Paying for needed expenses when holding and maintaining rental property is just part of the process. Certainly a good solid estimate of costs is estimated before any acquisition to make sure the project cash flows as expected yet there are still regular and sometimes irregular expenses. The estimating property taxesirregular charges are those that pay for unexpected repairs such as a new hot water heater or plumbing work.

While such costs can be expected they can’t accurately be predicted. Other costs though include the principal and interest payment, homeowner’s insurance and property taxes. But if you’re an investor thinking about buying a newly constructed home or planning on building one, how do you know what the taxes will be if there is no previous property tax bill?

Actually, there is a property tax bill for an address that has yet to be “improved” with a new house built on the lot. But the property tax is based upon the unimproved lot and will be minor compared to a home sitting on a lot right next door. When you go to close on your lot, what can you expect regarding future property tax bills?

As the county sends out the property assessments each year, a property owner’s taxes are based upon the current year’s value. But that can be a bit tricky if the valuation was placed on the vacant lot and the home was built after the property tax bill was mailed. Say you bought a brand new home and go to the settlement table. The settlement agent will collect property taxes from the seller but the tax bill is based on the lot, not the house because the assessment was done prior to construction.

In this instance, you will typically have the option of paying the property tax bill as issued or pay an approximate amount prepared based upon a property tax estimate. This can be estimated by comparing similarly priced completed properties in the area. It’s not a requirement that you pay the improved tax bill, just be ready for a bigger bite when the taxes come the following year.