I am in the process of learning everything I can about rentals and "passive income." Our property taxes just came out in IL and in talking with my neighbor (who does this for a living) he mentioned all of his units have a ratio of property taxes / gross revenue of 20%-28%.
My question is: what is an acceptable ratio for these two variables? Mid-20% seems quite high to me.
Note - My neighbor rents to college students in multi-unit homes and also believes he is assessed high.
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posted: May. 6, 2013 @ 4:18p
Property taxes vary by state and locality so you should probably look at the whole PITI or compare with those that have similar tax rates as Illinois. For example, property tax for most of Los Angeles County could be 1.25% but it could be 3% for most of Texas.
posted: May. 6, 2013 @ 4:19p
Property tax is not uniform across the county. Places like TX and FL have very high property tax rates. 25% is not unreasonable in those areas.
posted: May. 6, 2013 @ 4:21p
I don't see any value in evaluating this particular metric? All I would care about is initial investment/risk/return. Taxes come in when calculating return.
Senior Member - 2K
posted: May. 6, 2013 @ 4:30p
I'm in Cook county and my rental's taxes to gross rev ratio is almost 20%, it would be 15% if I was claiming Homeowner's exemption.
Senior Member - 5K
posted: May. 6, 2013 @ 5:12p
okashiraaa said: I don't see any value in evaluating this particular metric? All I would care about is initial investment/risk/return. Taxes come in when calculating return.Yeah, you might have a nice area that has $100 more a month in prop taxes, but then you get $100 more in rent, plus better tenants. MI is pretty high, at least 3%.
Let's say your mil rate is 1.25% of value annually and you're total landlord revenue is 1% of value monthly(1%+ is usually considered good rental property). 1%*12 months = 12% a year. 1.25%/12% = 10.4% of annual revenue; this of course assumes that tax value = market value. If it doesn't then it can be a bit different. Let's say tax value is 30% more than what you could actually sell the place for. Then 1.25%*(1+.30) = 1.625%. 1.625%/12% = 13.5%.
But as Okashiraaa pointed out all that really matters is total return on property of which property taxes is just one factor against that. If your property taxes are 25% of your revenue, but you're revenue is quite high(i.e. your net % towards mortgage, maintenance, etc. is lower given the high rent you receive then it doesn't matter).
Agreed, looking at it isn't going to do you much good without taking location into account.
But as a data point, in a high property tax city in Ohio, Annual taxes $4,410, annual rent $14,700 = 30%. Property is cashflow neutral before any tax benefits.
Senior Member - 5K
posted: May. 7, 2013 @ 8:01a
Another point, if you buy the house for an amount lower than the assessed value, you can appeal using your bank's appraisal.
posted: May. 7, 2013 @ 1:10p
rufflesinc said: Another point, if you buy the house for an amount lower than the assessed value, you can appeal using your bank's appraisal.
That varies by state.
In Ohio, if you purchase for less than appraised value, you appeal and by law, the assessment is reduced to the purchase price, as it's the best indication of "fair market value", as long as it's an arm's length transaction.
posted: May. 11, 2013 @ 11:04p
BobM73 said: rufflesinc said: Another point, if you buy the house for an amount lower than the assessed value, you can appeal using your bank's appraisal.
That varies by state.
In Ohio, if you purchase for less than appraised value, you appeal and by law, the assessment is reduced to the purchase price, as it's the best indication of "fair market value", as long as it's an arm's length transaction. Bob, in Ohio, this can only be done until March (yearly), correct? We are purchasing a property about $25k below appraised value. I'm trying to figure out the steps to get the tax rate lowered. I thought the tax rate was figured out by the appraised value rather than the purchase price. Help?
I'm in Ohio too. How do they figure in improvements? We regularly purchase distressed properties and rehab them. Are you telling me I should only be taxed at purchased price? I'm assessed between 1.5 and 5.5 times purchase price...
To answer the OPs question, current rents avg $720/mo per unit, taxes $63/mo per unit.
Senior Member - 6K
posted: May. 12, 2013 @ 6:50p
The permits for improvements would trigger a reassessment in most jurisdictions.
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