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The short version

  • Even though it's a seller's market, I bought a rental property in a location I researched thoroughly.
  • I chose my location carefully to minimize my property and land transfer taxes.
  • Another important consideration I considered was the healthy rental market in Colorado Springs.

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We took advantage of the seller’s market and moved west

Since 2018, my family’s five-year retirement goal has been to move to the western part of the United States. Recently, however, the downward direction of the U.S. economy and the increasingly-polarized political environment we experience living close to DC accelerated our plans.

Over the past few years, we explored our options by vacationing in a few western states. In the end, we decided to purchase a lot in Colorado Springs and are in the process of building a custom home.

Initially, we planned to move after our home was built. But with the economic uncertainty and the crazy housing market, we decided it made the most sense to sell our Maryland home while the pendulum was still on the seller’s market side and before the next substantial interest rate hike.

So we purchased a modest investment property in Colorado Springs. It’s an ideal rental property – three bedrooms and two baths in a nice neighborhood close to the army base Fort Carson. We will live there temporarily while our home is being built and rent it out after we move.

Our Maryland home was only on the market for five days. We were able to take advantage of the tail end of the seller’s market for our sale. And since the Colorado rental property we purchased needed some work, we got a decent deal.

More: How to manage your rental property

Real estate is all about location, location, location

I am a big believer that fundamentals matter when it comes to investing. I firmly support the mantra that real estate value is all about “location, location, location.”

As a general rule, the more desirable the location, the higher the property value and the more stable the rental market.

Buying a property where renters want to live is just one aspect of choosing the right location to invest in.

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Why we bought a rental property in Colorado Springs this year

Here’s why I felt that Colorado Springs was an excellent place to buy a rental property this year, despite the fact that it was a crazy seller's market.

Significant annual tax savings

Location can significantly affect your investment success due to property taxes. The national average annual property tax rate is 1.1% of a home’s assessed value.

Colorado’s property tax is the third-lowest in the country. In Howard County, Maryland, where we are moving from, the annual property tax is 1.25%. In El Paso County, Colorado, where we are moving, the yearly property tax rate is 0.48%.

The difference on a $500,000 home is significant – $2,400 in Colorado vs. $6,250 in Maryland. That represents a savings of $3,850, year after year. Over ten years, that’s $38,500 less in taxes.

Significant real estate transfer tax savings

When you buy or sell a home, state and local governments charge a “title transfer and recordation fee.” In Howard County, Maryland, you will pay a one-time fee that includes a state and county transfer tax and recording fee totaling 2.25% when you purchase or sell a property.

The home we purchased in Colorado was $406,000, and the transfer tax and recordation fee we paid was $83.60. To sell my property of the same value in Maryland, the total one-time transfer tax and recording fee were $9,135. This is typically split 50/50 between buyer and seller, so my share is $4,567.

Wow, what a difference location can make!

My investment goal is to acquire more rental properties in Colorado. Transfer taxes and title fees add up quickly to increase your acquisition prices when you buy several properties. And since the cost of transferring ownership or title between a buyer and seller varies widely per state and county – it matters where you buy.

More: How much does it cost to sell a home?

A healthy rental market

As property owners, landlords look for areas where rental prices are rising, the economy is stable or growing, and there is a sizeable pool of qualified tenants.

In Colorado Springs, the average rental price of an 850 sq. ft. apartment increased from $1,200 in March 2020 to $1,553 in July 2022. I think that trend is going to continue.

Unemployment is low and Colorado Springs is home to the Air Force Academy and Fort Carson Army Base. These military facilities provide a steady pool of financially-secure tenants.

Other significant tax savings

As a soon-to-be-retiree, lowering my tax liability is important to me. Colorado’s state income tax is low compared to many other states. They impose a flat rate of 4.55% on taxable income. And – I love this – the state also lowers the tax rate if revenue growth is too high! For example, the 2021 tax was reduced to 4.50% because of a tax revenue surplus.

If you're at least 65 years old, you can deduct all Social Security benefits subject to federal taxes when you file your Colorado income tax return. And in Colorado, there are no estate taxes or inheritance taxes (Maryland has both these confiscatory taxes) so you don’t have to hand over taxes for the privilege of dying in the Centennial State.

Sales taxes are slightly higher in Colorado Springs than I’m accustomed to in Maryland: 8.2% instead of 6%. Still, I’d personally rather pay a higher tax on one-time consumer purchases than pay higher property taxes year after year.

All that, plus an average of 330 days/year of sunshine in Colorado Springs. What's not to like?!

Bottom line

I'm glad I made the decision to buy an investment property in Colorado during this crazy housing market. Even though prices are rising, the economy is stable and there is a healthy rental market. Plus, the state income tax is low and there are no estate taxes or inheritance taxes.

Sales taxes may be slightly higher, but overall I'm saving money on taxes by living in Colorado. And, of course, the sunny weather is an added bonus!

Further reading:


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Ruth Lyons Freelance Contributor

Ruth Lyon is a freelance contributor for Moneywise.


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