Are your property taxes higher than they were last year or the year before that? Chances are they are. In fact, they’re higher for almost all of us. So, I want to talk about property tax today, some things you should be careful of, also a couple of ways that you might be able to save on your property tax. And then we’re going to include a little bit about short-term rental tax as well. Stay tuned.

Welcome to short-term rental riches. We’ll discuss investing in real estate but with a specific focus on short-term rentals. Quick, Actionable items to Acquire, Manage and Scale your portfolio. I’m your host Tim Hubbard.

Welcome back to the Short-Term Rental Riches podcast. We’re talking about taxes today. Taxes are just one of those things that we have to pay. Now with short-term rentals, we have some different taxes that aren’t normally associated with an investment, with a property investment. Those are transient occupancy taxes. So, I want to talk about those real quickly. Then we’re going to jump into property tax and how they’re just on the rise all over the place. And then we’ll finish up with a couple of ways you might be able to save on your property tax. So, let’s just get right into it.

Transient occupancy taxes, these are things that should be paying with our short-term rentals. In fact, Airbnb actually pays for this on our behalf in a lot of cities and most of the bigger cities I’ve found, they will collect it and they will remit it to the city. VRBO also does this for some of the larger cities, but you got to be careful. This is something you need to look into. If you already have a short-term rental, if you’re planning on purchasing one, we need to know what these transient occupancy tax rates are. Transient occupancy tax, very often referred to just as TOT tax. Then sometimes you have some other ones mixed in there. Sometimes there’s a tourism tax you have to pay. Sometimes there’s a guest per night tax that you have to pay back to the city or back to your county. Sometimes you have to pay both your city and your county. So, you really want to be careful with this. Make sure you know what these taxes are. Of course, these are taxes that can change and they can increase. That’s exactly what’s happened to property taxes pretty much across the board. We’re going to get into that in just one second. But before we finish up with short-term rental taxes, I like to talk about the positive side to us paying our short-term rental taxes. I know that doesn’t sound great, right? But the reality is we should be doing it. It is fair. The hotels are doing it. The other side to it too is that these cities that are receiving it, they need that tax income and they like that tax income. So, some cities are receiving millions and millions of dollars from short-term rental taxes that’s being remitted to them automatically. And this is technically found money for these cities, right? They didn’t have to go out and create a department to collect it. Of course, the bigger the city and the more they want to enforce that they’re collecting it, they often come out with their own department to handle it. But when these things are just starting out, this is really just found money. So, it is a positive case for short-term rentals for cities to not want to ban them or restrict them. So, I always like to look at that side of things.

Now, along with our short-term rental taxes, if it’s not being remitted for us automatically, which in a lot of places it still is not, then you have to remit it yourself. There are some companies that have popped up to help facilitate this. One that comes to mind is Alvara or it used to be referred to as MyLodgeTax. So, check that out. We’ll put it in the show notes, but they will facilitate all of your tax payments for you. They charge per property. They actually handle the licensing and permit process as well. So, if that is bogging you down, you don’t like the process or it’s just really difficult with your particular city, some cities it’s much more difficult than check out Alvara or MyLodgeTax and they can assist with that. I remember when I was first getting started with short-term rentals back in 2015, oh my gosh, can’t believe it’s been that long. But in Sacramento, where I started, I used to have to physically write checks out and remit them into the city, mail them in. And I know there are still places that are asking for this. So just make sure you know your rules and your tax regulations in the city where you have a short-term rental or where you’re planning on getting a short-term rental.

Now this brings us to the next piece of taxes. That is our property tax. Every property has property tax, but the rates, the property tax rates are all across the board. So, we need to know what those rates are, especially if we’re planning on investing in a new market and purchasing a new property, because what’s happening is the values of properties are much, much higher. Although I think they’re going down and they’re probably going to be going down for quite a while. Of course, all markets are different, but right now prices of these properties are much higher than they were a year, two years, three years ago. We’ve basically been in a bull market for real estate for about a decade, really since the end of 2010, a really long time. So, what’s happening is people are buying properties, the city’s coming along and reassessing the value of these properties. And once the value is reassessed at a much higher rate, well, then your taxes are going way up. So that’s something that’s caught a lot of people off guard, but it’s also something that’s different in each city and the rates really vary. So, I’ve got some good stats here. I want to break down for you some, I’m just going to go ahead and read them off, but we’ve got some of the highest effective property tax rates. This was in 2022 in New Jersey, we have Illinois, we have Connecticut. Those are anywhere from one and a half percent to 1.8. And then some of the lowest effective tax rates in Hawaii, 0.3, although properties in Hawaii are very expensive, right? We have Alabama down there, 0.37, Arizona, 0.39, Colorado, 0.4, Tennessee, 0.4. But the thing is these rates can change.

So, if we look at Texas, for example, Texas has some of the highest increased property tax rates in our nation. According to Adam Data Solutions in 2016, Texans were paying on average a little more than $3,000 annually for their property taxes. And then in 2021, so this isn’t even current numbers, it had increased 32%. And some of the stats that I saw aside from this, it’s like 50% increases over the last five, six years in Dallas. And so, we really got to be careful with that. So, we need to make sure we know what our tax rates are going to be after we purchase a property. Let’s say we’re buying a property that’s $500,000. And the last time it was assessed, it was $250,000. It’s very common in a lot of markets. And maybe this was only a couple years ago. Well, your tax rate is going to double once they reassess your property.

Now we need to know our specific market, every market’s different, right? Because the way that those property taxes are actually assessed is different and varies by market, varies by city, varies by county. So, it’s just something that we want to make sure we know. And it’s something that’s easy to find out too. Before you purchase your property, just make sure you check your county and your city and your state tax regulations on property tax so you know what you’re getting into before you pull the trigger. So, I know this has made it difficult for a lot of people that just bought properties recently, maybe it caught you off guard. There is light at the end of the tunnel though. Well, I should say for some of us, there are services out there that go to bat for you to help lower your property taxes. So, I know in Memphis, where I have a lot of properties, I work with an attorney that this is specifically what they do. So every year they reach out to me and they say, what are your annual revenue numbers? Each company is going to do this a little differently, but this is what they ask for me. And they go to bat for me and they appeal the assessed values for my properties. And what they do, the way they earn their money is this particular company is taking 50%, which yeah, it’s quite a lot, but it’s also something that I wasn’t in there doing and going to the appeal process and doing all that.

So, for me, it’s kind of a win-win, but I know there are other properties out there. I actually just came across another one called homesteadiapp.com. They’re only taking 25%. Now I don’t know how effective their service is, but this is worth Googling. This is worth checking out to see if you’re just paying extra property tax really for no reason. So, I know a lot of us are just paying our property tax out of an escrow account. And so, it goes out with our mortgage payment and it might not be top of mind for you, but I encourage you to take a look because those things can be adjusted. You’ll notice if you’ve bought a property recently, sometimes you’re paying more to your escrow account. That’s escrow account is the account that’s paying your taxes, your insurance and your mortgage. And so sometimes you get a check back at the end of the year. That’s always nice, but sometimes they raise that amount. And so, your mortgage payment with your escrow combined actually goes up. So, take a look at your property taxes, see if there’s a way that you can sort of shave that down a little bit. Make sure you know your short-term rental tax regulations too. And if you’re having trouble remitting them or you want a little bit of help, you can check out that company, MyLodgeTax or Alvera. So, at the end of the day, taxes are just one of those things that we have to pay, but it’s something that’s easy to figure out. It’s easy to calculate and don’t let it catch you off guard. If you’re in the process of buying a property right now, make sure you know roughly what your property is going to be assessed at. And until next time, I hope that helped a little bit. Hope you have a fabulous week and we’ll talk to you soon.

Want to get on the fast track to Financial Freedom through short-term rentals what all starts with the properties you acquire but you want to make sure that you acquired the right properties. I want to give you my e-book that will show you how to do just that. There is no charge, It’s my gift to you for being one of our subscribers. Just go to restmethods.com. That’s R-E-S-T methods.com

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