Property Taxes: An Evil Necessity

Leave it to me to watch TV, HGTV, and come up with an idea for post. Yes, I really like to watch the HGTV channel for many purposes but mainly because they have Real Estate related shows. The one that I was watching this weekend was House Hunters International. House Hunters International is a show that has homeowners from the states looking to buy homes abroad. Many times they are looking for a retirement home.

The couple that I was watching was from New Jersey and they were looking for a home in the Caribbean. Specifically they were looking for a home on the fabulous island of St. Martin. The island has been shared for over 350 years by the Dutch and the French. The island itself is super beautiful and both sides of the island have their own unique offerings. The show allows the couples to pick between three homes. They searched two on the dutch side and one on the French. From what I have read the French side of the island has a more elegant upscale feel so I was wondering why they were looking at more on the Dutch side. I figured that it was simply the cost of the home. I was wrong. It was the Property Taxes!

Before I expand on what I am talking about I will first say this. We are extremely lucky in the state of California when it comes to property Taxes. Why do we even have property taxes? Property Taxes are the principle source of revenue for cities, counties and the school districts. Property Taxes are assessed in California as approximately 1% of the value of the home annually. However, there may be another value up to a .250% for direct levies, special assessments or voter approved general obligation bonds. This would exclude Mello Roos. Mello Roos can be quite expensive and sometimes is very nominal. It is specific to an area as you read in the link so ask your professional if this affects your home. The only thing is that since the prop[erty values in California are so high we are still ranked #10 in the country for Median Tax rate. We are also 17th when it is expressed as a percentage of income.45th when we look at taxes as a percentage of the home value. To me the latter is the most important. If we pay taxes based on the value of our home the taxes as a percentage of the value is important. 45th is only one way that we are lucky.

So why are we so lucky then? Well before I go back to the French side of the Island let’s talk about another Big State. Texas property taxes are 3% of the purchase price. This ranks them #2 behind Wisconsin when you look at property taxes as a percentage of the value of your home. When you think about it 1% of the value of the home is not that bad. Now that home prices have been coming down this makes this a great thing.

French side of St. Martin – The main reason that the the couple on the show decided to choose a home on the Dutch side of the island aside from the language barrier was Property Taxes. Based on what the Realtor stated the Property Taxes on the French side of St. Martin were 10-12% of the purchase price. What? This would rank them #1 by a long shot. The Purchase Price was over 500K but for the example let’s look at 500K. 10% of the purchase price is 50K annually for property taxes.  This would be over 4 thousand dollars a month and on top of that he stated that closing costs would be 7-13% another 50K. I almost fell out of my chair. Unless I was missing something which I very well could have done as I was about two or three glasses into a bottle of wine that is unbelievable. The only thins that I could hope is that was a one time fee but I don’t think I am wrong.

Conclusion – We are very lucky with our property tax rate here in California. We should feel real good about where we rank in comparison to other states and be super happy when we compare ourselves to St. Martin! Property Taxes are an evil necessity but consider the alternative!