Property taxes in the U.S. are one of those frustrating, necessary evils which can have great benefits on one side and yet catch many individuals completely off guard and can negatively impact housing markets and communities on the other. Those concentrated on simply wholesaling properties often let this factor float off their radar, sometimes with high costs later on.
Many individuals and real estate investors forget about this types of tax when they decide to pay off their mortgages to own properties ‘free and clear’ or gift real estate; only to lumber the recipient with big annual bills.
Some places in the world don’t even have property taxes like Saudi Arabia and now parts of New York. In fact, Saudi rulers consider property taxes to be ‘hidden costs’ and recently warned their citizens against this ‘scam’ when investing abroad in places like the U.S. This means wholesalers need to be careful with their international wholesaling marketing not only to make sure they are connecting with the right foreign investors, but to avoid getting in trouble overseas too. The last thing an investor should want is to land in a country like this with extreme and even life threatening penalties for forgetting to highlight property taxes as an expense.
This is also a reminder for those wholesaling properties to always include this in their due diligence and when looking at ‘no money down’ or ‘no closing cost’ deals.
The other way real estate taxes have a huge impact on real estate is affordability. Where property taxes are high it can eat into profit margins and affordability on the sales end, limiting the buyer pool. It can also be a factor in the longevity of growth in any property market.
Wholesalers may not pay many of these property bills, or may even consistently avoid paying them altogether when simply assigning real estate contracts. Yet, they still matter and can affect profit margins.
So where are property taxes the highest and lowest in America today?
According to a new map published by CNN Money tax rates and amounts across America are incredibly varied. It gets even more confusing when contrasting average dollar amount of taxes paid versus tax as a percentage of home price.
Many may look just at the dollar figure which can be incredibly deceiving. The Northeast, Wisconsin – Illinois border corridor and northern coastal California are the biggest red flags and hot zones when looking at dollars paid. However, the map looks completely different when measured as a percentage of home prices.
In this view California is just as affordable as Arizona and Nevada. It gets ugly in vertical North Dakota to Texas corridor. The lowest rates are reportedly found in Louisiana and Alabama.
So know your ‘hidden costs’ when wholesaling houses, and keep the bigger picture in mind for long term strategy.