Property tax rates and choosing a town to buy a house

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Kow
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Joined: Fri May 27, 2016 5:04 pm

Property tax rates and choosing a town to buy a house

Post by Kow » Mon May 30, 2016 7:48 pm

My wife and I are looking to buy a house in NJ (we rent in NYC currently) and one of the surprising things to us has been the huge differences in property tax rates town over town. We were already aware of the high property value also but the taxes in some towns are even higher than I could have imagined. We need to stay in the North Jersey area as my job is in Jersey City and we help care for a sick parent in the area.

The question I'm looking for help in answering has to do with the impact property taxes have on house value and then assuming all towns are relatively equal, should we be very focused on finding a house in the towns with the lowest property taxes as it feels like otherwise we are throwing money away.

Assuming we can find similar houses in the following towns at about a $600K price and putting 20% down, our monthly mortgage payment is ~$2K:
House A in Basking Ridge (Effective tax rate ~2.0%) - $12,000 /yearin property tax
House B in New Providence (Effective tax rate ~2.5%) - $15,000/year in property tax
House C in Montclair (Effective tax rate ~3.0%) - $18,000 / year in property tax

Basically assuming tax rates holds YoY reinvesting the $3,000 a year difference from A vs. B or $6,000 a year difference from A vs. C at a 5% interest rate would equate to an extra $200K or $400K at the end of the 30 year mortgage. It also doesn't seem like there is a significant difference in prices between the homes in those towns, but even if there were, then the math still holds as you would be making similar monthly payments but have a lowered value home at the end of the mortgage.

I know there are more variables at play but this seems like a very compelling reason to focus on lower property tax and a town like Basking Ridge where there is still a manageable commute to the city and great schools. Is there anything I am missing here or should also be considering?

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FiveK
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Joined: Sun Mar 16, 2014 2:43 pm

Re: Property tax rates and choosing a town to buy a house

Post by FiveK » Mon May 30, 2016 8:54 pm

Kow wrote: House A in Basking Ridge (Effective tax rate ~2.0%) - $12,000 /yearin property tax
House B in New Providence (Effective tax rate ~2.5%) - $15,000/year in property tax
House C in Montclair (Effective tax rate ~3.0%) - $18,000 / year in property tax
...
I know there are more variables at play but this seems like a very compelling reason to focus on lower property tax and a town like Basking Ridge where there is still a manageable commute to the city and great schools. Is there anything I am missing here or should also be considering?
Assuming(?) the property taxes are inversely related to your commute time, that's really a judgment call for you to make.

If you aren't getting anything additional you value within each (e.g., schools/crime rate/etc. are comparable) city for the higher property taxes, then your commute time seems the next thing to consider.

Higher price does not always mean higher value. ;)

Ron Scott
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Joined: Tue Apr 05, 2016 5:38 am

Re: Property tax rates and choosing a town to buy a house

Post by Ron Scott » Mon May 30, 2016 9:12 pm

It's a hassle with taxes in the NYC area and we're not alone but it's worth it!

Do the math, get a feel for the areas you can afford, check the schools and buy the place you want. Don't over analyze thr finances.
Retirement is a game best played by those prepared for more volatility in the future than has been seen in the past. The solution is not to predict investment losses but to prepare for them.

Zott
Posts: 241
Joined: Fri Jul 31, 2015 10:21 pm

Re: Property tax rates and choosing a town to buy a house

Post by Zott » Mon May 30, 2016 9:52 pm

NJ residents pay a county tax as part of the property tax. Montclair is in Essex County, which I believe has the highest costs in the state. Here are links that will show the differences in local tax rates and tax bills:

http://www.joeshimkus.com/NJ-Tax-Rates.aspx

http://www.joeshimkus.com/NJ-Tax-Bills.aspx

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