SC property tax strategy for out of state investor

11 Replies | Charleston, South Carolina

Hi folks -  South Carolina (Greenville, Spartanburg, Columbia, etc) looks like a great market for buy-and-hold rentals but the property taxes are prohibitive for out of state investors.   By my research about 6% of assessed value for out of state investors, but <1% for in state.  

- Can anyone correct me if this is incorrect? 

- Are there any viable work-arounds? such as forming an LLC with an in-state partner, forming a single member LLC in SC, etc.

- How would this apply to general investing and investing via a self-directed IRA (SDIRA) LLC with checkbook control?

- Any other tips that might make this market more accessible? 

Thanks!

Hi Jack, 

The 6% is for all non owner occupied properties, residential, commercial, in state owners, or out of state. Homeowners can apply for an exemption on their legal residence that lowers the assessment ratio to 4%, exempts them from paying for school operating expenses and gives them a few smaller credits. 

All properties taxable values are capped at a 15% increase between reassessments (every 5 years) so if you hold the property for a while you will very likely end up being below market value.

Buying a property though will trigger a reassesment to market value. If you bought a 6% property and keep it a 6% property, you can apply for up to a 25% exemption, but it can’t go below prior valuation and you have to apply by January 30th.

Property taxes are one of my biggest line items can be 1-3 months rent.  Unfortunately,  the residency deduction is for owner occupied only regardless of in state residency elsewhere.   Be sure to watch for city specific taxes,  fees, permits, and licenses.  I live in Greenwood, but purchased mainly in Richland County (Columbia metro area). Greenwood has crazy high property tax compared to Columbia with lower rental rates for similar property.  In Richland County, I find rental rates higher and taxes lower. I only have 1 property in the city limits.  Beware, they require a permit ( only $25), BUT you must have a PM or other responsible party locally ( with 45 miles) listed on the form.  I use a friend, but knowing no one in Columbia, you would need a PM to comply with law.  

SC is more landlord friendly than many states

Jack

I moved from the SF Peninsula to Greenville about 3.5 years ago. After a 35+ year career as a RE Broker in Menlo Park and Palo Alto, I have invested heavily in Greenville. It's a great market.

Please let me clarify your question. The tax issue is NOT in state v out of state. It is owner occupied v non-owner occupied. I am a legal SC resident and I pay the higher property tax rate on my rental properties. There is no way to get around this. To state another way, it doesn't matter where you live or where the ownership entity is based. If you don't occupy the property as your primary residence, you will pay the higher rate, period. Hope this helps.

To further clarify, owner occupied properties are assessed at 4% and non-owner at 6%. But the bigger factor is owner-occupied gets a credit for school district taxes. It is a weird system but it is what it is. Non-owner occupied will pay 2.5 to 3 times more property tax for the same value as owner occupied.

You just need to figure this in to your evaluation of the property - no way to game the system. I also own rentals in Austin TX area and their property taxes are high. Even with that, they are great investments!

Greenville SC is a great place to invest. Let me know if I can help. Many of my Silicon Valley clients have invested in Greenville with me. They are happy.

Arn

Thanks @Danny Radazzo. I am a commercial appraiser in a county assessor’s office so I’ve explained it a few thousand times. If you or any other posters want more detailed answers, just post or private message me. Things can get a little more complicated if there is construction or remodeling

I would love to hear more about this, we recently discovered South Carolina and after living in the Northeast, it looks like a haven for investing. As I understood it, it was only the 6% assessment that was assessed the millage rate. For example $100,000 assessment equals 6000 times the local mil rate. Am I incorrect in this? Taxes look incredibly cheap in SC, right now we pay close to $6k for 190,000 assessment which is a bit steep up here. Thanks for any info.

It depends on the county and school district the house is in. For instance in Lexington in the town of Lexington school district, taxes on a $100k property as a non-owner occupied would be about $3100/year. 

Most counties have online tools to calculate this for you based on address or property value. 

Heres the link for Lexington county 

http://www.lex-co.com/scripts/cgiip.exe/WService=w...

Edit: also keep in mind that the rents in this area reflect the lower taxes and property values. There are alot of deals out there that work on a percentage view but you may only be cash flowing a few hundred bucks a month.

This is a bit of a shock to me, I've been dreaming of investing in SC because the taxes are so low. But it seems that the owner occupied vs investment is a huge difference. This is a bit disappointing, so many of these deals suddenly don't seem so great now.

We always seller finance our single family houses so we can get the owner-occupied tax rate. Our average tax bill is 800 a year instead of 2000 a year. Since we own or manage about 300 units, that saves tons in tax per year for us and our clients.
Short version: Buyer has a recorded contract prepared and closed with attorney...it's recognized as equity by county...buyer request owner occupied rate in writting at asssor office...taxes are reduced.