Hello Bigger Pockets,
I am interested in purchasing a single family residence investment property in Indianapolis and I was told by the real estate agent that if I purchase it as an investment property that the property taxes would double. They mentioned that primary residence owners get a tax exception. The property is in Marion county which covers the whole city. I have never heard of this before. Is this accurate?
Yes, this is true. Property taxes are 1% of assessed value for residential, and 2% for rentals, plus all the deductions fall off. When I changed my wife's old house before we were married from Res to Rental annual property taxes went from like $900 to $1900/yr. Additionally, the property I have is in Wayne Twp, which passed a school referendum, so I had to pay double on it. It jumped like $600 more a year or two ago.
wow, I had no idea. Thanks Eric
It’s true but way lower than lots of other states.
The neighboring state of Illinois has a lot higher taxes and less desirable areas in my opinion.
It is a deductible expense but if you are focusing on cash flow Indiana is good, Illinois bad.
@Eddie Knoell It's true that Indianapolis property taxes are 2% of the assessed value but that doesn't mean that the taxes are going to double. Is the property currently being taxed at the 1% owner occupied rate or is it already a rental being taxed at 2%? Even at 2%, Indianapolis is still one of the best cash flow markets in the country so rather than focusing on what the taxes are there, look at what your total projected ROI is. I think you'll find it's still better than some markets with lower property taxes. That's due to the affordable prices and strong rents in Indianapolis.
Yes, investment properties are taxed at 2% of assessed values, but often times this is less than homes in other markets. Zillow is usually the quickest way to get this information if you do not have local MLS access... just click on the pricing/tax history and it will give you the assessed value and tax bill. Figure your deals at 2% of the assessed value. If the assessed value is really low (this will be the case with very distressed properties or very distressed areas) you may want to figure the deal at 2% of 90% of ARV as the assessment will likely go up in the next year or two. While you will be saving money with the low tax bill for a year or two, ensure that the deal doesn't fall apart when the city adjusts the assessed value. For instance, I have a home that we rehabbed that was assessed at $11,000 but its ARV is about $125,000. The tax bill is ridiculously low, but I worked the numbers at a $100k assessment or $2,000/year to ensure that I was still hitting my criteria after the adjustment.