Indiana property taxes for out of state investors, breakdown of Indy real estate investing taxes.

by | Indiana real estate, Indy Anna, Real Estate Investing

Indiana property taxes for out of state investors, breakdown of Indy real estate investing taxes.

As an out of state investor who is buying real estate in Indianapolis, here’s what you need to know about Indy property taxes for investors out of the area.

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Now for today’s class on Indy property taxes for out of state investors…

Indiana property taxes for out of state investors.

Indy Anna explains

  • The 1%,2%, and 3% rule to Indiana property taxes 

  • Why your first year in paying property  taxes here may be different than other years 

  • How this works with valuation in most cases and why Indiana is still an investor favorite 

So, this question came up this week about paying Indiana poetry taxes for out of State investors and I wanted to clear a few things up for you. It happens when folks may not realise the taxes they are seeing the year of purchase double the following year- issues arise in simply being unexpected. 

Indiana goes by the 1%, 2%, and 3% rule for property taxes.

The breakdown of this is pretty simple;

1% for owner occupied 

2% for non owner occupied, out of State investors 

3% for commercial 

This means that as an out of State investor, you could pay the 1% rate in year one on a new property however as the previous owner had a homestead exemption filed. Here’s what I mean by this;

This is from an MLS listing this week in Marion county; 

Semi annual taxes $740,assessed value at $74K. Now there’s a current homestead exemption filed, meaning when this one moves to an out of State investor at purchase, the tax bill next year will show $2960 or $1480 semi annually- 2%. 

So in theory, if there are exemptions filed already, year one could be at half the tax rate of what subsequent years will be. Does this matter? Well, obviously yes it does to the bottom line of ROI, but here’s the kicker;

Indiana has a lower tax rate that many other areas.

Indiana has a lower tax rate than a lot of other areas as well as overall lower home value, and the out of state tax rate goes along with that accordingly. 

Having more ‘home’ for the money means a lesser purchase price as well as assessed value for property tax paying purposes. Meaning;

In most cases, $150K in Indianapolis will get you more house than in a LOT of other areas.

Plus, you’ll be taxed at an overall lower rate, even for out of state investors by comparison to other areas. 

As an out of State investor in Indy, when you cap out at 2% on property taxes, you’re still under that baseline owner occupied poetry tax rate of many State averages, including the variations of local municipalities. 

Why are these taxes still lower for Indiana? 

One reason for this is that Indiana is a ‘red State’ and our overall financial situation is more stable than some others. Connecticut for example is yet to fully rebound from 2008, and tax rates there are among some of the highest in the country. 

When you combine this with landlord friendly legislation and the overall income generated from corporations State wide- it’s clear to see that Indiana isn’t financially strapped, using residences as a gateway to financial freedom of overspending at a State and municipal  level.  

The tax situation comes to light at purchase and in the sales disclosure;

Now ideally what happens is this is planned for ahead of time and doesn’t come as a surprise. In some cases, investors will set up an escrow account and have funds available to pay these tax bills off as they come in, either on an annual or semi annual basis. 

Here’s how this works with valuation in Indiana;

I’ve pulled a home from the MLS here in Indiana, a 2/1 at 1000 Sq Ft- the same example from above, taxes at $740 this year semi annually so annually at $1480. Purchase price $85K, ‘as is’ cosmetic updates for a buy and hold investment to cap out on taxes at $2960.00 annually. 

I’ve pulled a comparable home in Dallas (just because the TX market right now is pretty hot) 2/1 at 1100 SqFt, again an ‘as is’ that looks to be a more full rehab to get rent ready- again my full rehab includes a multitude of factors and averages $30K+, listed at $180K, where annual taxes are (for owner occupied) $2971.00. 

The rent on the Indy house will be around $900-$1000 a month, where as the rent on the one in Dallas will be from $1300-$1500/month 

So this comparable property has a higher rent rate per month, it also has a higher purchase price as well as owner occupied taxes. While the % based ARV to purchase price are comparable. 

Market availability matters.

Obviously market availability comes into play here with purchase price, just giving two examples of valuation in different areas, and as it pertains to overall ROI, including property tax rates for buy and hold investing purposes. 

To be clear on this, there are likely workarounds being used in the formation of LLC’s and those that are claiming rentals as owner occupied use, however we don’t ever condone the misrepresentation of things in legalities to avoid serious problems and possible consequences down the line.

So in summary:

I’ve gone over the 1%, 2%, and 3% rules to Indiana property taxes  

I’ve gone over why paying property taxes here in Indy for year one may be different than other years 

And I’ve gone over an example of valuation from the Indy market and another ‘hot’ market right now 

So that’s it, make sure to go BigReia.com and get our list of over 100 FREE ways to find motivated sellers, how to buy and sell companies at light speed and retire in the next year with over 30k/month coming in on auto pilot: BigReia.com go there and you’ll… 

Make the Universe Smile.

Indy Anna
Love (at) BigReia.com
317- 969-5619 (Yes, that’s my real number and I actually answer so please text me first Thx!)

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Make the Universe Smile.

~ Indy Anna
Love (at) BigReia.com
(YES that's my actual Direct Line and I really do answer lol, so please text me first Thx!)

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