Why Property Taxes Are Not a Dominant Factor, But Still Important For Investors
There are a lot of factors that investors will take into account when deciding on where to buy a home as an investment to secure their financial future. Which area has a sufficient supply of homes vis-à-vis demand? Which regions are saturated and which regions are more likely to grow, and hence experience an increase in real estate valuations? What are the urban centers that investors are likely to get the best rental income from? Another aspect to keep in mind is property tax, which is something that is a recurring expense for homeowners.
Property tax varies across the country.
According to USA Today, Hawaii has the lowest averageproperty tax rate at just 0.3% of the total property value. The national average is 1.1% of the average home value. Alabama, South Carolina, and several other states also have low property taxes at 1% or less of the home value. So this means that you are paying less to the tax agencies vis-à-vis the value of your home. On the other hand, states such as Texas have much higher rates of property tax, in some cases close to 3% of property value.
While your principal and interest repayment amounts are not going to change, this property tax component is subject to change as valuations rise. It is an expense that investors should keep in mind when choosing where to invest. While it is far from the most important factor, it can be a countervailing aspect to keep in mind, particularly when making a choice between two otherwise equally good options.
Be a smart investor. Here’s how…
A lot of times, I see investors being carried away by trends, celebrity endorsements, and so on. If X celebrity bought property in a particular city or area, suddenly that place becomes attractive and desirable. You know how Elon Musk can make or break the fortunes of cryptocurrencies with just a tweet? Well, people like Musk have the power to sway public opinion in the real estate investment arena as well. Investors, however, would do well to make choices based not on social media chatter and what is‘trendy’, but on market projections, and likely fiscal outcomes.
Now here’s a likely scenario – Elon Musk was seen doing business or even just grabbing a bite in Austin, and people decided that this is the place to invest in property. This is not the best idea. This is because in the state of Texas property taxes can hover as high as 2.5% to 3% of the property value. It can vary from zone to zone, but it is generally high. In some Dallas suburbs, it can be close to 3%. On the other hand, in neighboring states like Oklahoma property taxes are much lower.
So given high property taxes, some states are not ideal investment options. This is something that we will be discussing more in detail in ournext quarterly event – a free online expo where we discuss all the issues relevant for real estate investors. We will have experts in attendance who will offer specialized insight into property tax as well as asset protection, home insurance, and more. Don’t miss it.
ICG uses single-family home investments, bought in advantageous locations and the best U.S. markets. We enable you to enjoy the clout that comes from purchasing a multitude of houses, even if you only buy one.
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