What if they build just outside the city limits, so they are not paying city taxes?     

I prioritize appreciation, tax benefits (rental property expenses, depreciation), ability to use leverage, and passing on generational wealth with real estate. 

@John BowensAre you loaning from a pre-tax 401K or did you convert to Roth and then loaning from there?

Since tax bills are for entire parcels (typically, though not always) then it is highly unlikely that they somehow segregated the taxes for that small portion and paid it.

If your goal is cash flow, then your best bet may be to live in it for 2 years, and then take that tax free gain (250k single person, 500k married) and buy elsewhere. 

Insurance is just an expense to factor into your underwriting just like property taxes.

What is the value of that other property and how much do you owe?

Best decision I've ever made. 4-6% average annual appreciation rate, stable job growth, population growth, drivable to the Bay Area, close to Lake Tahoe, no state income tax, 4th lowest property taxes in the Nation, much more landlord friendly than CA, land constrained meaning limited supply, etc. 

It is my understanding that people refinance and then use those funds other ways (personal living, investing, some to buy another property) as a means to minimize tax obligation. 

We have several acres that we bought for $100k and still owe 50k on.