{"id":266,"date":"2012-02-02T04:33:51","date_gmt":"2012-02-02T12:33:51","guid":{"rendered":"http:\/\/www.cultofmoney.com\/?p=266"},"modified":"2021-10-27T14:02:02","modified_gmt":"2021-10-27T22:02:02","slug":"you-owe-100000-more-on-your-house-than-you-think","status":"publish","type":"post","link":"https:\/\/www.cultofmoney.com\/you-owe-100000-more-on-your-house-than-you-think\/","title":{"rendered":"You Owe $100,000 More On Your House Than You Think"},"content":{"rendered":"

A conversation over at American Debt Project<\/a> got me thinking about property taxes.\u00a0 Now, I don\u2019t think anyone actually enjoys paying property taxes.\u00a0 We may enjoy the things that government purchases with our property taxes, but the actual payment of property taxes is a bear for those paying attention.<\/p>\n

And whether they are just taken out with the mortgage payment, you write the check when due, or it is built into your rent, the common theme is that the property taxes just don\u2019t end regardless of payment or living situation.\u00a0 And that is what really gets my gord.<\/p>\n

Let’s Talk About Property Taxes<\/h2>\n

With other taxes it feels like you have some options on whether or not to pay them.\u00a0 Income taxes, if you don\u2019t make much money you likely aren\u2019t paying them.\u00a0 Sales tax, you could spend less, or focus on the necessities like food, which often isn\u2019t taxed.\u00a0 However, property taxes are nearly identical to the old feudal system.\u00a0 You rent your land from the lord, grow crops, and pay a certain value or portion of your harvest.<\/p>\n

Property taxes are the same thing.\u00a0 You work, pay rent on your land to the government, and the government spends it as it sees fit.\u00a0 And if you don\u2019t pay your property taxes, just like in the middle ages, guys with weapons come to your house, kick you out, and sell your stuff to cover your debt.\u00a0 Basically, you are a source of endless payments to the government.\u00a0 This is exactly like a perpetual annuity.<\/p>\n

The Present Value<\/h2>\n

The present value of a perpetual annuity (the amount that you would be willing today to pay for an endless stream of annual payments) is the Payment divided by the interest rate (P \/ r).\u00a0 For example, if you have property taxes of $4,000 a year, and the interest rates (or inflation) were at 4%, then the present value of an endless stream of $4,000 payments today would be worth $100,000 (or $4,000 \/ .04).\u00a0 From the homeowner perspective, you would need a pile of cash equal to the present value ($100,000 in this case) to pay off the property taxes due.\u00a0 Of course, there hasn\u2019t been a time in history when property taxes remained stable in perpetuity.<\/p>\n

So unless you\u2019re lucky enough to live in a city, county, and state that doesn\u2019t use property tax as a revenue source, you owe the government an endless stream of payments.\u00a0 This is true even if you rent, as the property tax is built into the lease rate.\u00a0 You can move when renting, but presumably you need to live somewhere, and if you pay for that need, part of the payment is allocated to property taxes.<\/p>\n

Property Taxes Rise<\/h2>\n
\"Plastic<\/a>
Plastic houses probably owe property taxes too<\/figcaption><\/figure>\n

And that\u2019s if property taxes were stable!\u00a0 As many homeowners know, the value of their property has decreased in the last few years.\u00a0 However, the government needs at least as much money as it did last year.\u00a0 Therefore they either increase taxes or scare the population into voting for a tax increase by saying that 911 calls will go unanswered and wild gun-toting gangs will roam the streets.\u00a0 The result is that property rates are increasing at a quicker rate than the value of homes are decreasing.\u00a0 The perverse end of this is paying more property tax dollars this year than you did last year when your house was worth $50,000 more last year.\u00a0 Thus, even though I said in the title you owed $100,000 than you think, it\u2019s actually much more than that amount because it isn’t a stable stream of payments, but almost an inflation adjusted perpetual annuity.<\/p>\n

Retirement Planning<\/h2>\n

This obviously affects how you plan for retirement too.\u00a0 Retirees need to reduce their expenses, but with property tax rates going up most years, those on a fixed retirement income continue to need to pay ever amounts of “rent” on their fully owned property.\u00a0 As such, make sure when planning for your after work years, you have a large enough pot of money to pay your properties taxes, otherwise you’ll have to pay rent a landlord again instead of the government.\u00a0 Luckily you have a good estimate of how much of an extra nest egg you’ll need by using the perpetual annuity formula above.<\/p>\n

Unfortunately I don\u2019t have an answer for you as to what to do about this problem.\u00a0 Absent a different funding model for the government, huge increases in government efficiencies or a reduction in pension liabilities, you\u2019ll have to keep paying your taxes, otherwise the King\u2019s men will come for you.<\/p>\n

Readers, what are your thoughts on property taxes?\u00a0 Do you feel that other taxes are better or more fair to society?\u00a0 Other taxing rants?\u00a0 Let us know below.<\/em><\/p>\n","protected":false},"excerpt":{"rendered":"

You are a source of endless payments to the government, exactly like a perpetual annuity. Take care to plan for property taxes in retirement.<\/p>\n","protected":false},"author":1,"featured_media":270,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"om_disable_all_campaigns":false,"_genesis_hide_title":false,"_genesis_hide_breadcrumbs":false,"_genesis_hide_singular_image":false,"_genesis_hide_footer_widgets":false,"_genesis_custom_body_class":"","_genesis_custom_post_class":"","_genesis_layout":"","footnotes":""},"categories":[686],"tags":[56,54,55],"acf":[],"_links":{"self":[{"href":"https:\/\/www.cultofmoney.com\/wp-json\/wp\/v2\/posts\/266"}],"collection":[{"href":"https:\/\/www.cultofmoney.com\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.cultofmoney.com\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.cultofmoney.com\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.cultofmoney.com\/wp-json\/wp\/v2\/comments?post=266"}],"version-history":[{"count":3,"href":"https:\/\/www.cultofmoney.com\/wp-json\/wp\/v2\/posts\/266\/revisions"}],"predecessor-version":[{"id":3704,"href":"https:\/\/www.cultofmoney.com\/wp-json\/wp\/v2\/posts\/266\/revisions\/3704"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.cultofmoney.com\/wp-json\/wp\/v2\/media\/270"}],"wp:attachment":[{"href":"https:\/\/www.cultofmoney.com\/wp-json\/wp\/v2\/media?parent=266"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.cultofmoney.com\/wp-json\/wp\/v2\/categories?post=266"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.cultofmoney.com\/wp-json\/wp\/v2\/tags?post=266"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}