The Impact of Rising Property Taxes on Real Estate Investors: What You Need to Know
Property taxes are climbing at an alarming rate, and for real estate investors, this trend could significantly impact profitability. Since 2019, property taxes have increased by nearly 30%, driven largely by skyrocketing home values during the post-COVID real estate boom. Even with a drop in the national effective tax rate from 0.77% in 2019 to 0.67% today, the lag in assessment adjustments is leaving homeowners—and investors—paying the price. Here’s how this trend could affect your bottom line and what you can do about it.
Property Taxes in Migration Hotspots
States like Texas and Florida, which experienced a surge in population growth during the pandemic, are seeing the brunt of these increases. Rising demand for housing in cities such as Austin, Tampa, and Miami has led to home value spikes, which directly impact property taxes.
For example, in Austin, property taxes now make up about 20% of a homeowner’s monthly housing costs. This is significantly higher than the national average of 8%. Investors operating in these markets must contend with higher carrying costs, which can erode rental income margins and make it harder to achieve profitability.
A Shift in Tax Burdens
Compounding the issue is a downturn in the commercial real estate market. With many office buildings and commercial properties losing value since the pandemic, municipalities are recouping less revenue from commercial taxes. To fill this gap, some local governments are increasingly relying on residential property owners to shoulder the burden.
This shift underscores a growing challenge for real estate investors: navigating higher operating expenses while maintaining competitive rents. For investors holding single-family homes or multifamily properties, these increased costs can squeeze already-tight margins.
The Hidden Costs of Owning Real Estate
The rise in property taxes is another reminder that the cost of real estate ownership extends far beyond the initial purchase price. Investors need to consider how these recurring expenses, including maintenance, insurance, and taxes, impact their long-term ROI. For those who own property in states with high tax dependency, these costs could significantly alter investment strategies.
What Can Investors Do?
- Appeal Your Assessment: Many municipalities allow property owners to appeal their tax assessments. If you believe your property has been overvalued, provide evidence and request a reassessment.
- Factor Taxes into Investment Analysis: When evaluating potential investments, account for property tax increases as part of your long-term cost projections.
- Diversify Your Portfolio: If property taxes in a specific region are cutting into profits, consider expanding to areas with lower tax burdens or alternative investment opportunities.
A Call for Strategic Thinking
For real estate investors, rising property taxes are more than a financial hurdle—they’re a signal to rethink investment strategies. Whether you’re managing properties in tax-heavy states like Texas or Florida or considering markets with lower costs, staying informed is key to maximizing profitability. By taking proactive steps, such as appealing assessments and diversifying portfolios, you can protect your investments and maintain healthy returns. Having a competent property manager on your side will also help you to control costs and maximize rents.
Rising taxes may be an inevitable part of real estate ownership, but they don’t have to derail your plans. With careful planning and strategic adjustments, investors can navigate these challenges and continue to build wealth in today’s dynamic market. Stay informed, stay sharp, and stay profitable.
