Property Taxes Might Financially Kill You

I just read a story here about a woman who had purchased her first home.

When doing the initial math on her purchase, she used the seller’s property tax rate- $2700/year (or $225/month).

Woohoo, affordable!

Until about a year later, her taxes went up to $4700/year (or $392/month).

Sadly, this increase, along with a steep insurance rate increase, was enough that she could no longer afford the house she had purchased a year prior.

Gut punch, right?

What could she have done to have prevented this shock?

Easy- visited her local assessor site where she could see what her local property tax percentages were, what property taxes looked like in the past, and what they may look like in the future. If she couldn’t find her property tax percentage rate, she should have physically called the assessor’s office and asked.

Let’s pretend she had found out that her local assessor charged a 1.5% property tax rate on the assessed market value of homes in her area.

She would have seen that the previous homeowner had been paying $2700/year on an assessed property value of $180,000.

But the homeowner listed the home for $320,000. And she paid full price for the home.

If she had done her homework and visited her assessor site, she would not have been surprised to find out that the following year, when tax assessments were made by her local assessor’s office, her new “market value” would be assessed at $315,000. Her new property tax bill would increase to about $4700/year since her property taxes are about 1.5% of the property’s assessed value.

Property taxes don’t matter when you’re rich because, who cares?

But when you’ve taken out a loan on a home and you have to budget your expenses to make sure everything is paid for (hopefully with savings left over), property taxes can take a home from “affordable” to “not” really quickly.

The same thing is now happening with homeowners insurance.

Homeowner’s insurance rates are based on building costs. As homes become more and more expensive and as building costs increase, expect homeowners insurance to continue to rise.

If you live in a disaster-prone area, I’d suggest taking your initial insurance quote and doubling it.

If that makes the home unaffordable, don’t buy it. Sound crazy? It isn’t- I recently bought a property where the insurance rate when from $2400/year to $4700/year.

I don’t even live in a disaster-prone area but we had a derecho “disaster” last year. So why the steep increase? Because of the the insurer’s insurance! When their rate went up, so did mine.

Trickle down economics 🙂

These issues are just a small part of why rapidly increasing home values are problematic rather than something to be celebrated.

Please, if you know someone who is buying a house and they’re a normal joe schmoe with an average job, please share my article on assessor sites with them.

It’s important to understand the way your local assessor taxes property. Period.

Thanks as always,

HouseRat Zero

Leave a Comment

Your email address will not be published. Required fields are marked *