Property Taxes in Indianapolis - Don't these have to rise?

Question

Hi All,

I've run the numbers on a few investment ideas in Indianapolis, the numbers look good on paper, but the cash flow seems to be to be helped by the low property tax rates. I'm curious people's thoughts on the risks of property taxes rising over the long term.

How is it sustainable for a 3 bedroom house to have $1300 a year in property taxes? How much would it cost the town to send 2 kids in that house through school? Plus all the public services that need to be provided? I'm no expert on municipal budgets, but it seems hard to get my head around how they make it work. With the increasing debt levels of municipalities in markets like these, isn't it reasonable to think there has to be some tipping point in the next decade where these town are insolvent and even right leaning towns have to raise property taxes?

And taking that thought a step further, what happens to the small investor with maybe a half dozen rentals in Indy when property taxes double and their properties are negative cash flow now????

I'm very curious for thoughts from those who understand property taxes better then I do. I also think this can apply to many markets besides Indianapolis, but it was just the one I was looking at today and thinking about this.

Thanks all

Ben

Mike Knowles · Answer

Taxes in Indianapolis are different for owner occupied homes vs investor owned homes.  For owner occupied, they are capped at 1% of assessed value (+ any special levies that voters approve).  For investors, it's 2% of assessed value (+ voter approved amounts).  If you're buying a property that's currently owner occupied, you can expect them to at least double.

Mike D'Arrigo · Answer

Benjamin C. I wouldn't consider Indianapolis property taxes low. They are 2% of assessed value for non owner occupied properties. Marion County reassess every 2 years however, by law, the tax assessor must be able to justify any increases in assessment so they can't arbitrarily increase taxes.

Louise A. · Answer

Benjamin C.

The 2% cap is in the state constitution as of 2010.  I have no concerns that they're going to push that higher as all the homeowners in the state would revolt.  The two things to watch out for are the owner occupied vs. investment question that has already been addressed, and the purchase price vs. the assessed value.  If you're buying a property for twice as much as the current assessed value, I would assume that at some point the purchase price is going to catch up to you.  It might take a year or two, but at some point, you're going to be assessed at a market value on that property.

Larry Fried · Answer

Benjamin C. said.  It is important to look at the county tax records for the property and see what the current assessed value is and if it is being taxed at the homestead rate (owner occupied) or investor owned.  The other thing is in Indiana property taxes are billed one year in arrears, thus 2015 taxes are paid in May & Nov of 2016.

Benjamin C. · Answer

@Louise Alexander

Thanks! That makes sense

Benjamin C. · Answer

Thanks all for the information. That helps me understand how taxes work in this market.

Let me put my question another way.

Do you feel there is a risk to long term investors that the investor owned rate of 2% could increase sometime in the future. Does anyone understand how this would happen(necessary for saying it can't happen).

I know all investments have risk and its hard to answer what could happen "sometime in the future". In the long run we are all dead right??? But I think it's good to thoroughly think though some of the lower probability but high impact risks. As a long term investor I do not want to be in a situation 5 years from  now where I have say 5 properties in this market and I find out some county board have voted to double taxes on investor owned properties. You'd then be in a situation where you've faved with two bad decisions, 1. Hang onto properties that no longer cash flow or 2. Sell these properties and incur all the closing costs of selling plus also be selling in a week market(others will be running from the market as well, it would certainly be bearish property values)

Rich N. · Answer

two certainties in life. Death and Taxes.  It will go up.  but you can look at past years and you might see a pattern.  Like it goes up 50-75 dollars every year, so you need to raise your rents per month to equalize the annual increase.

Property Taxes in Indianapolis - Don't these have to rise?

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