10 States with Low Property Tax

 

Besides the down payment and interest rates, other costs of owning a rental property include homeowners insurance,

maintenance, homeowners association (HOA) fees, utilities, legal fees, tenant search and screening, and vacancy. Another important cost to consider when choosing where to invest in real estate – which beginner investors frequently forget about – is property tax. As a real estate investor, your aim should be to find the most tax-friendly states where you can pay the lowest property taxes.

Before we look at states with low property tax, you should first understand what property tax is.

So, what is property tax?

As the name suggests, property tax is an annual tax paid to the local government by the owner of a real estate property. Usually, the tax paid is based on the estimated market value of the home, including the land on which it is built. The local government uses the money collected though property taxes to fund things like fire protection, water and sewer improvements, libraries, education, road and highway construction, and law enforcement.

Property taxes vary from one jurisdiction to another. This is why it is important to do diligent research on property tax by state before investing in the US housing market.

How is property value assessed?

As mentioned earlier, property tax is calculated based on the market value of a home. This market value can be assessed using three different methods:

• Cost method – This is where the assessor determines the value of your investment property based on what it would cost to replace it. For older properties, assessors calculate the amount of depreciation that has happened and how much the home would be worth if empty. For newer homes, the assessor deducts depreciation and considers the costs of labor and building materials for building an identical house.
• Income method – This method looks at how much rental income you would generate from the home by renting it out. The assessor considers the costs involved in managing the property, maintaining the home, taxes, and insurance, as well as the return you could realistically expect from the investment property.
• Sales evaluation – The assessor determines the value of a home based on comparable sales – or real estate comps – in the neighborhood. Criteria include the state of the home, major improvements made, location, and the overall market conditions.

What happens if you fail to pay property tax?

If you fall behind in paying your property taxes as a real estate investor, the local government will start levying interest on your unpaid taxes. If you don’t catch up on the payments within a short time, the local authority could place a lien on your home. Eventually, the income property will be sold through a foreclosure sale in order to recover the debt.

The good news is that you can apply for property tax relief whenever you are facing financial difficulties. You might be allowed to pay the outstanding amount in an installment arrangement rather than in a lump sum. If you feel that your home’s assessed value is too high, you could also make an appeal.

In order to avoid all these problems as an investor, you should make sure to find states with low property tax.

To learn more about how we can help you make faster and smarter real estate investment decisions in any US market, click here.

Best states for property taxes

Many studies have been done about the states with low property tax. A recent research by WalletHub ranked all 50 US states, as well as the District of Columbia, by their property tax rates. If you are looking for the cheapest property tax, following you will find the best states to invest in real estate for saving on taxes. Moreover, we provide you with detailed analysis of the performance of traditional and Airbnb rentals in these states with low property tax based on nationwide real estate data analysis conducted by Mashvisor.

#1. Hawaii real estate market

• Tax Rate: 0.28%
• Median Property Price: $968,105
• Price per Square Foot: $746
• Annual Tax on Median Property Price: $2,711
• Price to Rent Ratio: 37
• Monthly Traditional Rental Income: $2,171
• Traditional Cash on Cash Return: 2.07%
• Airbnb Daily Rate: $274
• Airbnb Occupancy Rate: 52%
• Monthly Airbnb Rental Income: $2,955
• Airbnb Cash on Cash Return: 1.56%

#2. Alabama real estate market

• Tax Rate: 0.41%
• Median Property Price: $326,736
• Price per Square Foot: $166
• Annual Tax on Median Property Price: $1,340
• Price to Rent Ratio: 23
• Monthly Traditional Rental Income: $1,188
• Traditional Cash on Cash Return: 3.05%
• Airbnb Daily Rate: $181
• Airbnb Occupancy Rate: 58%
• Monthly Airbnb Rental Income: $2,568
• Airbnb Cash on Cash Return: 4.77%

#3. Colorado real estate market

• Tax Rate: 0.51%
• Median Property Price: $659,400
• Price per Square Foot: $356
• Annual Tax on Median Property Price: $3,363
• Price to Rent Ratio: 28
• Monthly Traditional Rental Income: $1,969
• Traditional Cash on Cash Return: 4.54%
• Airbnb Daily Rate: $211
• Airbnb Occupancy Rate: 62%
• Monthly Airbnb Rental Income: $3,056
• Airbnb Cash on Cash Return: 2.46%

#4. Louisiana real estate market

• Tax Rate: 0.55%
• Median Property Price: $326,005
• Price per Square Foot: $160
• Annual Tax on Median Property Price: $1,793
• Price to Rent Ratio: 20
• Monthly Traditional Rental Income: $1,345
• Traditional Cash on Cash Return: 3.63%
• Airbnb Daily Rate: $178
• Airbnb Occupancy Rate: 49%
• Monthly Airbnb Rental Income: $2,180
• Airbnb Cash on Cash Return: 4.04%

#5. District of Columbia real estate market

• Tax Rate: 0.56%
• Median Property Price: $692,878
• Price per Square Foot: $587
• Annual Tax on Median Property Price: $3,880
• Price to Rent Ratio: 25
• Monthly Traditional Rental Income: $2,356
• Traditional Cash on Cash Return: 2.53%
• Airbnb Daily Rate: $156
• Airbnb Occupancy Rate: 54%
• Monthly Airbnb Rental Income: $2,218
• Airbnb Cash on Cash Return: 1.18%

To learn more about how Mashvisor can help you find profitable investment properties in the best states with low property tax, schedule a demo.

#6. South Carolina real estate market

• Tax Rate: 0.57%
• Median Property Price: $357,322
• Price per Square Foot: $444
• Annual Tax on Median Property Price: $2,037
• Price to Rent Ratio: 23
• Monthly Traditional Rental Income: $1,321
• Traditional Cash on Cash Return: 2.47%
• Airbnb Daily Rate: $202
• Airbnb Occupancy Rate: 56%
• Monthly Airbnb Rental Income: $2,092
• Airbnb Cash on Cash Return: 2.44%

#7. Delaware real estate market

• Tax Rate: 0.57%
• Median Property Price: $400,347
• Price per Square Foot: $206
• Annual Tax on Median Property Price: $2,282
• Price to Rent Ratio: 22
• Monthly Traditional Rental Income: $1,489
• Traditional Cash on Cash Return: 2.83%
• Airbnb Daily Rate: $229
• Airbnb Occupancy Rate: 53%
• Monthly Airbnb Rental Income: $2,284
• Airbnb Cash on Cash Return: 3.09%

#8. West Virginia real estate market

• Tax Rate: 0.58%
• Median Property Price: $259,167
• Price per Square Foot: $380
• Annual Tax on Median Property Price: $1,503
• Price to Rent Ratio: 19
• Monthly Traditional Rental Income: $1,131
• Traditional Cash on Cash Return: 3.93%
• Airbnb Daily Rate: $188
• Airbnb Occupancy Rate: 60%
• Monthly Airbnb Rental Income: $2,087
• Airbnb Cash on Cash Return: 4.89%

#9. Nevada real estate market

• Tax Rate: 0.60%
• Median Property Price: $462,554
• Price per Square Foot: $239
• Annual Tax on Median Property Price: $2,775
• Price to Rent Ratio: 27
• Monthly Traditional Rental Income: $1,427
• Traditional Cash on Cash Return: 2.80%
• Airbnb Daily Rate: $237
• Airbnb Occupancy Rate: 62%
• Monthly Airbnb Rental Income: $2,971
• Airbnb Cash on Cash Return: 5.24%

#10. Wyoming real estate market

• Tax Rate: 0.61%
• Median Property Price: $661,479
• Price per Square Foot: $337
• Annual Tax on Median Property Price: $4,035
• Price to Rent Ratio: 38
• Monthly Traditional Rental Income: $1,460
• Traditional Cash on Cash Return: 2.53%
• Airbnb Daily Rate: $201
• Airbnb Occupancy Rate: 51%
• Monthly Airbnb Rental Income: $2,448
• Airbnb Cash on Cash Return: 2.73%

Conclusion

Property tax is an unavoidable cost that goes along with owning a rental property. To succeed as a real estate investor, avoid states that charge unnecessarily high property taxes. Besides finding states with low property tax, learn how to check the property tax history of a house before investing in. You could do this by talking to neighbors, checking real estate websites, or visiting the local tax assessor’s office or website. However, the most effective method for checking property tax history is using Mashvisor’s real estate investment tools. Besides finding property tax history data, you will also be able to conduct diligent  rental property analysis of traditional and Airbnb investment properties based on the performance of rental comps in the area. You will know exactly what rental income, occupancy rate, cash flow, cap rate, and cash on cash return to expect for listings in states with low property tax as well as anywhere else across the US market.

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