Author Box
Articles Categories
All Categories
Articles Resources

Determining Property Taxes

March 23, 2011 | Comments: 0 | Views: 78

Property taxes may seem like fixed costs but they are important considerations for investors. A booming market with rising sale values pushes up assessors' valuations of properties. A slack market, by contrast, could see property values fall. This has a direct impact on the annual tax assessment, not only in the coming year, but often in the three years following the change in value. Taxes levied on a property will affect the return you see as an investor, and possibly your financing costs.

Different investors have different expectations and projections for their profit margins. Most investors want a double return, that is, a positive cash flow for a rental revenue stream, and a capital gain over the original purchase price.

Traditionally, real estate has gone up an average of about 5 percent a year for the past 30 years. However, that figure can be higher or lower depending on the real estate cycle, location, type of property, and other factors. Most investors would like to see equity in their properties increasing at least 5 percent a year.

This will affect municipal property taxes, which are the primary revenue source for cities. Residential property taxes are often just a small percent of annual assessed value, but those few percentage points will eat into your cash flow. Knowing which way property taxes are likely to head in a particular market will help you determine the kind of cash flow you'll need to get from the property to cover costs, as well as the long-term drag on your return.

Capital gains are another consideration. If your property gains an average of 10 percent a year in value over ten years, the property will double in value.

If you buy it for $100,000, and sell it for $200,000, you have a $100,000 gain in your original capital investment. You are taxed by the Canada Revenue Agency on 50 percent of your gain. In this example, that means you could keep $50,000 tax-free, and pay tax on the remaining $50,000. At the top marginal tax rate of approximately 50 percent, you would pay approximately $25,000 tax. At the end of the day, you could keep $75,000 of your original $100,000 gain, after tax.

If your original purchase price was $100,000, that would mean a 75-percent return over ten years, or an average of 7.5 percent a year non-compounded.

But you'll also have to factor in positive cash flow from rental income to determine your actual return.

On the other hand, maybe you just put down 10 percent and borrowed the other 90 percent on a mortgage. Therefore, you actually received a 75-percent return on your original personal resource down payment of $10,000 over ten years. The reason is that your original $10,000-down "investment" resulted in a $75,000 net gain, or an average of $7,500 a year on your original $10,000, or a 75-percent return per year. Better than obtaining, say, a 3-percent return on a term deposit that is taxed as investment income in your hands in that taxation year. Depending on your tax bracket you could pay 30 percent or more on that interest income, meaning that net after tax you actually received only about two-thirds of your interest, or 2 percent in the example given.

Property tax assessment records are available through municipal offices or provincial assessment authorities. You will also find explanations of trends in the annual reports of the municipality in which you hope to buy. Often, local media cover trends in property taxation, providing you with insights into overall municipal approaches to setting tax rates (in some provinces, the provincial government sets the rates).

Be sure to discuss the impact of property taxation policies on your investment with an appraiser, who is often able to coordinate appeals on any assessments you consider out of line with the reality of your holding. Given the range of factors that affect the value of a property, and its performance in any given market, you should understand how property taxes will influence your own cash flow as well as the property's appeal to future investors. Assessments that indicate opportunities for investment can easily rise after investors move in, improve the properties, and improve the tone of the surrounding neighbourhood.

For More information Visit remortgaging property and real estate listing.

Source: EzineArticles
Was this Helpful ?

Rate this Article

Article Tags:

Property Taxes


Cash Flow



The 3 Month Payday Loans is most suitable options for the people who do not possess assets. There are a variety of loan options for the people who are willing to pledge assets against the cash

By: Cameron white l Finance > Personal Finance l July 09, 2013 lViews: 564

For many people, bankruptcy can make their world fall apart. The apparent loss of reputation coupled with the inability to take financial decisions can deter anyone from thinking clearly. But all is

By: noragwilt l Finance > Bankruptcy Lawyers l November 18, 2012 lViews: 304

If you are availing payday loans with monthly payments, it is easy for you to obtain quick money from online lending companies.By getting the best deals of loan, you can save money in terms of

By: Malen Cheks l Finance > Loans l November 16, 2012 lViews: 289

Loans online have become the popular source of income and people can make smart decision of taking it.Now, don’t go anywhere and sit in your home silently. Such deals would bring you money without

By: Marsh Jone l Finance > Loans l November 13, 2012 lViews: 288

Loans for the unemployed would let you feel comfortable with your unstable conditions due to jobless period.If you compare the rates of a few lenders, you would definitely get the suitable lender to

By: kelse roy l Finance > Loans l November 13, 2012 lViews: 467

By taking cash advance for bad credit, it is easy for you to improve your credit status. This loan is useful to relieve financial stress. This loan is totally free from credit verification and

By: Honard Nork l Finance > Loans l November 09, 2012 lViews: 301

Tax liens are like government restrictions on certain properties. These so called restrictions are usually imposed on specific lands and properties that are usually delinquent in the loan or mortgage

By: Andrea Averyl Finance > Taxes Propertyl June 21, 2012 lViews: 144

When you can no longer maintain your monthly mortgage payments and real estate taxes, you risk losing your real estate to the government through foreclosure. Once your real estate taxes have entered

By: Antoinette Ayanal Finance > Taxes Propertyl June 20, 2012 lViews: 162

Homebuyers need resources in today's marketplace if they hope to find the best deals on properties. Articles like the one you're reading now, are all about pointing you in the right direction and

By: Kevin P McGeel Finance > Taxes Propertyl June 10, 2012 lViews: 151

What should you consider in relation to the property taxes you will have to pay when investing in investment property? This article discusses what taxes you pay and how different structures can

By: Julian Thorntonl Finance > Taxes Propertyl June 01, 2012 lViews: 176

There are a number of property tax reduction programs available to property owners. Although many of the tax reduction programs are similar, each has it's own set of rules for the tax appeal process.

By: Gerald Fishl Finance > Taxes Propertyl May 14, 2012 lViews: 139

Fair to say, if you are living anywhere in the country, you are probably paying more property taxes than you should. The National Taxpayers Union, in fact, estimates that approximately 60% of all US

By: Peter A Jordanl Finance > Taxes Propertyl April 16, 2012 lViews: 133

Discuss this Article

comments powered by Disqus