Folks, I am about to shed some light on something none of us like to think about: PROPERTY TAXES. No one likes to think about it, but my goal here is to get you thinking about it and how it can affect your mortgage payments, property values and operating income on investments. It might scare you a little bit, but I want to educate you and make sure you are set up for success!
I have a client, whom I admire greatly, for her steadfast commitment to checking all the boxes on her list of wants and not settling for something she really does not want or is against paying for. She is a total boss, stubborn as hell and has presented me with many “opportunities” to learn new things.
One of the things she is vehemently against paying too much of is Mello Roos, but she wants a newer home. This has forced me to take a deep dive into every tax bill on any home she is interested in, and calculate the overall long-term effect of the direct charges so she knows what she is actually paying for the home. In other words, for all the Mello Roos/Direct Charges she has to pay over the next X years, is she really paying $500k or $600K for this home?
This has caused me to uncover some shocking truths about our property tax bills, which as a REALTOR, homeowner and investor myself, I even tend to gloss over in the grand scheme of things because, it’s taxes, it really is what it is, right?
BUT what if I told you that we SHOULD be paying attention to the “other charges” on our tax bills, the ones besides just the basic property tax rate? Because guess what, this could change your decision about where to purchase, the resale value of your home, your operating income on your investment and even the way you consider voting for certain measures.
Raise your hand if you actually read your tax bill when it comes…….. Or do you just stick it in the file cabinet and let your lender pay it when it’s due? Like most of us, your answer is probably “yeah, straight to the file cabinet”.
Do you know how to break down what you are paying for? AND did you know that in some areas (and I am going to dig into this later) that your community specific Mello Roos can escalate each year!? Not kidding ya’ll I recently called an agency to understand when a particular charge would end and I found out it ends in 2034 and escalates 2% per year!!! These charges are already between $2,600 and $3,600 annually in this area depending on your home. The tax payments are going to be enormous over the next 15 years, and mortgages will be unaffordable in this particular area. And guess what, the sales prices of these homes are already affected by these taxes. (More later on this.)
Did I fire you up? Good! Here is how to break down your property tax bill (In California):
Every County is a little different in the way they break down charges and the terms that they use to describe charges. Also, some county websites are more user friendly. For example, in Sacramento County, I can obtain general information on line such as total tax bill amounts and recent payment history, but I have to call the county to get more specific info. Placer county, I can look at the actual tax bill on line by entering the parcel number.
In general, here is what it looks like:
County Values, Exemptions and Taxes: This portion typically provides you with your assessed land values and any exemptions you may have, as well as your tax rate. This is your base property tax bill- just based on your assessed land value.
Then you get into the fun stuff and where the real $$ pile up: Voter approved taxes, taxing agency direct charges and special assessments and fees. What does this mean? Hang on to your hats!:
Voter Approved Taxes/Agency Taxes: All those school bonds that got voted in…... It will describe each bond voted in, your basis per your assessed land value, your tax rate, then your total cost per year for each bond.
Direct Charges/Special Assessment Fees: This is for specific city charges, specific county charges, and specific community charges or Mello Roos.
In some of the newer communities in Folsom, Roseville, Rocklin and Lincoln, these charges can be almost the same amount, and one day may be more than, your basic property tax.
There is a phone number next to each of these charges. You can call this number and speak with a representative to understand how long each of these charges will last and at what rate they escalate annually.
Now, I am going to talk about one particular Mello Roos scenario that is near and dear to my heart and really burns my buns because I don’t think people are actually aware that this charge will KEEP GOING UP and their property values will decline while the surrounding areas will not: Lincoln Crossing.
This niche area in Lincoln, CA has beautiful homes and an amazing community of people that make it such an amazing place to raise a family. In its hay day prior to 2009, Lincoln Crossing had enormous plans for parks and schools and shopping and dining, etc.- then the housing and lending market crash of 2009 happened. Everything stopped! However, the Mello Roos that were all part of those grand plans were still being charged to homeowners, even while things were on hold. This area was one of the hardest hit by foreclosures and short sales. As the economy, housing market and lending institutions restabalized, Lincoln Crossing slowly but surely rebounded and is now back in full swing with parks being built, businesses moving in and long-awaited schools breaking ground.
Based on my personal research, housing prices in the greater Sacramento area are right back to where they were just pre-crash. Are salaries in the area commiserate with these housing prices? I don’t think they have completely stayed parallel……. Unfortunately, the Mello Roo costs in Lincoln Crossing have also continued to climb over time, at a rate of 2% per year, adding to the overall mortgage costs to homes in that area. I see homes priced lower in Lincoln Crossing than the surrounding Lincoln and Rocklin neighborhoods because of the Mello Roos. Soon, the tax charges on these homes will double the amount of mortgage people are paying for these homes.
Get this, the City of Lincoln Crossing direct charge (that’s the name of the charge on the tax bill) will run until 2034 and will escalate 2% per year until then!! These folks know there are Mello Roos, but do they actually add this up and understand just how much this will cost them over time? I didn’t when we lived there. And there are other direct charges, I’m talking about JUST the LC Mello Roos here.
I did some reviews of tax bills in Lincoln Crossing. The average annual tax bill is anywhere from $7,000 up to over $10,000 +. Let me break down the $10,000 bill for you:
- Total Annual Taxes in 2018: $10,270.26!!
- Base Property Tax: $5,336.00
- Agency and Direct Charges: $4,934.26!! Of that, City of Lincoln Crossing alone (one year mind you) is $3,362.36
By 2034, their Lincoln Crossing Mello Roos alone will be $4,523.46 per year. Folks, that Mello Roos bill ALONE for the next 15 years totals $59,285.64. Take a minute to read that again…… That should scare the hell out of you.
I hope you learned something new and valuable today. Please make sure your agent and lender have your best interest in mind and that you are checking those tax charges so you know how it affects you and your family long term. I’m always here to help you find the info and run calculations.
Until next time friends…….