I‘ve been getting drilled about our back property taxes on the MMM forum. We owe around $11k on our rental property, and the vast majority of money hippies seem to agree that we need a property tax payment plan. They feel that the property taxes need to take precedent over the credit cards that are growing rapidly. I think they may be right.
There is no mortgage on the rental property, and therefore no escrow for taxes. We were always very good with paying it in March of every year, but once our spending got out of hand, we continually delayed the payment of the taxes. One week turned into a month, a month into a year, and then a year turned into three years. So here we are now.
Perhaps we should be thankful. In many others towns, the home would have been taken by now. After doing some research, we learned that the town sold our property taxes to a 3rd party collector. We called the collector and received the breakdown of what we owe: $11,365.07. Ouch. Eek. Zing.
Our property tax payment plan
The collector explained to us that they offer two-year repayment plans and that is the furthest they are willing to extend the repayment term. Apparently they no long offer any longer terms, which is a bummer, but also great in that we are forced to get this out of our way sooner rather than later.
The payment plan breaks down like this:
- $11,365.07 owed for the past three years in back property tax.
- Two-year payment plan
- $500 downpayment (paid!)
- $535 per month payment
- 18% interest
Including interest, we will be paying back nearly $13k. Speaking of Interest, it was conveniently not mentioned during the call, and I didn’t think to ask about it until the call was already over. It wasn’t until I received the contract via email that I learned of the 18% interest they are charging. The finance charge comes out to be almost $2k by itself.
Needless to say, the $535 monthly payment hurts. That is a huge payment. That’s two car payments. More than many people’s mortgage payment. It’s also about what my sister pays per month for her kids gymnastics lessons, so I suppose that’s another way to look at it.
The tax payment also hurts in another way. $535 per month we can’t put towards our growing credit card debt.
Selling the rental property
We are also considering selling the rental. It needs a roof pretty bad, but everything else is nearly brand new. The house would sell for north of $100k in many other locations, but the area where it is located has gone downhill the last few years. We are probably looking at a $75k to $80k offer.
We don’t have a mortgage, but we do have a $25k HELOC against it. Add in the roof ($4k). And the property taxes ($11k). The realtor fees ($4.8k). And closing cost ($5k). Ouch. We may walk away with as a little as $30,000 when all is said and done. Obviously not ideal, but it is an option.
Another option would be to keep it for one more year while we pay off half of the two-year payment plan and place a new roof on the property. At that point, we would likely walk away with $40k.
Or we could keep the rental indefinitely and continue to pull in nearly $600 per month in profit.
If When we succeed in completing the property tax payment plan, we then have the opportunity to save a substantial amount of money from keeping this property. 15 years at $595 per month profit is over $100k. And we would still own the property, meaning we could still sell it and net even more.
Either way, we have the payment agreement setup, and that means we have a small moment to breathe and assess our next steps.
Edited to add: With the $500 paid towards property taxes, the deck tracker at the top of the page has been updated! Yay! Our first movement on the tracker.