I used to despise property taxes because the city would raise them even when property prices were collapsing during the financial crisis. It was/and still is up to property owners to fill out a complicated form, find comparable homes that have dropped in price within a certain radius, make sure the comparable sales fit within a certain timeframe, and pay a $60 fee to do so with no guarantee you’ll win!
If you didn’t spend time contesting your property taxes, the city would gleefully raise them despite the obvious declines. The city counts on meek or ignorant people to fill their coffers and pay themselves handsome salaries. It’s just like how members of Congress continued to get paid even when they shut down the government in 2013. Can you imagine losing your job in the recession and having to pay higher property taxes while knowing your neighbor sold his house for 20% less than the city’s assessment?
I fought my property taxes in 2009, 2010, 2011, and 2012 and won for a particular property I bought in the beginning of 2005. I had to fight since the value of my stock and real estate holdings were getting hit and I no longer had a job in 2012. Since 2013, I’ve let the city tax me back to my normal purchase price plus a ~2% a year catch up increase because the economy has thankfully recovered. I don’t mind paying my fair share so long as it’s just.
After paying ~$350,000 in property taxes since 2003, I’ve finally accepted the reality that it’s up to those of us who saved like crazy and took the risk of owning property to pay for our community’s infrastructure, education, public transportation, service men and women, and other public works. We must pay for those who cannot or will not.
What I’ve also realized is that after much debate, my fellow renters absolutely believe they are paying their fair share of property taxes, even if they aren’t cutting a separate check to the city twice a year. With this thought in mind, I now believe it’s logical behavior for renters to keep on voting for increased government spending because they all want better and are willing to pay for it through higher rents.
Property Taxes By State
Although California (0.81%) property taxes feel high due to high property prices, property tax rates in New Jersey (2.38%), Illinois (2.32%),Connecticut (1.98%), Wisconsin (1.96%), Texas (1.9%), Nebraska (1.84%), Michigan (1.78%),Rhode Island (1.67%), New York (1.64%), Ohio (1.55%), and Pennsylvania (1.54%) are much higher.
Why Higher Property Taxes Are Good
Here are five reasons why higher property taxes are good. I’ve used my hometown of San Francisco as an example.
1) We want our public servants to do a great job for us. Roughly 40% of San Francisco’s ~30,000 employees make over $100,000. If our BART train janitors can make $271,000 and our elevator technicians can make $284,000, this should attract some of the most dedicated people to our city to ensure we have the cleanest bathrooms and the most functioning elevators around. Imagine having to take a dump and seeing a disgusting toilet that hasn’t been cleaned in a week. Imagine being 80+ years old with a bad knee and having to walk up two flights of stairs. By paying our government employees top wages, we should get top service.
2) We want our public servants to be able to afford homes and take care of their families. The median price for a home in San Francisco is around $1.1M – $1.2M. To comfortably afford such a house requires a total household income of at least $250,000, if not closer to $350,000. A society is strong when every citizen has the opportunity to own his or her own home and plant roots. They’ll pay property taxes, help take care of their neighborhood and grow a strong sense of community. Having a stable place to grow up is great for our children.
3) We want better schools, roads and public transportation. The better our public schools, libraries, roads and general infrastructure, the more attractive our cities will be. The more attractive our cities are, the more people will want to come and stay. The more people come and stay, the higher rents and property prices go. The higher rents and property prices go, the wealthier property owners become and the more the city earns in taxes to theoretically help all citizens. More job opportunities are created for renters as well so they can one day buy if they want to.
4) We want to empower renters to help make a difference. It’s sometimes hard being a renter in a booming economy because you might not be able to fully participate in the upside as a price taker. Imagine wanting to buy a place that costs $700,000 one year, but costs $800,000 the next year. Meanwhile, your salary only increases by 5% from $100,000 to $105,000. Feeling like you’re getting left behind is a terrible feeling. The good thing is that we all have the equal right to vote for legislation to help improve our environment. When legislation passes that requires additional spending, property taxes go up and so do rents. Higher rents actively allow renters to help participate in the very legislation they support.
5) We create more harmony between landlords and renters. When rents are rising in an economic recovery, there’s an inevitable friction between landlords and tenants. Some tenants might view landlords as greedy for raising their rent, even though they understand the law of demand and supply. Some landlords get frustrated for being called greedy when their property taxes, maintenance costs, construction costs, insurance costs, plumbing costs, electrician costs and handyman costs all go up. If more tenants knew how much it actually costs to own property, including the cost of a mortgage, there might be less friction and more love. When there is more love, there is more happiness.
My Property Tax Bill
Below is a snapshot of one of my property tax bills for 2017. It’s the property I mentioned in the beginning of this post. The net taxable value is $1,825,109 and the total annual property tax I have to pay is $21,873.72. I don’t know about you, but paying ~$21,873.72 a year for the past 11 years, and each year for the rest of my ownership life is a lot of money for an unemployed writer.
I never enjoy raising rent on my tenants, which is why I hardly ever do. Only when there is turnover will I try and raise the rent to whatever the market can bear. When I have raised the rent in the past, it’s never been by more than 2.5%. The rent increase is always due to a rise in some type of cost and not due to my desire to make more money, e.g. increases in HOA, insurance, etc.
Recently, the San Francisco Bay Area passed Measure RR, a $3.5 billion Bay Area Rapid Transit maintenance bill to be paid for by property owners. It required at least a 70% margin of victory and it passed because a landslide 81.1% of San Francisco’s voters supported the measure. What this means is that most of the supporters of the bill are renters since ~65% of San Franciscans are renters.
The passage of Measure RR is good news for the Bay Area since we need well running trains to ensure the people of our booming economy can get to work as safely, cheaply, and efficiently as possible. This is great for renters and homeowners. Compared to the public transportation system in NYC, London and Taipei, the Bay Area’s train system is terrible.
A Bay Area homeowner will now see his or her property taxes go up at an average tax rate of $8.98 per $100,000 of assessed value in 2017 with a peak of $17.49 per $100,000 in 2036. In other words, my property tax bill will now be higher by $180 – $332/year on top of the $21,873.72 a year I already pay. Let’s just call it $22,000 a year.
Although it feels bad to pay even more property taxes, here’s the silver lining. Because renters understand that higher property taxes means higher rents, landlords now have a much easier reason to raise rents so that we can all share in the responsibility of taking care of our public works.
Based on my research, the number one reason why so many landlords do not raise rents each year is because it’s a difficult and awkward conversation to have. People do not like to make other people feel bad. Confrontation is uncomfortable.
Everybody understands that due to inflation, the cost of ownership goes up at least 1-2% a year. And if a landlord does not raise rent by the same 1-2% a year, the landlord is losing. But despite landlords knowing renters understand this logic, landlords still don’t raise rents every year. This is an economic inefficiency that must be eliminated.
The E-mail To Send To Renters
If you are a landlord who is faced with higher property taxes due to new legislation voted by the people, you can now send them the below e-mail or letter to raise the rent for the good of the community. Simply swap out the legislation, amount of spending, purpose for spending, amount of rent and timeframe to fit your situation.
I hope all is well with you. Due to the passage of Measure RR, a $3.5B bill to maintain our public train system, the city is raising property taxes by roughly $XXX a year over the next 20 years. As a result, your rent will increase by $XXX a month starting on June 1, 2017 for the next 20 years as well.
Thank you for supporting our public transportation system and great city. Not only does your rent and my property taxes help decrease congestion on our roads, we help create new libraries for our children, keep our teachers employed and help maintain our beautiful parks.
It’s important to make your tenant realize the rent increase isn’t just because you want more money to help pay for rising costs. You must also highlight the value proposition of what the new rent provides. People want to know their money is going towards something meaningful.
Landlords should no longer be frustrated with ever increasing property taxes anymore if they consistently raise rents whenever a new bill that raises property taxes is passed. Renters should no longer be frustrated with rising rents either when they voted for more government spending.
Everything is rational in the end. It’s up to each of us to stamp out inefficiencies and embrace the goodness of ever increasing property taxes. Together, we will all pitch in to support our community.
Landlords, have you finally embraced higher property taxes? What is your property tax rate and how in property taxes are you paying a year? Renters, does it help to know that an increase in rent is used to help public works for the benefit of all? Do you believe there are renters out there who vote to raise spending and property taxes but aren’t willing to pay for what they voted on? Don’t forget to pay your property tax bill on time!
Invest in real estate more surgically: If you don’t want to constantly pay massive property taxes, don’t have the downpayment to buy property, or don’t want to tie up your liquidity in physical real estate, take a look at Fundrise, one of the largest real estate crowdsourcing companies today. You can invest in deals around the country for as little as $1,000. It’s free to explore.
I’ve personally invested $810,000 on the platform after selling my San Francisco rental house in 2017. It feels amazing not to have to pay $23,000 a year in property taxes anymore, while earning income 100% passively!
Shop around for a mortgage: Check the latest mortgage rates online through LendingTree. They’ve got one of the largest networks of lenders that compete for your business. Your goal should be to get as many written offers as possible and then use the offers as leverage to get the lowest interest rate possible. Interest rates have finally started to tick higher post election.
Updated for 2019 and beyond.