Successful investors put their money into rental homes that yield a profitable ROI. However, finding the right properties to expand their portfolios and maximize ROIs requires evaluating many factors before buying one. With help from a property manager, property owners can better understand how to find an ideal neighborhood and analyze other components that make up a perfect investment.
Today we talk about another critical factor: property taxes. The best property management company Philly offers knows that it's vital to assess how property taxes impact the big picture of long-term real estate investments. Here's what a property owner needs to know to make the best decisions before buying a new rental property!
Where Do Rental Property Taxes Go?
Whether you enjoy paying taxes or not, property taxes are part of any rental property investment. However, property owners should research taxes for a potential property to learn how the city uses them and where that money goes. A good investment property benefits from a well-run municipality that applies tax dollars to improve the community surrounding your property.
In Philadelphia, property taxes go toward emergency services, roads and bridges, police and county workers, and schools. So when an investment property is in an area with quality services, it's more likely to attract quality renters.
Why Are There Differences in Property Taxes?
When you begin your search for a new piece of property, you'll notice a difference in the taxes depending on where a property is located within the market. Every property has its own property tax formula, and this formula is not the same for every city, county, or neighborhood. Properties located in top-of-the-line communities will often have a higher tax rate than Class B or Class C areas. Likewise, homes on larger parcels of land will likely cause owners to pay more property taxes.
Property managers can tell you that there are pros and cons to purchasing a property with a higher tax rate. Higher taxes usually indicates that a rental home is nicer and located in a "pride of ownership" area. However, high taxes and luxury properties don't always lead to more money in your pocket.
Property owners should consult with a property manager to find the ideal rental rate for a rental unit to generate the ROI they need for success. With the help of a company that offers professional property management services, investors can obtain a rental rate analysis to determine if an investment in a higher tax area will pay off.
What Calculation is Used for Property Taxes?
Although different factors can impact property taxes, it's typically calculated using a home's assessed value. Therefore, the assessed value applied toward property tax will depend on where the house is located. For example, the median amount for a home in Pennsylvania is $164,700, with a median property tax of $2,223. This amount comes out to an average of 1.35%, but the average tax rate in Philadelphia is .99%.
Will Your Property Taxes Go Up?
Every state and municipality have their method of determining when and how to increase property taxes. In Pennsylvania, properties are reappraised annually. After the appraisal, property owners may notice an increase in their taxes. Once the assessor's office announces the new tax amount, property owners can fill out an application to appeal the property assessment if they disagree with it.
Can Rental Property Owners Get an Exemption or Discount on Property Taxes?
Many people might not realize that there are exemptions and discounts on property taxes if they qualify. When optimizing a rental property to maximize returns, exemptions or discounts can help boost the bottom line.
Work with a Philadelphia property management company to see if you qualify for any of these programs, including:
- Longtime Owner Occupants Program (LOOP). This program is for homeowners who have had a substantial increase in their property assessment and are also income eligible.
- Real Estate Tax deferral program. If your Real Estate Tax increases by 15% or more, then you might qualify for this program.
- Tax credits. Military personnel can qualify for this credit.
- Homestead Exemption. This program is available for any property owners in Philadelphia. Once you complete the application, your taxable portion of the property assessment is reduced by $45,000.
- Property tax abatements. Both residential and commercial projects qualify for this program.
The right property manager can help you work through these options to qualify for discounts that can help improve ROIs for your rental properties!
Can I Deduct My Property Taxes?
Even though taxes are an added expense, real estate investors can deduct them from rental property income taxes. Income tax deductions can help offset your overall tax liability to reduce the amount you pay for property taxes each year.
A Philly Property Management Company Helps Evaluate Property Taxes and ROI
Selecting the ideal property can be challenging, but one of the best property management companies can help! Rentwell helps investors analyze property taxes and delivers professional property management services to help them maximize returns. If you're considering a new property, reach out soon for our rental analysis services.
Learn more about excellent properties with your free copy of the "Biography of the Perfect Investment Property!"