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