Renting With High Property Taxes
I am looking into buying my first duplex. The problem is that the area in which we live has very high property taxes.
Example:
Price 104,900 (list)
Taxes $2600/yr
Rents $1000/mo (together)
When I plug these figures into the ProForm tool I get a big "NO GO". In order to make this profitable, I would need to be able to get the price down in the 80's (impossible I think). Any advice? This is the typical scenario in my area or am I just not finding the right deal? Thanks for taking the time to pass on all of your vast knowledge!
The margin seems thin. My assumptions 90K mortgage at 7% (10k down)
Mortgage 7200 a year
Taxes 2600 a year
Repairs 500-1000+ a year
Total Cost 10, 300+ Utilities (if any)
Income (assume 2 weeks to 1 month no rent during tenant turn over)
11,500
Net 1,200 a year (assuming very little repairs and upkeep of $500). This does not leave alot of margin.
What is the rental and housing markets like? Are rents going up? If so maybe you could raise the rent in coming years to give you a better cushion. Are housing prices going up? If the market is good for rental and housing, the chance of a small negative cash flow now MIGHT be offset by future profits if you buy and hold.
I am a buy and hold person. Depending on financing and the condition of the house, I might buy it. The money in and out would make me think long and hard.
I have made alot of assumptions (especially on mortgage) and lack the knowledge on the market in your area.
Ouch! Those are some serious taxes. Fortunately, I do not think they would be a real issue for you. Of course this is coming from someone who has not had to deal with those kind of tax rates so you have to take it with a grain of salt. The major thing you have going for you is the fact that all landlords in your area are having to pay the same kind of taxes. That should automatically cause an upwards adjustment in rents to compensate for the taxes. Landlords are not going to pay the taxes out of their own pockets. The big problem is the $50k/unit cost of the units relative to the rents. Some parts of the country where real estate is extremely expensive simply are bad markets for rentals when you do a cash flow analysis. Either you are in one of those areas, or you simply need to look in a part of town where housing is cheaper. Although everyone would like to own property in the nicest parts of town, that is the main reason you get better cashflows in the rougher parts.
Dear Akinwi,
I have a similar problem, but the rents on the property compensate. I have one of the five apartments at the house that pays all the taxes. Still, there is something chilling about it all. We think property taxes in the part of town where my house is located have risen at a much higher rate than other parts of town. One reason is because many Yuppies are moving in from other parts of the country and they don't complain as much. I think the county will try to get by with whatever it can. People were coming in and remodeling the old houses bringing the old neighborhoods back to life. I guess the county thinks there should be some extra cream for taxes, but they will kill the golden goose eventually.
Cordially,
Alice