Property Taxes Are Eating Away at Home Ownership

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Property Taxes are Eating up all our Money!

Homeowners all over the Chicagoland area received their annual bad news in the mail soon in the form of their property tax bill.
property tax

 

For the past twenty years I’ve lived in Glen Ellyn, a small town with very little help from business sales tax to help pay for our schools, park district and other government services. This burdens property owners with an even greater tax bill relative to their home value.

One rule of thumb is that property taxes average about 2% of the value of your home. Using that figure a $400,000 home comes with an $8,000 tax bill per year.  If you put $100,000 as a down payment and finance $300,000 of that value with a 4% 30-year loan, you end up with a principal and interest payment of $1,432/month.

Over those 30 years, you would pay $515,608 to the lender, of which $215,608 is interest (some being tax deductible).  You pay another $240,000 (30 years x $8,000/year) in property tax (tax deductible). The sub-total cost of ownership of the $400,000 house you purchased is $855,608!

Was it really worth it?

From a financial perspective, you would need to factor in:
  • the home’s likely appreciation (total unknown)
  • the enjoyment factor from owning home (hard to measure)
  • the other related costs to home ownership; insurance, utilities, maintenance, etc.

Like most of my readers, I have always been on the side of home ownership and while I look forward to paying my mortgage off (10 years to go), I am cringing at the thought of my future property tax bills; especially when I think about the significant six figure total I will be paying over the next dozen years and beyond.  I wonder if I would be better off renting (or buying where tax rates are much lower) and saving the property tax money and other related costs, especially after my kids move on.

For retirement planning purposes, it is intriguing to consider moving to another state just for the property tax savings.  I ponder what I could do with all the money I give to the county just so I can have the privilege of living where I do and owning my home.

Your thoughts……….

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One Comment

  1. Hey Brad,

    I really enjoy your blog and I’m glad you brought this topic up. My sense is you are not alone in your thinking. Given that the state of Illinois arguably has the second highest property taxes in the country, it is no surprise that taxes are the number one reason people are leaving Chicagoland. We probably both know people who have moved to Indiana or Wisconsin to cut their tax burden yet still work in Chicago. You are a little further along than I. Making the move for me depends on several things: 15 years to go on my 20 loan, interest rates (2.75% fixed rate), age of my youngest child (6th grade), career portability, size of next home needed (the kids could move back home until their careers are established), current home market value. These are a few of the things that I’ve thought about. The way I see it, as each kid graduates high school, the benefit what I get in return for what I pay in property taxes diminishes. On the other side, I’ve likely bottom ticked interest rates so I’ll have to pay in buying again. Maybe we should sell our kids on moving home for a while with a sweet rent deal where the proceeds supplement paying our property taxes. Just a thought!

    Best,
    Jim

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