Quote from @Susan Guzzo:
Quote from @Myrtle Mike Thompson:
Quote from @Susan Guzzo:
I was looking at rental properties in South Carolina for a hot second, but it turns out that they assess rental property at 50% more than its actual value. Too big a line item on the balance sheet for me.
This isn't entirely accurate... at least not in Horry County where Myrtle Beach is located. It comes down to the millage rate. A rule of thumb I tell clients in my market is to take the purchase price of the property and multiply by 0.012. So on a $300k purchase, the estimate tax liability for an investment property will be around $3600. I moved here from a state where taxes were much higher than this for a Primary residence, so to me it doesn't feel like a kick in the pants.
I wasn't trying to throw any shade on SC, it's a lovely place. 1% I can handle. What I ran into is that for many counties, there is an increase in millage rate, a loss of homeowner exemption, and loss of exemption from school operating taxes. The end result is often a property tax bill that is noticeably larger than if the property was a primary residence. For a $1.7M property I was seeing an estimated property tax expense of $26K+, so the deal penciled out in comparison to other properties in the midwest where the taxes are lower.
Hard to find reliable sources of info, but there's this: "If you decide to rent out a home you’ve owned and occupied [in SC], your tax bill may triple. There is an exception for armed forces members who apply with the county assessor to keep their owner-occupied rate for up to two years. The reason is that owner-occupied homes are exempt from paying public school operating taxes. Rental properties are not exempt and they’re taxed on 50% more than their actual value." https://www.articlecity.com/bl...
And there's this BP thread that describes increase rental property taxes in SC: https://www.biggerpockets.com/...
I've had to deal with increasingly high property taxes in CA, and I'm trying to get away from it. I'll admit I may be a bit traumatized lol.
Forgive me dead horse, I may have beat you.
In South Carolina, the tax system is a bit complicated at first glance, but if anything it will only improve with time in favor of landlords as the new Mayor in Columbia is working on to spur local investment. At the moment, regardless of the county, the taxable value can be reduced by up to 25% of the purchase price via an ATI Exemption depending on the prior taxable value which would likely apply if it is being sold for a gain by the Seller. If that $1.7m property had a recent taxable value of say $1.2m the new taxable value on the following year* (no supplemental bill like CA back to date of purchase) would be $1,275,000. From that $1.275m for multifamily/ retail property would apply a 6% assessment rate to then calculate by the millage rate. I usually "re-calculate" the millage rate based on a recent tax bill to consider the Sales Tax Credit, and for instance in the city of Columbia, the tax on $1.275m would be about $37,165, compared to say a smaller county/ no town jurisdiction of Anderson would be about $24,883. However, if the current taxable value is already say $1.6m, the new taxable value would remain $1.6m as the deduction is "UP TO 25%" depending on current taxable value.
Once you have mastered this and can easily look up the recent/ prior tax bill for the millage rate you can easily and accurately estimate what the tax bill will be for your underwriting and it is not so complicated anymore but just still a sort of high bill if comparing to 1% type states but again should be reflected the cap rate/ location risk comparison (favorable laws as well compared to CA). It's also important to note, property values are not re-assessed or increased yearly and may only be done once every five years up to a maximum of a 15% increase although not common unless it has not traded in a long time and clearly is worth much more. Along with other less common tax deductions such as the Bailey Act and the Abandoned Buildings Revitalization Act, any local sales tax option credit would still apply to investment property automatically, compared to the ATI Exemption and others which must be submitted directly with the county.
Hope this helps!
