Property Taxes Bring Down The Value Of Your Home

Have you ever wondered what your house would sell for if it were in another city? How much do property taxes effect home prices?

I am going to use two fake towns in my example - one where they tax houses $10 per thousand (Capiton City) and the other where they tax $40 per thousand (Commuton City). The owners of each house I will use in this example want it to sell for at least $400,000.  

A dual income couple is considering the same exact house in two different locations - the high tax city Commuton and the low tax city Capiton.  They have already determined that the most they can afford to pay for any house including taxes is $3000 per month.

After putting 20% down the mortgage for the house ( what you owe to the bank ) is the same in either city - it is 80% of $400,000  or $320,000.  With a 30 year loan at 4.75% interest this comes to about $1670 per month. This number does not include taxes.  The property in Commuton City will cost 1670 +1330 = $3000 per month.

The taxes in Capiton City are much lower and the monthly payment would only be 1670 + 330 = $2000 per month.  This couple can BID UP TO $640,000* and still only have a $3000 total monthly payment in Capiton City.  

The difference is incredible - almost a quarter million dollars left on the table for the family in Commuton City. 

Are the city services in Commuton City worth $1000 per month MORE than what is available in Capiton City? 

*please note borrowing costs for loans over 417,000 often come with higher interest rates - but even with a higher interest rate the couple can still sell for way more in Capiton than in Commuton City