Birmingham, AL has been the hidden gem of the southern United States for some time now, with savvy real estate investors jumping on the recent municipal bankruptcy news to usurp incredible properties at rock bottom prices. The result has been some incredible returns for the investors smart enough to see the opportunity and a dog whistle to other investors that Birmingham is the next mid-sized metropolitan area that is prime for restructuring.
Alabama in general has some of the lowest property tax rates in the entire United States. This is general policy among the Republican led state legislature, who pride themselves in keeping all taxes as low as possible. However, because of the unique way in which Alabama calculates its property tax rates, the local municipalities actually have much more control over their individual tax rates. This unique structure allowed Birmingham the ability to lower its property tax rate even below that of the state average in order to attract real estate investors to help shore up its bankruptcy. Let’s take a look at the way that Birmingham was able to positively manipulate its tax structure, how Birmingham property tax compares to other comparable cities around the United States, and how you might be able to take advantage of it.
How Do You Calculate the Birmingham Property Tax Rate?
Unlike many other states, Alabama does not have a fixed property tax rate that is based on a percentage of the property value. This is part of the calculation, and that is basically a statewide initiative. However, local municipalities have the ability to individually change their own millage rates, lowering the property tax in their area for their own purposes, and Birmingham used this unique property to its advantage after its municipal bankruptcy. In general, here is the formula for calculating property tax in Alabama.
Assessed Value X Millage Rate = Unadjusted Tax Bill
As you can see, lowering the millage rate has a direct and significant effect on the unadjusted tax bill that an investor pays. Currently, the millage rate for Birmingham is 28.5, one of the lowest in the state. For a property that has an assessed home value of $140,800, for example, the property taxes owed would be only $888. This comes out to an incredibly small 0.631 percent of the assessed value of the property being owed in property tax.
Alabama real estate owners pay about a quarter of the property tax of other cities in the United states, on average. Here are some direct comparisons with similar cities.
How Does Birmingham Compare to Mobile, Alabama?
Birmingham and Mobile are perhaps the two closest cities in terms of comparison. Both are hubs of commerce in Alabama. When you compare the two cities, you begin to see how much of an opportunity the entire state of Alabama affords a real estate investor.
The property tax percentage rate in Mobile County is actually lower than in Jefferson County – 0.540 versus 0.631. However, the cost of living is higher in Mobile, which is a city that is much farther away from the largest centers of commerce in the state. Most of the money in Alabama finds its way to Birmingham first, justifying the 0.091 rise in the property tax rate. You end up getting your money back over the entire cost of holding court in Birmingham, however, along with the advantage of being right beside the largest commercial center in the state.
How Does Birmingham Compare to San Antonio, Texas?
You will pay a 2.120 percent rate on your property tax in Bexar County, home to San Antonio, Texas. Your housing will also cost 76 percent more, and your cost of living goes up by a full 18 percent. San Antonio is a larger city than Birmingham, but the true premium comes from the publicity of the zip code, not any measurable commercial advantage. Almost every large company that is in San Antonio also has a branch in Birmingham, the nightlife in Birmingham brings the same flair, and families actually have more resources and better school districts to choose from. Reputation does not mean as much as you might think!
How Does Birmingham Compare to Miami, Florida?
Miami-Dade County is considered one of the more business-friendly districts among large, international cities. However, its property tax rate is still twice that of Birmingham with an almost 200 percent cost of living increase. You will pay a 1.272 percent tax rate on a property in Miami, and the rest of your expenses will basically double around the board. Birmingham still holds a comparable property return on investment even over a place like Miami, Florida.
The numbers do not lie: Alabama is one of the best places to own real estate in order to avoid paying property taxes. Birmingham is one of the least expensive places in the state to pay that tax. With all of the other advantages that you have when purchasing real estate in Alabama at this truly advantageous time, you have a good chance of solidifying a top quality investment along with a wonderful property. With investment coming into the state from all sides, one can only expect the market in Birmingham to move positively for real estate investors smart enough to get in on the ground floor.
2 Point Highlight
Birmingham has been the hidden gem of the southern United States for some time now, with savvy real estate investors jumping on the recent municipal bankruptcy news to usurp incredible properties at rock bottom prices.
However, local municipalities have the ability to individually change their own millage rates, lowering the property tax in their area for their own purposes, and Birmingham used this unique property to its advantage after its municipal bankruptcy.
