The Impact of Property Taxes and Insurance

In this article I will demonstrate the impact of property taxes and insurance costs on return. I will do this by comparing return of the same property in three different locations. Below are the characteristics of the example property.

Note that assuming the above assumes 100% occupancy, no maintenance, etc. in order to keep the example as simple as possible. Below are three cities with property tax rates and landlord insurance cost:

City County Property Tax Insurance
Austin Travis 2.5% $1,625
Indianapolis Marion 1.07% $802
Las Vegas Clark .55% $350

The formula I will use is for cash flow. Cash flow is:

Cash Flow = Rent - Debt Service - Property Tax - Insurance

The calculations are as follows:

As you can see, the difference in property tax and insurance resulted in a huge difference in annual cash flow.

City County Property Tax Insurance Ann Cash Flow
Austin Travis 2.5% $1,625 $576
Indianapolis Marion 1.07% $802 $4,258
Las Vegas Clark .55% $350 $5,748

Summary

While the example used was over simplified it demonstrates the importance of including all major costs when comparing properties in different locations.