Property tax can have a real impact on your return as a real estate investor. And based on where you own real estate, your tax rate can fluctuate wildly.
There are many lists that show state tax rates, but they don’t exactly tell the whole story.
There are two levels of property taxes (in most places). First, you have your state taxes. States like New Jersey and Illinois are near the top, with tax rates around 2%. Most western states have much lower tax rates – generally less than 1%.
These lists aren’t wrong, but they don’t take into account a pretty big piece of the puzzle: local taxes. States are not the only entities that can levy taxes on real estate; provinces and cities can do that too. To get the most accurate idea of what taxes will cost in a particular city or state, consider local taxes – which is exactly what I did.
I took the actual taxes paid on a property and then divided that by the valuation of that property (what we estimate the property is worth). I do this because the data from the last sale may be years old and therefore probably less accurate. I then collected that data by state and then by city.
Using the BPInsights database, I collected the actual taxes paid on almost every property in the country. This combines both state and local taxes into one number, which I’ve plotted on a map below for all of you.
As you can see, the western and southern states tend to have the lowest rates while the Midwest and Northeast have the higher effective tax rates. At the high end of the spectrum is Connecticut, which, according to our analysis, has the highest percentage at 3.81%!
Searching by condition is useful and fun and all that, but if you want to get an accurate idea of the taxes you would pay on a prospective home, you need to search more locally.
You can browse the data below to look through the 500+ largest markets in the US
While no one gets excited about paying taxes, having dirt-cheap taxes isn’t necessarily a net benefit. It will benefit your cash flow, that’s for sure. But it could hurt valuation.
Taxes go on things like public schools, community services, and infrastructure, all of which affect the quality of life in a city. Those things affect real estate values over time, something to keep in mind.