A Crash Course in Property Taxes for Real Estate Investors

One of the few things that is certain in life is that you must pay your taxes. Well, we guess you technically don’t have to, but we’d recommend doing so. With the complexity of the tax code, we could write an entire series of blogs over the span of a couple months and still not cover everything, so we’ve decided to focus on property taxes for this one.

How to Handle Property Taxes as a Real Estate Investor

Whether or not you do your own taxes or you pay your accountant to do them for you, when tax season rolls around the goal is the same: keep your tax bill as low as possible. When property tax is calculated, it is based on the fair market value of the property. Here are some tips when it comes to those taxes:

  • Always protest your property tax value. Every time. Typically you can use your purchase price plus your rehab costs to determine what the value should be. They’re going to assume that you are rehabbing the home to flip level, so if you plan on doing a rent-ready deal, keep pictures to show the level of finish is lower than their assumptions. You should always save your pictures and your HUD. For more information on the protest process in Harris County, click here.
  • Not comfortable protesting? Hire someone to do it for you. When dealing with the government and taxes, things can get really confusing. Pay a professional to get it done right—they typically don’t get paid unless they win. If you want recommendations for someone to protest, you can always ask your hard money lender. We’ll be happy to help.
  • Save for taxes. The last thing you want is to be hit with a huge tax bill that you don’t have the cash allocated for. If your lender doesn’t make you escrow, be sure to put money back each month for taxes. Remember, one of the skills that we said every real estate investor should have was budgeting.

One way or another, Uncle Sam is going to get his slice of the pie. However, there are strategies you can utilize that will help you manage your tax bill, and keep more profit in your pocket after taxes. We are not tax experts but we have been in the real estate investing industry for many years. It’s always a good idea to talk to your financial advisor regarding these issues.

Catalyst Funding is a hard money lender located in Houston, Texas and can help get you on the right track to accelerate your real estate investing future. Give us a call today at 832.648.3626!

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