How much should I be concerned about property taxes?

Question

I've had a successful, albeit short, career in insurance sales and am looking to transition into buy and hold real estate investing.  I currently live in Ohio where property taxes are high (40th out of 50 states).  My wife and I are considering relocating to Myrtle Beach, SC.  It so happens that property taxes there are a fraction of what they are here in Ohio, though schools and public services may not be as strong.  When considering a future in landlording, how much weight should I put in property taxes?  I want to buy properties, at least initially, in my local community.  So with property taxes in Ohio comparatively high, do you think I might be better off moving to South Carolina and investing there?  Thanks in advance for your insights.

Roxanna Pifer · Answer

Hi Michael,

My husband and I live and in invest in NE Pennsylvania. We are closing on a new construction in Myrtle Beach in August. Hopefully it will be our retirement home but for now it will be a rental. Although it will not make as much as our PA houses, my calculations show it will still cash flow positively. The taxes will be higher as an investor but not by too much. They still come in much cheaper than Pennsylvania. For us the major factor was the insurance. There is a big difference in wind and hail insurance between Hurricane Zone 1 and Zone 2. Make sure you do your research on this and get real quotes so you don't end up with a bad surprise.

Good luck!

Account Closed · Answer

Remember, mortgage interest should be tax-deductible. Shouldn't this, at a minimum, zero out the property taxes that are due annually?

Michele Stephens · Answer

Hi all! Property taxes on non-owner occupies homes are MUCH higher... As an example, we have a rental that is valued around $110k, and the property taxes last year were about $3600, whereas the neighbors next door, who are owner-occupied paid $932. If you're looking in Richland County, check out richlandonline.com and go to property tax estimate. If you're looking to work with an agent, let me know!

Best of luck!

Michele Stephens

Myrtle Mike Thompson · Answer

Gentlemen, thank you all for your responses.  I was not aware that taxes would be higher on investment properties, and that is good information.  I've been renting out my old home, a single-family house, but that's all the experience I have so far :)

Tradd, we have been vacationing to Myrtle Beach with our little girls for the past several years.  We just love the beach and all the outdoor recreation opportunities.  If we make the move it'll be next year, and I'll definitely let you know.  Thanks!

Thomas S. · Answer

Property taxes are simply one financial factor to consider is assessing a property as a income investment. Each property is unique and market rent should reflect all expenses. If your state taxes are high your market rents should reflect that fact, if they do not then landlords in your state are idiots.

Keep looking in your area, do not compromise, and find properties that do work.

Craig Bowen · Answer

Hi Michael,

I am in Columbia SC so I do not know for sure how the prop taxes work up in Myrtle Beach, but here in this area, and I believe statewide, it is certainly something to make sure is included in your calculations.   I'll tell you what I DO know and sorry if I'm going over some basics that you already know.

To determine Prop tax, the "assessed value" is multiplied by the assessment ratio and then by the milage rate. A mill is one tenth of one per cent), a rate determined by each county council that reflects a different level of taxation for different areas, school districts, and other assessment districts.

Here in South Carolina an owner occupied residence uses a 4% factor for the assessment ratio but a 6% factor for investment, or non-owner occupied, properties.

So, for instance, my current millage rate is 175.1.  Again, this is 1/10th of 1%, so move the decimal over 3 places and the multiplier becomes .1751.

If you have a $100,000 unit that is owner occ, the math is as follows;

$100,000

X 4%

= $4,000

X .1751

= $700.40

But if this is a rental property and the rate is 6% then;

$100,000

X 6%

= $6,000

X .1751

= $1050.60

That is a difference of $350.20 annually.  Now here's the catch - in some districts the millage rate increases for income property as well.  You could jump $500, $600 or more on just a $100,000 property.  If your cash flow is $250/mo, you may be using 2 or 3 or more months just to pay the increase in prop taxes here.

I have seen discussions where people think that is enough to keep them from investing here but I think that is overreacting.  Like ANY cost to purchase or or hold, it just needs to be figured into the calculations to see if it meets your numbers!

Good luck and let me know if you head down this way.  We are planning to acquire a rental in MB in the next year!

How much should I be concerned about property taxes?

Most Popular Reply