As a Hayward rental property investor, it is important to understand how to accurately calculate property taxes on real estate. One of the most important reasons for this is that the amount of property tax you will need to pay on any property should be part of your initial calculations when deciding whether to buy it or not. But property taxes will continue to play an important role in your cash flows and budget for as long as you own the property. Learning to accurately calculate property taxes is a valuable skill all rental property owners should develop.
Key Numbers to Know
To calculate the property tax for residential real estate, you first need to know a few key numbers:
- Fair Market Value. First, you’ll need to know the property’s fair market value (FMV). This amount is the price an informed seller would be willing to pay for the property.
- Assessed Value. Next, you’ll need to know the property’s assessed value. This is likely different from the fair market value of the property. A property’s assessed value is based on the basic features, most recent purchase price, and comparable properties. Most of the time, the property’s assessed value will be about 80% to 90% of the fair market value.
- Mill Levy. Finally, you’ll need to know the tax assessment rate, or mill levy, for real estate in your area. The local tax rate can usually be found on the local tax assessor’s website.
With these numbers in hand, you can then calculate your property tax.
How to Calculate Property Tax
Property taxes are calculated by taking the mill levy (tax assessment rate) and multiplying it by the property’s assessed value. For example, if the assessed value of a property is $200,000 and the mill levy for your area is 4%, the amount of property tax you will likely pay each year is about $8,000.
Another way to obtain a property tax amount without needing to go through the process as outlined above is to do some research on your local tax assessor or municipality website. Property taxes are deemed a matter of public record, and it is often the case that you can look up the most recent property tax bill for any house using the address.
If such information is outdated or unavailable, another alternative method is to use an online calculator to help you estimate your yearly property tax. These online tools usually require you to know the property’s address and sales price, both of which can be easier to get a hold of than some other numbers. The main downside of this method is that it cannot give you an exact number. Still, the estimate you get from the calculator may be close enough to be able to crunch your numbers or build a reliable budget for your property.
Calculating property taxes is a big part of owning profitable rental homes in Hayward. But if these and other tasks are challenging or time-consuming, why not hire Real Property Management Masters to do it for you? Our rental management experts offer investors like you fair market analyses and other tools to help you maximize the profitability of the properties you currently own and invest more confidently in your next income property. Contact us today or give us a call at 510-398-8704 to find out more about what we have to offer.
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