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Property Tax
An annual tax assessed by local governments based on a property's assessed value.
Definition
Property tax is a recurring tax levied by local governments (counties, municipalities, school districts) based on the assessed value of real property. Tax rates vary dramatically by location — from under 0.5% of assessed value in some states to over 2.5% in others. Property taxes are one of the largest operating expenses for rental properties and directly affect NOI and DSCR. Assessed values may be reassessed upon sale, renovation, or on a regular schedule depending on the jurisdiction. Some investors are surprised when property taxes increase significantly after a purchase, especially in states that reassess at sale. Appealing property tax assessments is a common and often successful strategy for reducing this expense.
How This Relates to DSCR Loans
Property taxes are a component of PITIA and directly affect your DSCR. Higher taxes lower your ratio. Always verify current and projected tax amounts when analyzing a DSCR deal.
Related Terms
PITIA
The total monthly housing payment: Principal, Interest, Taxes, Insurance, and Association dues.
Operating Expenses
The ongoing costs of running a rental property, excluding mortgage payments and capital improvements.
NOI (Net Operating Income)
A property's total income minus operating expenses, before debt service and taxes.
Escrow
An account held by a third party to collect funds for taxes, insurance, or closing costs.
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