Property Tax is a recurrent tax levied by local or state government entities on the value of real estate properties, both land and improvements thereon, owned by individuals or entities. In the real estate investment context, property taxes are a significant operating expense that affects the profitability and return on investment (ROI) of a property. The amount of property tax owed is typically determined by applying a tax rate, set by the local or state authority, to the assessed value of the property. Regular re-assessments are conducted to ensure that the taxable value reflects the current market or appraised value of the property.
Property taxes serve as a primary revenue source for local governments, supporting various public services such as education, police, fire protection, and infrastructure. For real estate investors, understanding property taxes is crucial as it directly impacts the net operating income (NOI) and, subsequently, the property’s valuation and potential for capital appreciation.