Most and Least Expensive US States To Own A Property

 

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🏡Navigating US Property Ownership Costs: What International Investors Need to Know

By David Garner

For international property investors, venturing into the US real estate market presents immense opportunities for income, growth, and diversification. However, successful investment hinges not just on property acquisition, but on a meticulous understanding of the true costs of property ownership. When underwriting a potential deal, accurately accounting for these ongoing expenses is paramount, as they can significantly impact your cash flow and overall profitability.

A recent report from Bankrate sheds crucial light on these costs, revealing that the average US homeowner incurs approximately $21,400 annually in non-mortgage-related expenses. These include critical components such as maintenance, utilities, property taxes, home insurance, and internet/cable. Notably, these figures have been on the rise due to increasing home values and inflationary pressures.

As Linda Bell, a senior writer on Bankrate’s Home Lending team, highlights, “Higher home values mean bigger property taxes and homeowners insurance policies (and premiums). And in the last five years, inflation has also been rearing its ugly head in the rising cost of everything, including construction/home improvement materials, goods and services — and labor.” This underscores why a thorough review of these operational costs is non-negotiable for any savvy investor.

The Impact of Property Ownership Costs on Investment Cash Flow

For international property investors, understanding these costs is more than just budgeting; it’s about underwriting precision. The difference of a few thousand dollars annually in property taxes or maintenance can mean the difference between a high-performing cash-flowing asset and a stagnant – or worse, money losing – investment. States vary widely in these expenses, making location research a vital step in your investment journey. Neglecting to account for these significant outlays can lead to unexpected drains on your rental income.

Let’s break down the national average for these key categories mentioned in the report:

• Maintenance Costs: $8,808
• Utilities and Energy: $4,494
• Property Taxes: $4,316
• Home Insurance: $2,267
• Internet and Cable: $1,515

Of course, property investors also have to account for additional costs such as property management, vacancy reserves, and capital expenditure reserves, as well as admin, legal and bookkeeping and accounting costs.

These figures provide a baseline, but the real story lies in the state-by-state variations.

States with the Highest Property Ownership Costs for Investors

When evaluating investment properties in the United States, particularly for investors interested in long-term cash flow, certain states present a higher burden in terms of annual operating expenses. International property investors need to be aware of these regions, as higher costs directly translate to reduced net operating income if not managed proactively or offset by significantly higher rents.

Here are the top five states where these costs are highest, according to Bankrate’s analysis:

1. Hawaii

Annual Ownership Costs: $34,573

Key Factors: Significantly higher than the national average, Hawaii stands out for its high maintenance costs ($19,642 annually) and substantial energy and utility bills ($7,871 annually, nearly $1,700 more than any other state). For an investor, these translate to a substantial draw on rental income.

2. California

Annual Ownership Costs: $32,262

Key Factors: California’s high property values contribute to significant maintenance expenses ($17,338 annually). Property taxes also rank as the fifth most expensive nationally ($7,378 annually), adding another layer of cost for investors.

3. New Jersey

Annual Ownership Costs: $29,751

Key Factors: Property taxes are a major concern here, averaging $10,485 annually—more than double the national average. New Jersey also has high energy and utility costs ($5,885 annually), impacting the overall operational expenses.

4. Massachusetts

Annual Ownership Costs: $29,277

Key Factors: The Bay State is notable for the fourth-highest property taxes in the country ($7,987 per year). It also ranks fifth for both home maintenance spending ($12,284) and energy and utility costs ($5,661), making it a pricy state for property ownership.

5. Washington

Annual Ownership Costs: $27,444

Key Factors: High home maintenance costs are a primary driver in Washington ($13,166 annually, ranking third nationally). Additionally, internet and cable costs are among the highest in the country ($1,726 annually).

States with the Lowest Property Ownership Costs for Investors

Conversely, states with lower annual property ownership costs can be highly attractive for international property investors who prioritize maximizing cash flow and minimizing ongoing financial outlays. These regions often provide a more predictable and potentially higher net return on investment.

Here are the five states with the lowest annual property ownership costs, according to Bankrate:

1. West Virginia

Annual Ownership Costs: $12,579

Key Factors: West Virginia offers the cheapest property taxes in the US ($1,063 annually) and very low homeowners insurance ($1,009 annually). This makes it an exceptionally cost-effective state for property ownership.

2. Mississippi

Annual Ownership Costs: $14,810

Key Factors: This state boasts the second-lowest energy and utility bills nationwide ($3,302 annually) and very low property taxes ($1,490 annually). Maintenance costs are also favorable ($5,090 annually).

3. Indiana

Annual Ownership Costs: $14,903

Key Factors: Indiana provides homeowners with a significant break on energy and utility bills ($3,787 annually). Its home maintenance costs are also modest ($5,172 annually), ranking ninth lowest nationwide.

4. Missouri

Annual Ownership Costs: $15,349

Key Factors: Missouri features low energy and utility costs ($3,811 annually) and favorable home maintenance expenses ($5,272 annually). Internet and cable costs are also relatively low ($1,415 annually).

5. Arkansas

Annual Ownership Costs: $15,362

Key Factors: Arkansas stands out for its low property taxes ($1,445 annually) and budget-friendly home maintenance costs ($5,126 annually). Internet and cable bills are also among the lowest nationwide.

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Strategic Implications for International Property Investors

This data reinforces a critical lesson for international property investors: a property’s purchase price is just one piece of the investment puzzle. Understanding and accurately forecasting the total costs of property ownership in a given state is paramount to successful underwriting and achieving desired cash flow. States with lower ongoing expenses often present a more appealing proposition for passive income-focused investors, as a larger portion of rental revenue translates directly into profit.

Before making any investment decision, it’s always recommended to conduct thorough due diligence, including a detailed analysis of local property taxes, insurance rates, and typical maintenance expenses for the specific property type and location. This strategic approach ensures that international property investors can identify truly high-quality investment properties that align with their financial goals.

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