Considering Property Taxes When House Shopping

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Last updated on July 22, 2019 Comments: 20

When I get together with my father, we often talk about our plans: my plans for continuing to live in New Jersey or not and his plans to possibly move out of the state when he retires. One option he’s seriously considering is retiring to Delaware, near the ocean.

He currently lives in a relatively expensive area of the state. I expect that he won’t be struggling in retirement, but when you no longer have a steady income when work ceases, it’s going to be difficult to justify living in the state with the highest property taxes in the nation.

Several of my friends in New Jersey have migrated westward, across the state’s border with Pennsylvania. Their commute might be a bit longer that it would be otherwise, but they’re saving more money every year than they would have been able to if they stayed in New Jersey in a similar house in a similar community.

In a perfect world, the property taxes we pay — and as I renter I do pay property taxes, they’re embedded in the rent as the owners simply pass on the expenses to their tenants — are used to pay for services that benefit the entire community, like schools and emergency services. I have no problem paying reasonable property taxes as I benefit from these services, even if I have no children in the public school system. A good public school benefits the entire community. But how much is reasonable?

When looking at real estate listings, I look for tax payment estimates and other information about the quality of services in the community. Other people I know seem to be blindsided after buying their first house and finding out how much they have to pay to the local government. Do you look at property taxes while you’re looking for a new place to live? How do you weigh the taxes against the services they provide?

Article comments

Anonymous says:

Great point. You have to consider all the costs instead of just the listed price. Goes for a lot of things we buy or pay for in our daily lives.

Anonymous says:

You absolutely have to know the property taxes before you consider a property. Where I live in NY our taxes end up being more than our mortgage payment. One of the things you have to ask yourself is whether it’s worth it. For us out taxes pay for a great school system which our three kids will use. It also pays for a village police dept. that’s more efficient than the county dept.

Anonymous says:

When I was a renter, I didn’t think about property taxes at all.

When we bought our house, we didn’t think about it much.

But I have thought about it since then … I moved from NJ (familiar with the property taxes there, though I never directly paid them) to a suburb of Phoenix — a municipality that doesn’t have property taxes at all. (County and state still do.)

Of course, AZ also ranks at the bottom of the country in things like education and other services for children, and I’m not sure saving a few bucks every year is worth the trade.

Anonymous says:

Property taxes are THE most important financial consideration for me — as I paid cash for my present place and will likely do so in the future. A nice house is controllable; a nice area is too; good neighbors – somewhat less; but property taxes vary from reasonable to criminally high. Everyone should have Bell, CA in mind every time they pay their property taxes. I wonder how many ‘baby Bells’ there are out there.

Anonymous says:

First, property taxes are part of how someone’s rent is determined, but a renter does not “pay” property taxes. Otherwise, they could deduct them on their taxes, which a renter cannot do.

Property taxes are a real expense to consider when buying property, but remember that there’s a greater package. For example, some people think NYC is great because the property taxes are lower, but residents pay state and city income taxes, which may offset each other. Or there’s people who will want a longer commute for lower taxes. Fine in theory, but are they actually saving money with a higher commuting bill and flushing away hours of their life every week to commute, not to mention have to live in the middle of nowhere?

Lastly, don’t forget that property taxes ARE deductable on your income taxes, so they’re often not as bad as you’d think.

Anonymous says:

I’m so happy that you mentioned this. People do the math and can afford the mortgage payments but forget about their taxes! When I purchased my investment property and paid all cash one of the first things that I did was look at how much the previous taxes were and how much they were estimated to be after I purchased it. Too many people are losing their homes for tax liens.

Anonymous says:

I always look at property taxes when I purchase a property. The downside of it is when you buy a new home though, because it’s harder to estimate of how much your taxes will actually be. I’ve seen some interesting calculations where existing homes that are worth more pay less than newer homes because of the way property taxes are calculated.

Anonymous says:

My parents retired to Delaware (from Maryland) and taxes were a huge part of the decision.

In my own case, we would like to buy a home in Florida (near my in-laws) but the way their property taxes are structured, we can’t afford to buy there. This is making the already bad foreclosure situation even worse and hopefully there will be a change to the property tax system at some point in the future.

While we wait for Florida to figure itself out, we are looking to move within our current hometown. The property tax rate is one of the first things I look at when I see a possible property. With taxes varying between $4000 and $12000 per year, that is a huge factor in the affordability of a particular house.

Anonymous says:

Carol@inthetrenches wrote “With the real estate bubble now done and values down we should expect a corresponding reduction in assessed value and taxes but I’m still waiting.”

Expect that to be a very long wait. Even if the assessed value of the property goes down, the taxes that you pay on that property will most likely remain the same, since typically the mil rate, or assessment per thousand, will rise in commensurate fashion unless the underlying budgets for the services that those taxes fund also drops.

Anonymous says:

Renters pay rent. Renters are not billed for property taxes directly.

However Flexo’s point is that the property tax is an expense that is part of the rent. Renters pay for the property taxes indirectly. I agree with that mostly. No sane landlord would not include the cost of property taxes in figuring their expenses and then simply ‘eat’ that cost Higher property taxes are going to be passed along in the form of higher rents. But this isn’t to say that theres a direct relationship between property tax and rent. If property taxes go up that doesn’t mean I can just jack up rents. Rents went down or stayed flat the past year or two and property taxes went up. Eventually it will work out but theres no direct 1:1 relationship between property tax and rent.

Renters do not pay property tax. But property taxes are part of the costs to the landlord which in turn impact rent rates.

Anonymous says:

Thanks for acknowledging this, Jim. As rental property owners, we’d love to be able to increase our rents every year because taxes go up but our tenants would leave if we increased their rents at the rate at which our taxes increase. Still we do account for property tax as part of our expenses but it’s definitely not a 1:1 relationship!

Anonymous says:

I have always wondered if renters pay property taxes. I asked a Realtor and was informed that no renters do not pay property taxes because they do not own the land , only land owners pay property taxes, and renters do not have a mortgage for that land. I asked a property manager and was informed that no renters do not pay property taxes and what renters are paying are:

1. square footage of the apartment
2. the amenities (laundry facilities, pool, business center with free WiFi and computer access with free printing, gated entrance, lawn maintenance, exercise facilities, carport or garage, club house facilities)
3. A large portion of rent goes to payroll and if the complex offers health-care to their employees then that is a small fortune for the apartment complex owner

I asked a real estate developer if renters pay property taxes and was informed no renters do not pay property taxes. He stated that the properties that he owns and the rent that his tenants pay are for the maintenance of the property (plumbing, washer and dryer, lawn maintenance, fireplace maintenance, any and all appliance maintenance, and roof and exterior maintenance). The developer stated that many times you are property poor until the mortgage contract is complete the property is owned outright. At that point you can begin to use the rent received to go toward property taxes. One of the talking points of the developer was that it is unreasonable to think as a property owner that you will be able to raise rent on a continual bases. A tenant with excellent credit and good history of paying rent on time will push back on the rent increase or move. Leaving you with an empty property not generating any income. A good sound management plan is needed when thinking of having additional properties to rent. Also, having a cash savings of at least $20,000 for unexpected mishaps is a smart move.

However, I do appreciate your posting and do believe that somehow with funny math rent collected is going toward some of the property taxes that is due.

Thank you for the article. =)

Luke Landes says:

There’s absolutely no reason why rent any landlord collects can’t go to cover ALL costs of owning the property, including taxes. In New Jersey, renters have in past years qualified for a rebate from the state based on a calculation of their share of the landlord’s property tax.

Anonymous says:

Renters absolutely pay taxes. We own rental properties and our mortgage payment is the beginning of our calculation of how much rent we need to charge. Our mortgage includes real estate taxes, and those costs are being passed on to our renters.

If we needed pay the taxes out of our pockets, it wouldn’t be profitable to own rental property.

Anonymous says:

Timely post. Many counties are scrambling to increase revenue and property taxes are a place to get it. In the rural community where I lived there is still much pasture and farmland. Last assessment the county assessed the land at it’s “highest possible use rate” therefore charging residental rates instead of undeveloped. It created a big tax hit. With the real estate bubble now done and values down we should expect a corresponding reduction in assessed value and taxes but I’m still waiting.

Anonymous says:

I think it’s important not just to see how much property tax is at a given point, but the rate of increase over a 3-5 year period. Recently found out that Shaumburg, IL will soon vote to totally eliminate their property taxes. While I found out the town I live in will raise property taxes once again.

Anonymous says:

When we retired from the Air Force and moved to the St. Louis area (that’s was the best job offer) the first thing we looked at were the quality of the schools. We had one teenager and one soon-to-be teenager. The next thing we looked at was crime, particularly drug related crime. After that we had to see what those schools and county services cost in terms of taxes. We made our decision based on the first two and fit the size of our house and property accordingly. So, yes taxes played a role but rather than bad schools or bad neighborhoods adjustments were made elsewhere.

Anonymous says:

Property taxes are just one way states (and cities and counties) raise money. There’s also income and sales taxes, among other things. To compare two places you really have to compare the whole tax package, and consider how much of each taxed activity you will probably engage in.

For instance, I live in Washington state with no income tax but a high sales tax (9-10%). That’s good for me because I have a high income but only spend a small portion of it. Though I have to admit, the tax situation didn’t factor in at all when deciding to move here.

Anonymous says:

If the question of “who the heck ever retires to Delaware?” comes up, we now have an answer. 🙂

Luke Landes says:

It’s apparently a popular state for retirement thanks to tax-free shopping and low property taxes. It’s only one of the options they’re considering though.