Real estate can be a valuable addition to any investment portfolio. Unlike investing in bonds or stocks, real estate is a physical asset that can be touched, regardless of market conditions. When the market value of a property falls, you still have a property that’s yours and is not going anywhere. For many investors, this is a considerable comfort.
However, before investing in real estate, it’s essential to understand that property taxes are part of the deal. In this article, we’ll explain everything you need to know about real estate taxes.
What Are Property Taxes?
Paying taxes is just like taking a trip to the doctor – it might not be fun, but we all have to do it. Property taxes are no different, but what are they?
Property taxes are a yearly fee the government collects to raise money for the community. This money is spent on things like public services. It goes to local fire and police departments, road maintenance, and schools. So, when you finally spot a roadworker fixing the pothole that’s been on your street for months, it could be your property taxes that are paying for it.
Who Needs to Pay Property Taxes?
Everyone who owns a property must pay property taxes. This includes homeowners and real estate investors. However, the excellent news for investors is that there are ways to reduce the amount of property tax you pay. You can do this with cost segregation. Cost segregation is a powerful tool real estate owners can utilize to save money on their taxes. To find out how it can help you, search for cost segregation services online.
How Much Do I Owe in Property Taxes?
The amount of money you are required to pay in property tax is based on two things:
- Your property’s value.
- Your local government’s tax rate.
Once you know these two things, it’s easy to determine how much property tax you must pay. You simply take these figures and multiply them together.
How Are Property Taxes Paid?
If you’ve owned a home in the US for some time, you might not have realized you’ve been paying property taxes. This is because most property taxes are included in mortgage payments, along with homeowner insurance.
When you purchase a property, your mortgage provider will estimate how much you owe in property taxes each year. This could be a considerable sum, for example, $1600. To prevent you from having to pay this sum upfront, most mortgage providers divide this amount by 12 months. They then add this figure to your monthly mortgage payments.
However, it’s important to remember that the figure your mortgage provider produces will only be an estimate. This means you may be entitled to a refund at the end of the year or be asked to pay an outstanding balance. Be prepared for both scenarios.
Paying Property Taxes If You’re Mortgage Free
There’s no better feeling than paying off your mortgage; however, just because your mortgage has ended, doesn’t mean you no longer have to pay property taxes. While this might come as a surprise, property taxes must continue to be paid after a mortgage is paid off. The only time you won’t have to pay them is if you sell the property.
So, how do you pay property taxes when you are mortgage free? Once you pay off your house, you must pay property taxes directly to the government. How often and how much you pay will depend on where you live. Some areas expect homeowners to pay their property taxes in lump sums, while others are more lenient.
Real estate is considered one of the best investments you can make. However, before investing, it’s essential to do your research into the property you are buying. This includes making sure it is suitable for your needs and also working out how much you will have to spend each year on taxes. The article above explains everything you need to know about real estate investments and taxes.