When you are trying to figure out if a property makes sense financially and you are crunching the numbers, don’t forget about the property taxes. Even if you are going to have the property taxes accrues through your mortgage (which I do not recommend) it is important to figure out what the property taxes are going to be and how much affect they will have on your cash flow.
Let me give you an example. On a property in California that we were interested in investing in, we looked at the property tax liability, we did our due diligence and contacted the local county Assessor’s office to figure out the estimated assessment (which would be the purchase price) and the tax rate (which we got from the Tax Collector).
With that, you would think we were done right? WRONG!
First of all the property was in a new community. While the property tax would have normally been about $4,000 a year on this property, upon further examination we found out that there were $2,500 worth of special bond assessments attached to the property. Also, since this was a new property, there was only a land value assessment on the property and the supplemental assessments would almost double the first years property tax bill. Remember, the Assessor will bring the existing value of the property up to the new value (your purchase price) when you close on the property. This creates a supplemental assessment for the difference. Your burden, not the previous owners.
So make sure when you are crunching the numbers, you remember to pay attention to the property taxes that you will owe on the property. We wouldn’t want any surprises now would we?