SC Tax Disadvantage "Myth"

[Ron T.]

Hi all. This is my first time starting a discussion on BP after lurking for a while and listening to the podcasts for a couple years.

Recently I have seen numerous posts, most recently by @Alex_Franks regarding the major disadvantage to investing in buy and hold properties in SC, specifically as it compares to our neighbor to the north NC.

Since I live in York County and have invested in both regions for the last 8 years or so I am confused and hoping the collective knowledge can educate me.

Now to start with I am well aware, and anyone investing in SC should be as well, that non owner occupied properties are assessed at 6% vs owner occupied properties being assessed at 4%. However this assessment is only 1/3 of the tax picture AS I SEE IT, and since several folks much more intelligent than I disagree I am hoping to learn what I am missing.

From my understanding taxes are calculated as follows:

Fair Market Value x Assessment ratio = Assessed value

Assessed value  x millage rate = tax burden

We have covered the assessment ration above (4% for O/O; 6% for investment)

But I think the other 2 factors offset this. Millage rates get very specific and school district, water district, etc can all play a small part in your tax bill. Also if a given address adds value to your property it will also increase your tax liability as well.

I think people see the 6% assessment ratio for SC and see that it is 50% more than primary residence and assume SC is a bad state to invest in because of the "high tax rate". What I think is missed is that the primary resident rate is the 3rd lowest property tax rate in the country. 

To reduce all this down to a meaningful and comparable discussion we need to look at cumulative effective tax rates.

Using the data from smart asset it looks like the border counties in NC have an effective tax rate of:

Gaston - 1.05%

Mecklenburg - 1.13%

Union - .82%

Compared to SC (PR/OO rates)

York - .632

Lancaster - .508

Chester .662

Now these rates are for the lower 4% Primary residence rate which has to be adjusted up 50% to account for the 4%-6% difference mentioned above so the effective tax rate for investors is:

York - .948

Lancaster - .762

Chester .695

All still lower than heir closest NC counterpart. 

After seeing this "SC sucks for rentals because of tax rates" argument a few times I thought "I am a huge dumb-butt I guess I never considered this" But it didn't pass the smell test for me. 

Real world examples:

I own the exact same house, built by the same builder in fort mill sc as well as in Charlotte, NC (28273).

I paid new

Ft Mill - $109,900

Charlotte - $149,900

(yeah I am dating myself a bit here...and buying new and retail for a rental wasnt the ideal strategy but I have learned and it worked)

Most recent assessment:

FT Mill -$192,000

Charlotte - $199,000

So we have a pretty close number to compare to here

Tax bills last year:

Ft Mill - 2,011.62

Charlotte - $2,398.00

I spent a couple hours this week running down the docs and comparing back several years and I must be missing something but frankly I am out of brainpower. I am an electrical engineer not an accountant by day and degree but I want to get smarter at this real estate business and increase my portfolio from its current 18 units to 45-50 in the next 3 years. So I need to learn

Can anyone help?

[Alex Franks]

I live in Rock Hill , My office is in Rock Hill, My wife was born and raised in Rock hill. I owned properties in all areas of York county. I build in Rock Hill, love Rock Hill.

Chester, York ,  even Kershaw, Rock Hill, owned rentals.

Compared to Charlotte on average , yes the taxes suck plain and simple.

I am not a smart guy , but yet a very simple...

Here we go 24k house on Jefferson Ave, amost $3k in taxes for what ? 400  month rental In the hood second worst area of Rock Hill. Located within the city limits.

Charlotte NC 4 bed 2 and 1/2  bath rental $40k rehab 22k purchased in 2013 in the house. $1100 month rental taxes was little over $1400 a year. 

Sorry no comparison, SC , or even Houston ( Texas ) investors get killed on taxes on Investment properties. Side note I am building 150 new construction rentals, breaking ground in Columbia SC on 58  as we speak. So taxes still suck in SC on rentals ,regardless if I'm building here.

On the retail side we should hit 100 new builds this year on the SC side. So very aware of the retail tax for primary resident. Much better deal for folks buying properties to live in.

And I will say it loud, and clear my opinion for out of state investors  or local  investors SC sucks on taxes...I probably not the guy to have intelligent conversation with as I lack that expertise.

My tax bill on 170 lake point Fort Mill is Almost $8k an that's because it is a rehab flip, so considered investment property. Check it out of you want one of my older project. Listed for $479k 5 bed 4 1/2 baths.

I have sold over 800 units in both markets since 2000. I am not an engineer ,nor a smart guy. I can how ever add 2+2 and get 4.

I just let the numbers speak for them selves.

Alex