Comparing Properties in Different Locations

In this article we compare an identical property located in different locations to show the effects of property taxes, landlord insurance and state income taxes on cash flows.

Calculating Cash Flow

A formula for estimating cash flow is shown below:

Cash flow = Income - Recurring Expenses - State Income Tax

Or:

Cash Flow = (Rent - Debt Service - Management Fee - Insurance - Property Taxes - Periodic Fees) x (1 - State Tax Rate)

In order to demonstrate the impact of these factors on cash flow we consider the following property in three different locations:

  • Purchase price $150,000
  • Rent: $1,000/Mo. or $12,000/Yr.
  • Financing: 20% down, 4.5% interest, 30 year term. Resulting debt service is $608/Mo. or $7,296/Yr.
  • Down Amount: $30,000
  • Periodic fees: $0 (for simplicity)
  • Management fee: 8% or $12,000/Yr. x 8% = $960/Yr.
  • Rehab cost: $0 (for simplicity)
  • Closing cost: 0% (for simplicity)

Below are three cities with tax rates and landlord insurance costs:

City County State Income
Tax Rate
Property Tax
Rate
Insurance Rate
Austin Travis 0% 1.9% $1,625
Indianapolis Marion 3.4% 1.07% $802
Las Vegas Clark 0% .86% $710

Data sources:

  • State Income Tax Rate
  • Property Tax by County
  • Insurance by State - Note: I was unable to find a single site that compared landlord insurance cost by state so I used homeowner's insurance with is reasonable for comparison purposes. Landlord insurance is typically 10% to 20% more than home owner's insurance.

Below are calculations for the example property in the three locations:

Austin:

Cash Flow = $1000 - ($600 + 8% x $1,000 + 1.9% x $150,000 / 12 + $1,625 / 12 + $0) x (1 - 0%) or Cash Flow = -52/Mo.

Indianapolis:

Cash Flow = $1000 - ($600 + 8% x $1,000 + 1.07% x $150,000 / 12 + $802 / 12 + $0) x (1 - 3.4%) or Cash Flow = 119/Mo.

Las Vegas:

Cash Flow = $1000 - ($600 + 8% x $1,000 + .086% x $150,000 / 12 + $710 / 12 + $0) x (1 - 0%) or Cash Flow = $153/Mo.

As you can see, the same property will generate significantly different cash flow due to differences in property taxes, landlord insurance and state income taxes. When you are evaluating properties in different locations, all the major costs must be considered.

Summary

In this article we compared an identical property located in different locations showing the impact of different property taxes, landlord insurance and state income taxes on cash flow.


Want to know more about investing in Las Vegas real estate? Contact us today. You will be glad you did.

Eric Fernwood, Realtor | 702-358-8884 | EricFernwood@gmail.com
Cleo Li, Realtor | 512-296-0425 | CleoYLi@gmail.com

Vegas International Properties Group (VIP Realty Group)
7570 Norman Rockwell, Suite 140
Las Vegas NV 89143