Property tax is usually the largest single operating expense on a rental — commonly 15–30% of gross rent depending on the state — and unlike most costs it changes by government decision, not by your management. Budget it accurately, anticipate the jumps, and challenge it when it's wrong.
How the bill is built
Assessed value × local millage (tax) rate = the bill. Assessment practices vary: some jurisdictions track market value yearly, others reassess on a cycle or — critically — on sale. Rates and reassessment rules are local, so two similar buildings in neighboring counties can carry very different bills. Find your parcel on the assessor's site and understand both the number and the cycle before trusting any budget.
The purchase-reassessment trap
Underwriting a purchase with the seller's current tax bill is a classic error. In many jurisdictions the sale triggers reassessment at your purchase price: a property taxed on a stale $220,000 assessment that you buy for $350,000 may see its bill rise 60% the following year. Always underwrite taxes at your price × the local rate, not the seller's history.
Challenging an assessment
If the assessed value exceeds what the property would sell for, appeal — deadlines are strict (often 30–60 days after notices go out) and the process is designed for owners: file, show evidence (recent comparable sales, an appraisal, photos of condition problems), attend a short hearing. Success rates on well-documented appeals are meaningful, and the savings recur every year until the next reassessment.
Worked example
A duplex is assessed at $310,000 with a 1.4% effective rate: $4,340/year. Comparable duplexes have been selling at $270,000–$280,000, and yours needs a roof. You appeal with three comps and a roofing quote; the board reduces the assessment to $278,000. New bill: $3,892 — $448/year saved, roughly $37/month of pure NOI, for an afternoon of paperwork.
When this rule of thumb breaks
Appeals cut both ways: in a rising market, flagging your property for review can raise the assessment — appeal only when the evidence clearly favors you. Escrowed taxes hide the trend; check the actual bill yearly, not just the mortgage payment. Levy rates also rise by referendum with no change in your assessment, which no appeal can touch. And exemption rules (homestead vs investor, abatements on renovations) are jurisdiction-specific — a local tax professional or attorney is worth an hour when the numbers are large.