The Ultimate Guide to Property Taxes on Rental Properties

If you're looking to learn more about property taxes on rental properties, then check out our Ultimate Guide to Property Taxes on Rental Properties.

Property taxes are taxes paid—usually to the county, city and/or metropolitan districts—on rental properties.

It is important to estimate property taxes when analyzing deals you're considering buying. It is one of the primary inputs on The World's Greatest Real Estate Deal Analysis Spreadsheets™ for you to enter when you start your deal analysis. You can download the spreadsheet for free.

The World's Greatest Real Estate Deal Analysis Spreadsheet™
The World's Greatest Real Estate Deal Analysis Spreadsheet™

You typically get the estimated property tax value from your real estate agent, the MLS sheet or your county website.

With new construction properties you will often just have an estimate of what taxes might be—and the current taxes may be based just on the vacant land. You should not use the taxes based on the vacant land unless you want to be unpleasantly surprised when they re-asses the property with the actual property on it.

Realize that property taxes can change (up or down) based on a sale and whether it is higher or lower than assessed value. In some counties your property taxes may change immediately based on a sale and in other counties, your property taxes may not change until the next assessment period.

Minimize Property Taxes to Improve Cash Flow on Rental Properties

While the following video is not exclusively minimizing taxes, it does discuss property taxes and ideas on how to overall improve cash flow.

In general, minimize property taxes by negotiating the price down when you buy and contesting unreasonable increases in assessed value based on legitimate comparables.

Calculating Operating Expenses

Knowing your property taxes you're paying on a rental property is critical to calculate Operating Expenses.

Annual Operating Expenses

Annual Property Taxes $3,037
Annual Property Insurance $4,372
Annual Homeowner's Association Fees $0
Annual Landlord-Paid Utilities $0
Annual Other Expenses 1 $0
Annual Other Expenses 2 $0
Annual Property Maintenance $2,689
Annual Property Management $0
Annual Operating Expenses = $10,097

Operating Expenses are all the expenses of operating the property except vacancy and financing of the property.

For Typical 25% Down Payment Gainesville, Florida Rental Property we used the following:

  • Property Taxes - These are the property taxes paid for the property. For Typical 25% Down Payment Gainesville, Florida Rental Property, we've estimated they are $3,037.08 per year.
  • Property Insurance - This is the insurance policy to cover the property from perils like fires and liability from injuries on the property. Your specific policy will define what hazards you're covered for. This policy typically does not cover the personal property of tenants; they should get their own renter's insurance policy to cover that. For Typical 25% Down Payment Gainesville, Florida Rental Property, we've estimated the cost of this insurance policy to be $4,371.52 per year.
  • Homeowner's Association Fees - This is usually the cost for the homeowner's association (HOA) where the property is located. What the HOA coverages varies widely between different HOAs so be sure to check with the HOA to find out what is included for your HOA fee. For Typical 25% Down Payment Gainesville, Florida Rental Property, we've estimated the cost of the homeowner's association fees to be $0 per year.
  • Landlord-Paid Utilities - With many single family homes... and to a slightly lesser extend... duplexes, triplexes adn fourplexes... the tenants all pay individually metered utilities. However, in some cases... especially for larger multi-family properties... the landlord is responsbile for some shared (or in some cases... all) utilities. This is just for the utilities that the landlord is responsbile for paying. Tenant-paid utilities should not be included here. It is not uncommon to have this be equal to zero especially for smaller properties. For Typical 25% Down Payment Gainesville, Florida Rental Property, we've estimated the cost of the landlord-paid utilities to be $0 per year.
  • Other Expenses - Sometimes a property will have an extra expenses associated with it. Some examples might include lawn service, snow removal, common area cleaning, etc. For smaller properties, it is not uncommon to have these extra expenses be equal to zero. For Typical 25% Down Payment Gainesville, Florida Rental Property, we've estimated the annual cost of these extra expenses to be:
    • Other Expenses 1: $0
    • Other Expenses 2: $0
  • Maintenance - With many properties... especially residential properties... the landlord will be responsible for maintaining the properties and should set aside money to pay for on-going maintenance. For Typical 25% Down Payment Gainesville, Florida Rental Property, we've estimated the cost of maintenance, on average, to be $2,688.84 per year.
    • There is some debate over whether you should include some or all of the Capital Expenses in the Operating Expenses or if they should be capital improvements to the property and not including in Operating Expenses. You can choose to include them by increasing the maintenance percentage or choose to include them elsewhere by excluding them from Maintenance.
  • Property Management - With most properties, there will be an expense to managing the properties either in the form a professional property management fee or the... much lower hard costs... of managing the property yourself. For Typical 25% Down Payment Gainesville, Florida Rental Property, we've estimated the cost of property management to be 0% of the rent or $0 per year.

If we add up all of these expenses for Typical 25% Down Payment Gainesville, Florida Rental Property, we're estimating the Annual Operating Expenses to be $10,097.44.

Annual Operating Expenses

Annual Property Taxes $3,037
Annual Property Insurance $4,372
Annual Homeowner's Association Fees $0
Annual Landlord-Paid Utilities $0
Annual Other Expenses 1 $0
Annual Other Expenses 2 $0
Annual Property Maintenance $2,689
Annual Property Management $0
Annual Operating Expenses = $10,097

And, you'll need the Operating Expenses to calculate Cash on Cash Return on Investment, Cap Rate and more.

Primary Input

Property Taxes Primary is considered a primary input in the Hierarchy of Real Estate Metrics.

It is used to directly calculate Operating Expenses Secondary.

Leave a Comment