Property Tax

Counties, cities and school districts fund themselves largely through property tax, a yearly bill tied to what the assessor says a parcel is worth. On a BRRRR rental it is one of the largest fixed expenses, and it can rise after the rehab if the assessor raises the value to reflect the renovation or the sale.

The default deal budgets $6,000 a year, or $500 a month, which is 1.2% of the $500,000 after-repair value. Rates and assessment rules vary widely, and some states reassess at sale while others limit annual increases.

Using the tax bill the property had before the purchase is a common underwriting mistake. Estimating taxes at the local rate times the after-repair value gives a closer number for the years after the refinance.

Further reading: Property Tax on Wikipedia.