ there can be pockets that are quite high but our higher rents make the overall percentage about the same as elsewhere.
If you want taxes come to NY we got them all. Property taxes, my 15 unit valued at $300k has 16k property tax. But that's not all we got income taxes and just so no one can beat us we got sales tax to boot.
We also have state income tax plus a 7% local sales tax. Brutal!
NJ is te best!!!!!!
if they would start to lower taxes in NJ ,houses will go up in value like Manhattan prices!
Hi Elizabeth could you eventually mention something about that tax strategy to optimize returns?
Some additional details would be welcome, maybe they can be emulated somewhere else, if applicable.
I own a house in NJ and, if it were rented; the property taxes alone would be about 50% of the gross rent amount.
Texas is really bad for property taxes (anywhere from 2.5% to 2.8%) in DFW. Also, millage rate is only one component for property taxes. It also matters how aggressive your local appraisal district in assessing properties. If they are aggressively re-valuing properties on a regular basis, then you'll be paying more. (Even in my area, different counties vary in their approach.) There are a number of other reasons to invest in DFW, but property taxes is not one of them.
Are there any states out there with Zero Property tax?
For a 6-family building in Providence, RI I'm paying 3.4% of purchase price in property taxes annually. 18% of my annual gross rents (before accounting for vacancy and other losses) go toward property taxes. It's brutal here.
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