Picking a State - Income tax or property tax?

[Jacob Hartman]

Hi there!

I have the means to invest about $40,000 dollars (down payment, repairs, closings costs etc.) into a 3/2 SFH in a desirable state with a buy-and-hold strategy. In addition to state income tax, property tax, and state unemployment, there are other variables that I have taken into consideration which have helped me to narrow down the states I would want to invest in. With $40,000 to invest, I should be able to get a home that is priced <$180K currently.

I am 23-years-old and this will be my first rental property. I am reluctant to make this investment at a market top. My desired strategy is to access a substantial amount of capital that I will use to buy depreciated homes a few years into a recession. However, I want to have the knowledge to be able take advantage of such a situation when it happens. Therefore, I am willing to make this first purchase as a means to learn about the process.

The states I have narrowed it down to are Colorado, Texas, Tennessee, Delaware, and New Hampshire. My question to you is: what has a bigger impact on your income as a landlord, state income taxes or property taxes? I understand that this question is nuanced. My guess is that with a single-house portfolio, income tax will have a bigger effect when job income is taken into consideration. However, on the scale of 100 houses, property taxes will have a bigger effect. This is just my guess. The impact of property vs income tax is hard to calculate when income tax brackets are progessive. I also have no idea how rental income is taxed state-by-state.

The location of this first house does not have to be the same location where I will buy a cluster of houses in the future. My goal with this home is to be able to pay down the mortgage with at least $100-200 cash flow. I expect it to depreciate if a recession were to hit. But it doesn't matter much to me as long as the home is occupied, the mortgage is being paid down, and I am seeing at least a small cash flow. I have a great spreadsheet calculator that accounts for everything (inspired by Brandon from BP).

I have listened to many BP podcasts (100+), read at least 5 books, and done plenty of my own spreadsheets.

Thanks for the answers!

Sincerely,

Jacob Hartman - Murrieta, CA

[Andrew Johnson]

Jacob Hartman This is going to be extremely simplified by I will say property taxes are more of an impact. Why? You have to pay them. The taxable income from my rental property (on a property by property basis) is lessened through depreciation and mortgage interest. So, if you carry enough debt you're golden! Not that you want to (or should) carry that much debt. Not that depreciation works as well in high land-value states. Not that property taxes don't get (effectively) lowered in California thanks to Prop 13. And I'm sure I could come up with a bunch of other caveats. But maybe that helps a little.