Property Taxes: Are You Paying Too Much?

Property taxes are often overlooked when we examine total property expenses, but they can amount to hefty sums, especially in states such as Florida and Texas. Since most mortgages include property taxes as part of the total monthly payment, it is easy to see why this might be a problem. If you own multiple properties—which is the case with most investors—property taxes can become an even bigger burden. If you haven’t done so already, now might be a great time to take a closer look at your property taxes and see if there might be opportunities to make some cuts.

Many people either do not know or simply don’t care that they can challenge the tax assessment of a property. If you find that your assessment is more reflective of 2005 property values than today’s values, challenging those property taxes can be well worth the effort. If you don’t take the time to do this and you have property in an area that has seen huge price drops (such as Phoenix, Las Vegas, Miami, etc.), you are basically giving money away.

As most investors know, many investment properties are valued according to the net income that they produce. Therefore, cutting tax expenses will increase the value of a property. For example, a $300,000 duplex being sold on a 5 percent cap rate has a net income of $15,000 a year. If you were able to cut your property taxes by just $500, that same property would suddenly be worth $310,000.

If you are lazy or if you don’t have the time to do it, there are companies that will challenge the assessments for you and take a cut of any savings they generate. In places such as Florida, where the potential savings are substantial, this arrangement could be costly, but would still certainly be better than nothing.

If nothing else, I hope this post has at least encouraged you to actually look at how much you are paying in property taxes. It might be more than you think.