Rental House Business – Year End Tax Activities
Its been a long time since our last post. We’ve been busy with all our year-end stuff as it takes quite a bit to wrap up a year for our little rental property empire. Here’s a glimpse into what we do the following in the Q4 each year:
- Appeal property tax
- Pay our property tax
- Pay our HOA bills
- Determine all our year-end loan balances (to see how much principal we paid down).
Appeal Property Tax
In Texas, we don’t have a state income tax, but we do have a pretty brutal property tax. This is ok though, as we pass it on in rent to our tenants. Still, however, each year, we work diligently to reduce our tax burden on our rental properties by hiring a professional to appeal our property values to more normal levels. You should be able to find these tax appeal professionals that specialize in your county. You could appeal yourself, but we’ve found these guys have more sway and more clout with the county. I imagine he walks in with a binder of 100 properties from different clients and he wears the county appraiser down one by one with data and skill. If you go in there alone, the appraiser will just eat you for lunch as a novice.
So we just give the tax appeal man the addresses of our properties, and he does the rest with the county. In return, we pay him 35% of whatever he saves us. This year he saved us 15k, so we owed him $5,250. Not bad. The way it works where we live is that we pay a fixed percentage of the assessed value. The tax rate rarely changes, but the assessed value creeps up each year, which means we pay a percentage on a greater value. #Annoying.
It used to be that the assessed value was 30%-35% less than the market value of properties. However, in the last five years, the counties have changed their tune, and now we see no difference between assessed and market values. Crazy times. We believe this is the result of a 10+ year bull market. This increase caused a considerable uptick in rent, as landlords push to pass those tax hikes onto the tenants.
Pay Property Tax
The saddest part of the year. I get to write 162 checks to either the county, school district, or MUD. A MUD is a Municipal Utility District and is the entity that provides water 
and sewer infrastructure within our neighborhoods as they are not within city limits of any municipality that would provide water. It would be great if we could pay electronically, but all of them charge exorbitant fees (except for the county, which allows a free e-check payment). Property tax is a sizable payment each year. This year, the total was $188,000. Ouch.
Pay our HOA bills
Then if that wasn’t bad enough, the Homeowner’s Association soaks us as well. Another 54 checks. They are even worse as they are individual offices that don’t have the greatest accounting departments. This year it was 18k for 54 properties.
Determine all our year-end loan balances
We then contact each of our bankers to get a final loan balance on 12/31 for each of our properties. We pass this data along to our CPA as well as use those values to complete our net worth calculations. This figure is possibly the best part of the year as we get to see exactly how much principal we paid down each of these little factories. This year in 2019, we paid down 148k. That’s an immediate 148k towards increasing our net worth. This is incredible for us, and each year it keeps going up as we progress through each loan’s amortization schedule. The snowball continues to grow.
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