Property tax trends are incredibly important for all property owners. This is especially true for investors. Both those investing directly in real estate and those investing in mortgage debt and notes. Here are just some of the reasons you need to be tracking today’s diverse tax trends, and what they mean for you as an owner and investor.
The Rent Is Still Due
Annual property taxes are essential rent to the government, which go on into infinity. You may have recently seen some counties and local governments say they are going to stop payments on debts they owe. Yet, there is no break for those they collect revenues from. They expect their money, in full and on time. If those debts aren’t paid, then fines and penalties accrue fast, and lead to foreclosure and forfeiture. You may find slack on mortgage payments or other bills during crises, but don’t expect to see any breaks on annual property taxes.
Some Areas Are Lowering Property Taxes
Some parts of the country have enjoyed a great economic boom during the recent crisis. Some have a substantial budget surplus. They could likely reduce property tax rates in line with that.
Other areas have already been lowering annual property tax bills in the wake of covid lockdowns. Public services were cut back or needed less during these lockdowns and those savings are being passed on to property owners.
In places like Illinois, property owners are even getting refunds. This is due to school district taxes often making up the bulk of annual property taxes, and with schools closed and many students permanently moving online, local property owners are reaping those substantial savings.
This can create nice additional spreads that other buyers and investors don’t see. It can definitely widen the annual cash flow spread, and ROI.
Some Areas Are Hiking Taxes
Other parts of the country, like NY are spiking their annual property tax bills. On Long Island specifically, property owners are being hit with a combination of increases, including new tax assessments at peak values and tax rate increases. All while many public services are being scaled back, and the governor is giving himself a pay raise.
Buyers need to anticipate these increases, especially when a new purchase may trigger an even higher tax assessment on a property. Be sure you are building this into your financial forecasts, and are factoring consistent inflation, or you could end up in a negative cash flow situation.
Track Tax Liens
Where property tax bills are going up, there are higher levels of financial distress, and more residents are fleeing, it is likely there will be more delinquent taxpayers. These tax liens offer a win-win for investors. If the owners or their lender pay up the taxes, then you get a nice return in a short period of time, plus your capital back. If they don’t pay, then you have a path for obtaining the property for pennies on the dollar, or meeting the current owner somewhere in the middle, and helping them to keep their home, while being well compensated for it.
Find out more about investing in secured debt and real estate, go to NNG Capital Fund