Property tax on rental question

21 Replies

Hey guys,

I am new to the REI scene so take it easy on me! I have been soaking up all the info on the website for the past couple months but have yet to find good solid info about property taxes for rentals. I just submitted an offer for a single family (Fannie Mae) property in Columbia SC. My understanding is that property taxes are almost triple the cost for rental properties ($2700 for this particular property). So my question is, will all of my deductions/tax advantages offset this horrible number?? I am assuming so or it would be very difficult for investors to own so many rental properties.I just wanted to run it by the professionals. Thanks guys!

Welcome to BP and please keep me informed on the Camaro project.

Property taxes rates for rentals are going to vary state to state. In Indiana where I invest we have a 2% property tax cap. So as an investor, I don't get any property tax deductions, but the 2% cap helps keep taxes under control.

Here is the Beacon website, I only see 2 counties listed for SC

If you county is listed I may be able to show you a link that can calculate taxes on properties your looking at. Or at least help you figure out how to calculate them.

here in Florida we have homestead laws that give a significant deduction on property taxes as well as limit increases for your PRIMARY home. Investment property is subject to market value assessment. Fortunately, taxes are still very low here in Tampa. If you are working with a Realtor, they should have plenty of insight into the historical tax records but if there are specific laws in your jurisdiction regarding taxation for investment property you will definately need to research it. I would start by calling the assessors office.

David DuCille, Real Estate Agent in FL (#sl3293872)

@Aaron Sizemore:

I own a condo in Columbia SC, and what you say about property tax is true. In Columbia, when you go from a owner-occupant to a landlord your property taxes go up about 3.5 times! For example, for a property worth $260,000, this means while the owner-occupant pays $2000, then the landlord owner would expect to pay around $7000.

In the situation above, the landlord would pay $583.33 per month to cover property taxes. It doesn't take a math whiz to realize that rents would need to be pretty high to cover this plus all the other expenses involved in owning a property. See my blog post here that addresses the topic.

I also have some ideas about how a creative property owner can combat this problem. Send me a private message if you want to explore this further.

@Thomas Morris

Its crazy! I was only hoping that deductions such as: Depriciation, repairs, travel, home office, insurance etc, would offset the huge tax hit. Am I thinking correctly?

What are your goals? If you want cash flow, then you would have to do the numbers. There are lots of resources out there to help calculate this. One good place to start is the buy and hold calculator on BP. If you don't mind having a negative cash flow, and want to have a tax write off, then that is a different story, but you have to be careful, because the IRS may classify a constantly money losing proposition as a hobby and not a business.

@Aaron Sizemore ,

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Raymond

Originally posted by @Thomas Morris:


What are your goals? If you want cash flow, then you would have to do the numbers. There are lots of resources out there to help calculate this. One good place to start is the buy and hold calculator on BP. If you don't mind having a negative cash flow, and want to have a tax write off, then that is a different story, but you have to be careful, because the IRS may classify a constantly money losing proposition as a hobby and not a business.


 

It will be a buy and hold as a rental. I have used a number of calculators to get a ballpark number for Cap rates/IRR/ROI. However, when I performed my calculations, I figured them up at a regular owner-occupant tax rate. So as it stands, I will be forking out approx $225 a month just for taxes. I am buying the house cash so regardless, I should bring in a cash flow of around $300-$400 a month after operating expenses are paid.

@Raymond B,

I tried that originally, just like FB. But for whatever reason its not working.

@Chris Adams

Good eye on the Camaro! That pic is a couple years old and the Camaro has since been sold off and evolved into several new/different cars lol.

We own two houses in Charleston. We are currently under contract on a third. It is a short sale that has been going on for almost a year. After this house we will not be investing in the area for this reason. I have found that looking at cash flow California even at 25% more expensive, cash flows the same due to lower taxes and insurance. The worst is that as prices recover tax rates are going to climb significantly. I have found an area that would have great cash flow in Texas but am very leary do to what ok experienced in South Carolina.

I'm in Columbia, SC too. And yes that is right. My prop taxes went from 950 to 3700 when it went from owner occupant to rental. The only way to cash flow a rental is to pick it up dirt cheap. I lose on my rental every month on just PITI, not to mention repairs.

Originally posted by @Mark Lynn :
I'm in Columbia, SC too. And yes that is right. My prop taxes went from 950 to 3700 when it went from owner occupant to rental. The only way to cash flow a rental is to pick it up dirt cheap. I lose on my rental every month on just PITI, not to mention repairs.

Which brings up the question: Why would anyone in their right mind become a SC landlord. I suspect many are accidental landlords like me. Is there a huge housing surplus in SC that keeps rent prices down?

Maybe I shouldnt have made that offer this morning lol. There are tons of decent single family homes in decent move in condition for $50-60k. So I thought how could I go wrong? Buy a $50k house, rent it for $800, better than $50k sitting in the bank collecting $17.00 a month. Even with 50-60% off the top for expenses, should still cash flow $300-$400 a month. In theory that is lol.

@Aaron Sizemore

One quick and easy way that I use is the following. Go to zillow.com and look up the property address you are interested in or an adjacent property that was sold recently. For the specific property, scroll down in the zillow listing to just under 'Features' where is says 'County Website.' Click on it and you should be redirected to the county website for the address. Continue your research until you find a good absentee owner as a comp and that should give you an idea of what the taxes will be.

@Tim C.

That's pretty awesome, Thanks! Whats up with SC taxes?? $3k in property taxes for a $50k house? Thats $250 a month sucked out of my potential cash flow! How do investors make it in SC!? lol

@Aaron Sizemore

I think the market would tend to drive the type of investment. Looking briefly at Columbia in particular. I see a lot of 'blue houses' telling me there are a lot of pre-foreclosures, foreclosures, etc. This could be attributed to the high property tax rate. Homeowners can only sell to owner occupants since investors won't touch it. If you are very interested in Columbia, looks like buying foreclosures is where I'd personally start to learn.

Just opinions coming from a beginner investor myself.

@Aaron Sizemore - good luck on your investment. If you can make it cash flow, that's great. Not much help to people like me who are former owner occupants.

@Tim C.

Thats a very good obsvervation and i didnt think of it like that. Im beginning to wonder if SC is the place i want to invest in real estate. I also talked to my CPA, and due to me not managing the property myself, it will be all passive income and i will not get many tax benefits.

@Thomas Morris

like i said above, i am starting to second guess my decision to buy a rental in sc. I picked Columbia SC because there were so many SFR's for $50-$60k. I thought "how could one go wrong"? But its all starting to make sense now lol.

@Aaron Sizemore - consider getting a second opinion on whether this is a passive investment or not. Just because you have a property manager does not make it a passive investment. This is covered in detail in chapter 2 of "Every Landlord's Tax Deduction Guide" by Stephen Fishman.