About Property Taxes & 3 Ways To Lower Them

Maximizing Your Investment: How To Lower Property Taxes

As every real estate investor knows, understanding the fundamentals of real estate investing is non-negotiable if you want to succeed in this business. If you actually sit down and take the time to learn about taxes, you can figure out how to make them work for you, instead of against you.

Today we’re going to take on one of the most common taxes that real estate investors will see; property taxes.

What Are Property Taxes?

Property taxes are local taxes that are put on property and buildings. The value of your property is used by a local tax assessor to figure out how much you have to pay in taxes. The assessed value takes into account things like the property's size, location, condition, and any changes that have been made to it.

Property taxes can be very different from one place to the next, so it's important to find out what they are in the area where you want to invest. Understanding your local area’s property tax laws and tax rate will have an outsized impact on your ability to calculate local taxes.

How To Calculate Property Taxes

Property Taxes = 'Your property’s total value (as assessed by the local tax assessor)' x 'your county’s local tax rate'. 

It's important to understand that property taxes can account for a significant percentage of expenses for real estate investors, and can have a significant impact on your bottom line. As such, it's critical to take property taxes into consideration when making investment decisions and budgeting for your investment.

Understanding Local Property Tax Laws and Regulations

Some states have limits on how much property taxes can go up, and others have ways to help seniors and people with low incomes pay less in taxes. If you know the laws and rules in your area, you can make better decisions about investments and plan accordingly.

For example, if you are investing in a place with a lot of property taxes, you may need to take that into account in your budget and change how you invest as a result. On the other hand, if you invest in a place with lower property taxes, you may be able to invest more aggressively to maximize returns.

3 Ways To Lower Property Taxes

1. Apply for Exemptions and Deductions

Exemptions from property taxes are usually given to certain groups, like veterans, the elderly, and people with disabilities. Deductions, on the other hand, are usually available to all property owners, you'll need to fill out an application and show proof that you qualify for these tax benefits in order to get them. 

Some common types of paperwork that may be needed are proof of age, proof of disability, or a military discharge.

In some situations, you may need to show more paperwork or proof of ownership. Also, it's important to remember that the deadline for submitting an application for a property tax exemption or deduction can vary from one area to the next, so it's important to find out what the rules are in your area and submit your application on time.

Finally, it's always a good idea to talk to a tax expert to make sure you're getting all the tax breaks you can and that your application is filled out correctly and in accordance with all laws and rules.

2. Challenge The Assessment

As an investor your exit strategies are going to dictate how you want an appraisal by the city or a bank to come back. If the intent is to keep it as an investment property and rent it out you may think you want a lower appraisal to pay lower taxes by challenging the city’s appraised value. 

However, keep in mind this only works if your goal is to lower taxes on your investment property. In most other cases, you’ve done a rehab on a home with the intent to raise the property's value. 

Seeking this lower appraisal can be a big problem for you as the investor if your plan is to sell the property in the near future, as a lower appraisal value will absolutely lower your sale price.

Protip: If the intent is to hold on to the home as a cash flowing rental then you will most likely be doing a cash out refi. This means you will have the home appraised by the bank and the bank will give you up to 70 or 80% of the appraised value in a new mortgage on the property. 

3. Invest in Energy-Efficient Upgrades

You can show the assessor that your property is worth less if you make changes to it that save energy, such as installing insulation, upgrading your heating and cooling system, or adding windows that use less energy. This is because these upgrades often increase the value of your property. They also make it more energy efficient, which can lower the amount of energy you use and, in turn, lower your property taxes.

Also, many places offer tax breaks to property owners who make upgrades that make their homes more energy efficient. These incentives can come in the form of rebates, tax credits, or tax deductions to help pay for the upgrades. By taking advantage of these incentives, you can lower your property tax bill even more and get the most out of the money you spend on making your home more energy-efficient.

It's important to find out what tax incentives are available in your area and talk to a tax expert to figure out the best way to make the most of your tax benefits and lower your property taxes. Putting money into energy-efficient upgrades can not only make your home more comfortable and efficient, but it can also help lower your property taxes. 

Making property taxes work for you, and not against you, is how the savviest real estate investors succeed. 

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