5 States With The Lowest Property Taxes
August 30, 2021
Key Takeaways:
- If you consider a specific state to invest in real estate, many factors will determine whether a high or low property tax rate state is best for you.
- Believe it or not, tax policy is not avoidable, but property tax rates can be considerably lower depending on the state.
- Revenue generated from property taxes helps to finance public services and improve communities by stimulating its economic growth.
Are you a real estate investor? Chances are, you will want to keep yourself abreast of the property tax rate of different states across the country as you research the state you want to invest in. Property tax rates across the United States vary greatly from state to state. More astonishing is that Forbes reported that a whopping sum of $306.4 billion was collected from property taxes in 2019? If you calculate the amount of property tax profits generated based on over 86 million single-family homes in the U.S., that should give you an average tax rate of 1.14% or $3,561 per household. This figure shows the extent of income generation from property taxes in the country which may seem like a lot when considering all the other expenses already involved in purchasing, owning, renovating, and managing real estate, however, this shouldn’t be a deterring factor for ambitious investors who are determined to grow a successful real estate investment business. As the saying goes, “there’s no gain, without pain,” and paying property taxes may just be adding to your pains of the purchase process.
As an investor who virtualizes the future and respects or passively participates in policy, it is impossible to avoid property taxes, but you can get yourself acquainted with the tax rates as applied to every state in the country to make a well-informed decision on where your property tax dollars may be best spent if you have to spend them somewhere anyways. So if you’re considering a future investment in purchasing property in a particular state, familiarize yourself with that state and county’s specific property tax rate. To aid you in that effort, here is a list of states that have the lowest property tax rates that you may want to consider:
1. Hawaii
With a 0.30% property tax rate and median home price of $702,288, Hawaii has the lowest property tax rate, making it one of the best places to invest based on the property tax rate. However, living in Hawaii can be expensive due to its high median home value and the cost of owning a property in the state.
2. Alabama
Alabama is second on the list with a 0.40% property tax rate and the median home price at $165,334. The state is a hotspot for investment property even though home prices are below the median home value in the United States. According to the National Association of Realtors, the median home price in Alabama is very low compared with other states.
3. Louisiana
Louisiana is on the list for having a property tax rate as low as 0.55% and the median home price at $183,101. The state has both a low effective property tax rate and low median home values. If you’re looking for a place to save on property taxes, Louisiana is a place to consider.
4. Wyoming
Wyoming has a 0.57% property tax rate and median home value as low as $250,000. Despite not earning from state income tax, Wyoming maintains its status as one of the states with the lowest property taxes in the U.S. The low property tax rate in Wyoming is low due to the way the state assesses property. If you’re dreaming of living in or owning an investment property in a low property tax state, Wyoming may be the perfect place to realize your dream.
5. West Virginia
West Virginia is the fifth state with the lowest property tax rate. With its average effective property tax rate at 0.57%, buying a home for investment or residential purposes in the region can be effective and affordable compared to some other states in the country. West Virginia’s property taxes are based on the assessed value, and assessed value is based on the property’s actual value.
Summary
Knowing the property tax rate in the state you are considering investing in is clearly important, even for traditional homeowners. It is important to be aware that every state in the United States has its specific way of assessing taxes, school districts, counties, and other factors that can levy property taxes. When considering a low property tax state to invest or live in, take time out to study the tax assessing factors of the state you chose. Evaluating the property tax rate may become a contributing factor in your decision to invest in a particular state since this does affect the finances of your investment as a fixed expense so making a good decision on the location(s) in which you will invest and the expenses of ownership there will help you to assess whether it makes financial sense and will still allow you to receive a good return from your investment. Nevertheless, many homeowners including investors don’t realize that just like appraisals, property taxes also can be disputed annually since they have so much variation. Therefore, disputing them successfully and getting your property tax bill lowered would actually increase your net operating income, which for multifamily properties would increase your income and the overall valuation of the property. Conversely, paying high property taxes can reduce your net operating income and thus can decrease the overall value of the property if it is not balanced out with receiving a higher rental rate from your tenants, adding value to the property, and decreasing other fixed expenses that affect your profit margin. Assert your right to dispute your property tax bill, or know when the cost of homeownership in a particular state is too high considering the high property taxes and walk away.