Why are property taxes so high in Cleveland, Ohio, relative to the sales price? I saw a duplex listing price of about $90k with good cash flows, but my goodness.....the property taxes were $4800. This is about 5.5% of sales price. I'm in southern california, and I think my property taxes are high, about 1.1% of sales price, which comes out to $5k.
Is there something i'm missing?
3234 Euclid Heights
Cleveland Heights, Ohio 44118
NEW BANK APPROVED PRICE
- 2 units
- Down is a 3 bed 1 bath unit
- Down is rented for $795 per month
- Down lease available upon request
- Up unit is a two floor 5 bed 1 bath unit
- Up unit is being left vacant for easy showings
- Up unit market rent is $995/mo
- Total market rent; $1,790/mo
- Tenants pays gas & electric
- Owner pays water & sewer
- Roof is older
- Older furnaces approx 20 years old (each unit has it's own furnace)
- Hot water tanks around 5 years old (each unit has it's own hot water tank)
- Annual property taxes are $4,823 per year
Ratio of home owners to city debt. High taxes are the result of high debt possibly. The city is probably staving off bankruptcy.
Generally investors should avoid areas of high taxes to reduce risk.
It's just a way of life here in Cleveland. You could argue the tax valuation in Q1 of the new year.
But it's one of those you accept it cause not much you can do about it. Lucky for you thou its a tax deduction at tax time :)
Debt crossed my mind. Usually property taxes pay for municipal items like police, fire, city, and schools. One just has to look at cities with high property taxes like New Jersey, New York, San Francisco, Chicago, and Los Angeles. The one thing in common besides high property taxes is their leadership. All the cities mentioned have democratic majorities in mayor and city council. Those elected officials are supported by unions, teachers, police, and fire. The obvious cost with those position is pensions.
The offset to the high property taxes is high home prices. However, Cleveland, Ohio, lacks the home appreciation. Thus, with the good rents, you will be killed by the property taxes.
Accept? That is like accepting marriage without sex. As an investor and male, I would say no to both.
@Terry Lao I’m also in so cal. I just sold a property with almost the same numbers. I was shocked by the taxes too. One other thing to watch for is city fee and taxes in certain areas. For example Euclid charges 200 per door annually just for having a rental. In Parma heights it’s 100 plus 2-3% tax on any profits. You have to be careful initially you think you have a 20% but once u get the whole picture it’s half.
@Terry Lao there is Cleveland Proper that has low taxes. Cities like Euclid, Garfield, Cleveland Heights they have higher taxes so go into other areas. Just know you can't have everything, low taxes and low home entry points.
@Terry Lao Just about all locales in Texas have high property taxes, regardless of who is in office. Product of no state income tax and the Legislature pushing more of education funding onto property owners. (Public school taxes comprise the lion's share of property taxes.) Add HOA and/or special district fees/taxes and it can really eat into your returns.
Texas has no state income tax, like Nevada, Florida, South Dakota, Washington, Alaska, and Wyoming. I'm okay with high property tax if offset by no state income tax. However, Ohio has a state income tax, and Cleveland has high property taxes.
@Terry Lao I am not sure anyone can answer the question about WHY property taxes are so high in some cities in the greater Cleveland area but there is a list that breaks down the property tax percentage for each city in the area. Feel free to PM me if you would like that information. Also, for 3234 Euclid Heights, the county has the market value at $113,100. Once this property is purchased it should be changed with the county, if not you will have to dispute this with the county.
One of the reasons that taxes are so high in relation to the value of the property is that the properties are worth significantly less than in other parts of the country.
2% taxes on a $1mm property are 20k a year...Taxes on a $80k property at 2% would only be $1,600 a year.
Another HUGE problem is that a LOT of these mid-western cities have BLOATED government structures....they are burning money on education, they have a LOT of retired workers with underfunded pensions, they have LOTS of current workers that are not very efficient.
It is a huge problem that is going to get bigger/more attention in the near future. I've been fighting egregious taxes in the Detroit area. Detroit is MUCH worse than Cleveland. Detroit has higher rates (generally speaking) AND has the added insult to injury of properties being OVER ASSESSED. For example, property tax rate is 5%....you buy a property for $25k, but it is assessed at $150k. Clearly the $150k assessment is WRONG...and you can fight it, and you get some relief...but the assessment will go from $150k to $80k. Clearly an improvement...and perhaps your $25k property is certainly worth more than $25k, but NO WHERE near worth $80k. So end result is that you are paying SILLY taxes on properties.
This is keeping the valuation & (re)development of properties low. It is also impeding growth of communities. What is maddening is that most of the government employees do not seem to understand this, and could care less. They just want to keep the money train rolling.
So the end strategy is that you've got to be INCREDIBLY careful in how you invest...you've got to understand how to protest your tax rate...how to go in front of the board of review, how to make your case, how to appeal the new assessment.
Finally, you've got to buy properties with SILLY TAXES at SILLY PRICES!
Most taxes, sales, income, gasoline, use, etc., is based upon a formula like amount x percentage. Cleveland/Detroit is using a high assessed and a high percentage. I'm sure the tax authorities knows this and really don't care. They are probably hoping that you do not contest and just pay it.
In an earlier post, you just accept it. Well, when you crunch your numbers, and see that property taxes are high, that will kill the deal.
One thing all these cities seem to have in common is lack of industry and population decline. High taxes will only expedite the flight of businesses and residents from the area. These governments are like a parasite that’s killing the host. What happens when there’s nothing left for the government to eat?
I am sure that you are correct in that the government employees are hoping/banking on the assumption that you will not contest the assessment.
When I bought my commercial properties outside of Detroit, I knew the taxes were SILLY HIGH. I bought them on the gamble that I could get them reduced.
I went in front of the board with several different arguments showing the assessment was incorrect. I was looking for an 80% reduction in rates....I wound up getting a 40% reduction.
I would not automatically nix a deal if the taxes are initially too high. It depends on how much you think you can get them reduced AND your confidence of getting that done.
I have a property in Warrensville Heights 4 bed 1.5 bath 1,580 sq ft built 1952 and paid $2,028 in property taxes In 2017. I also pay an annual occupancy fee and in the 1st year of ownership got hit with garage expenses as the city deemed it not up to code. Rehab took a while as well with all the city regulations and inspectors who had to go through the property. They even regulated what paint could be used in the rehab. It cash flows almost $400 on a $985 rent.
My property tax Dallas, GA was $900
My property tax in Birmingham, AL was $768
My property tax in Leander, Texas was $5,000
I'll be investing in GA or NC from now on.
There is a whole separate conversation about bad management of resources by city government which none of us can fix.
I look at it this way - The cost of a home in Cleveland or even the nicer suburbs is very low compared to many areas of the country yet our taxes are disproportionately high.
The "why" to me is that roads still need to be fixed (a LOT!) and teachers, cops, firefighters, etc need to be paid and that costs about the same here as it does everywhere else.
You can contest the tax amount but expect to pay more it's just part of the ticket to ride.
Yes, taxes are high. Yes, the property still cashflows amazing in spite of the high taxes.
@Terry Lao It's just like @Federico Gutierrez alluded to,. it depends on where in Cleveland you buy. I learned from @Michael Swan that some areas in and around Cleveland are very high as far as what you're charged in property taxes. In Cleveland I own three rentals, one is an SFR and I also have a couple of duplexes and I have found that literally different zip codes in Cleveland have different property tax rates. Don't let what you see in Euclid persuade you not to buy because......A. That $90,000 is the asking price....far different than the lower price that you ultimately offer. Out here in California we are used to seeing an asking price as a "starting point" and people tend to offer over the asking price out here in California. However, people with far more properties in Cleveland than I have are the first ones that have told me not to offer "the asking price" on multifamily, but offer below that. I've never paid asking price out in Cleveland, but for my rentals here in the San Francisco Bay Area it was a different story. Also keep in mind that in Euclid you should be able to get higher rents than what they are showing you. Go to rentometer.com and type in the address and you'll see. Right now may not be a bad time to buy a property in Cleveland where one of the units is vacant. You DON"T want to make the mistake (like I did) of trying to fill a vacancy in Cleveland from November through March because nobody wants to move because it's cold during that timeframe there.
Section, township, range. Each township within a section has it's own millage rate. It does correlate to infrastructure for that township as well as property usage for the township.
$100,000 value would have a 10% assessed value for owner occupied primary dwellings. If your millage rate is 7% you calculate...
$10,000 × .07 for a $700 tax bill.
If it's not owner occupied it's considered a 2nd property and/or investment property. Same millage rate but now you pay a 20% assessment tax.
$20,000 × .07 for a $1,400 tax bill.
Every county lists their millage rates on the tax assessors website.
To reduce the tax amount you can do 2 things...
Buy in a personal name instead of a business. You are allowed to own one property in a county that can be a 10% assessment. The 2nd in a county starts the 20% assessment.
Hire an appraiser to contest the taxes every year in May. They do not like seeing appraiser's in contest hearings because they lose every time.
Municipalities also raise their millage rates when they are trying to change the usage from predominantly rental areas to owner occupied for gentrification. Higher millage rates kick many investors out of an area. It's backwards because what it actually leads to is vacant properties instead of gentrification.
I just personally moved from a high tax town in nj. I looked at my old towns prices recently and saw a home listed for $399 but the taxes are $27500. Beautiful home but who buys it. By the way it is assessed at $860k
I noticed I was mentioned on here. Those taxes in Euclid are pretty high.
However, I invested closer to Lake Erie, close to Wickliffe on Lakeshore and my duplexes run $750.00-$825.00 a side in rents and I payed about $30,000 a side all fixed up in 2014 and 2015. I sold 4 of those front doors in 2016 and 2017. One rose about 50% in value in two years. I purchased at $33,000 and sold at $48,000 2 years later. I used that money to help with repositioning my apartment complexes in Lake County and Euclid too.
In about 2 months we should have 8 apartment complexes and 122 front doors, including a 24 unit in Akron too. I just don't want to sell those 4 little front doors I still have in Euclid. At one time I had 8.
Although, I could sell them now for well over $200,000 if I chose to do so this summer and in a 3 year period of ownership I could make a good 60% profit at sale, not to mention the $300.00 cash flow per door per month for the last three years. I also currently have Zero vacancies as of today, March 19th.
Those Property taxes are no worse than the HOA fees I was paying out here in San Diego on my 10 rental condos. Plus, I still paid property taxes on top of that too.
If the numbers work, they work. Simple as that.
This is a classic case of the real estate theory of relativity - everything is relative depending upon where you come from and where you are looking.
However, at the end of the day, it doesn't matter who you are or where you invest as long as you do the homework and your numbers make sense.
I would also throw caution at the idea the Cleveland has high property taxes as a general consensus because people may take that to mean all the suburbs as well. For example, Westlake has relatively low taxes primarily because they have many businesses located there that pay taxes too. So that helps offset the need to have higher residential property taxes. Westlake is also a very well run city that has never had bad debt as long as I can remember. So this in turn makes it a very desirable city to live in where you will most likely be in multiple offers against others on a solid home under $300k.
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