Duplex
Price: 29k
Gross rent: 1000/mo
Taxes are 2000/yr but it was owner occupied so I should expect it to be higher. Is this too much tax?
Do you need any more info?
The place needs very minor work.
I will be paying cash, with plans to refinance in order to fund additional properties.
Taxes do sound high…where is it?
I’d probably pay $29K for a $1K/month gross… that’s 3.4% - provided there are no 'show stoppers on the inspection.
Keith
Your property taxes are based on the assessed value of the property, so taxes should remain constant if it is owner occupied or tenant occupied. Even if expenses are 50% of gross, assuming an all cash purchase, you would be getting a 20%+ return on your money. To me that is a great return. Regarding the taxes, the smallest annual tax bill on any of my properties is $4800. From what you’ve shared this sounds like a good deal, but there could be other circumstances that you might want to look at before plunging in: how nice is the area in which the rental is located, will you be able to find good tenants, is the area appreciating or depreciating relative to nearby areas, are the expected rents actually achievable, are there excessive operating costs, etc. Do you due diligence before plunging in
Wouldn’t the 2% rule say that I property that is grossing $1,000 per month is worth 50k or less?
Just curious, because those deals seem to be fairly common where I am. Am I missing something?
Well in Texas, and I assume this is the same in most other states…
- owner occupied homes
- disabled owner occupied homes
- senior (65+) owner occupied homes
- homes or property zoned “agricultural”
- among others
…all qualify for exemptions (basically discounts) on their property taxes. The amount of discount varies by the taxing authority - such as the county, city, school district, hospital district, special purpose districts, etc.
Once the house becomes a rental, actually when it changes ownership, the standard (owner occupied) exemptions are automatically removed unless the new owner applies for new exemptions. Note it is illegal - a felony in Texas - to claim an exemption that you do not qualify for.
So most rentals typically are taxed at a higher rate (as no discounts apply) here.
That is exactly right. You are actually beating the 2% rule - which is typically an excellent deal. I would jump on it. If you find you can rent out the units rather quickly, I would keep rinsing and repeating … keep getting those same deals…and you will be a millionaire before you know it.
Exactly, that’s why I would probably do this deal if presented…as long as there was nothing huge on the inspection.
Again I ask, where is this that the taxes seem so high?
Keith
I would also dispute the taxes after the purchase, it must be on the tax roles for significantly more than you are buying it for