It’s hard to make any profit from renting out your house or condo if the property taxes on the building keep rising. That’s why there’s a growing call to cap property taxes across the country. Find out how property tax caps and rollbacks may affect your real estate ventures.
The call for property tax rollbacks
Across the country, angry homeowners are making the case for rolling back steep property taxes. The movement is particularly strong thanks to plunging home prices. Most homeowners can’t see paying more on property taxes each year with the value of their homes becoming less and less.
Change in property taxes on the state level
Multiple state legislatures are considering curbing property taxes in the coming years or at least capping them.
Property tax-relief measures have cropped up on the state ballots of Arizona, Nevada, and Montana. Meanwhile, legislatures in Georgia, New York, New Mexico, Oklahoma, and Wyoming are considering proposals to take up the issue in their coming sessions.
Indiana was the first state to put a formal cap on property taxes. The cap went into effect on January 1st, 2009. Now Indiana lawmakers are considering allowing citizens to vote on a constitutional amendment that could permanently cap taxes at 1% of a property’s value.
Property taxes on a fixed income
One of the major problems with property taxes is the effect they have on people with fixed incomes. The recent economic bust has forced the value of retirement portfolios down, just as home values have plummeted. Many people have found their investments cut in half as a result.
Given the drop in income, it’s understandable that people are fighting the concurrent rise in property taxes. They contend that they just can’t afford the increase.
Many volunteers leading the fight to rollback or at least cap property taxes would like valuations to return to what they were in 2003. They consider 2003 values to most accurately reflect housing prices because that was before the real estate boom and subsequent bust. Rolling values back to 2003 levels would also cap property tax increases to between 2% and 3% of a home’s value.
The inherent problem with property taxes
The reason property taxes can continue to rise even after home values decline is because the assessed value of a property lags behind the market.
Cities and towns use the value listed for home sales that took place as much as a year earlier when calculating tax bills. This means most recent tax bills for homeowners show no reflection of the housing bust that took place in 2008. During that time, housing prices dropped and average of 20% across the country.
To make matters worse, many municipal governments are facing their own recession-related financial problems. This makes potential revenue from property taxes that much more attractive, setting the stage for increased tension with tax payers.
Why property taxes affect your renters
Clearly, if you’re renting out your house or condo then you’re aiming to either make a profit or at least break even. This means that a rise in property taxes will potentially affect the amount of rent you charge, in turn affecting your renters.
The decline in housing has not only created a buyer’s market, it’s also brought about a renter’s market. More options are available to renters than ever before and more renters are realizing the leverage they hold to negotiate prices.
This puts you, the landlord, in a precarious position. Either you risk losing money on your investment, or you risk being without a renter.
How to balance renters’ interests with property taxes
There is no hard and fast guideline for reconciling the needs of your renters with the price of your property taxes. Your best bet is to closely examine your particular situation.
If you can afford to raise the rent on your properties – that is, if you can afford losing the renters you have to the price increase because you’re confident you’ll find a replacement, then do so.
On the other hand, keeping the rent steady so your renters are not forced to vacate may mean you’ll be out a few hundred (or a few thousand) dollars lost to property taxes. Overall, this loss may not be as great as the loss you’d face if you lost your renter altogether.
The bottom line is, look ahead toward the potential increase in your property taxes, consider your current rental agreements and prices, and decide what’s best for you. Unfortunately, tough economic times can make for some very tough decisions.
{ 1 trackback }
{ 0 comments… add one now }