Property taxes are the silent cash flow killer. While investors obsess over mortgage rates and rent growth, many overlook the steady creep of property taxes that can erode returns year after year. In 2026, reassessments based on the rapid appreciation of 2021-2024 are hitting — and many investors are seeing 20-40% jumps in their tax bills.

Why Taxes Are Rising

Delayed Reassessments Catching Up

Many counties reassess property values on 2-4 year cycles. Properties that appreciated 30-50% during the 2021-2023 boom are now being reassessed at those higher values. The tax bill reflects market prices from 1-3 years ago, not current values.

Municipal Budget Pressures

Post-pandemic, cities and counties face:

  • Infrastructure maintenance backlogs
  • Rising public employee costs and pension obligations
  • Increased demand for services
  • Federal pandemic aid expiring

Property tax is the primary revenue source for local government, and rates are rising to meet budgets.

States with the Biggest Increases

StateAvg. Effective Rate2024-2026 Change
New Jersey2.23%+8%
Illinois2.07%+12%
Texas1.60%+15%
Connecticut2.15%+6%
New Hampshire1.86%+10%

The Cash Flow Impact

On a $300,000 property, a 0.3% increase in effective tax rate means $900/year — $75/month straight off your cash flow. For investors with thin margins, this can flip a property from positive to negative.

Strategies to Manage Your Tax Burden

1. Appeal Your Assessment

This is the most underused strategy. Most counties allow annual appeals, and success rates are surprisingly high (40-60% in many jurisdictions).

  • Gather comps: Find sales of comparable properties that support a lower value
  • Document condition issues: Deferred maintenance, needed repairs, or functional obsolescence reduce value
  • Note errors: Assessors frequently have wrong square footage, bedroom counts, or improvement data
  • File on time: Appeal windows are strict — miss the deadline and you wait another year
  • Hire a tax consultant: For larger portfolios, professional firms work on contingency (25-40% of savings)

2. Homestead Exemptions and Investor Benefits

Some states offer exemptions that benefit investors:

  • Texas: No state income tax, but high property taxes. Homestead exemptions don't apply to investment properties, but veterans and disabled persons get additional exemptions
  • Florida: Save Our Homes cap limits annual assessment increases to 3% for homesteaded properties
  • Indiana: Circuit breaker caps property taxes at 1% of assessed value for homesteads, 2% for rentals

3. Choose Low-Tax Markets

Property tax rates vary enormously. Factor this into market selection:

  • Low tax states: Hawaii (0.28%), Alabama (0.41%), Colorado (0.51%), West Virginia (0.55%)
  • High tax states: New Jersey (2.23%), Illinois (2.07%), Connecticut (2.15%), New Hampshire (1.86%)

On a $250,000 property, the difference between Alabama (0.41%) and New Jersey (2.23%) is $4,550/year — $379/month in cash flow.

4. Structure Purchases Strategically

  • Buy from distressed sellers where the assessed value may already be reduced
  • In some states, assessed value resets to purchase price — buying below market means lower taxes
  • Consider properties in tax increment financing (TIF) districts where rates may be capped

5. Factor Taxes Into Every Analysis

Never use generic estimates. Look up actual tax bills for specific properties before making offers. Investra's financial analysis includes real property tax data so you see the true picture, not an approximation.

The Tax Deduction Silver Lining

Property taxes on investment properties are fully deductible as an operating expense. Unlike the $10,000 SALT cap that applies to personal residences, there's no limit on deducting property taxes for rental properties. This softens the blow, especially for investors in higher tax brackets.

Long-Term Planning

Property taxes will continue rising in most markets. Build this into your long-term projections:

  • Assume 3-5% annual tax increases when modeling cash flow
  • Ensure rent increases keep pace with tax growth
  • Appeal assessments proactively, not just when you're surprised by a bill
  • Consider portfolio rebalancing toward lower-tax markets over time

Use Investra to model different tax scenarios and find markets where the numbers work even with conservative tax assumptions.