It turns out Americans really do vote with their feet – especially when it comes to taxes.

United Van Lines releases a report every year on the prior year’s migration patterns within the U.S. They just put out the 2016 report, and the data is fascinating.

By sheer coincidence, Attom Data Solutions just released a report on property taxes across the country. Sure enough, the lists have plenty in common.

But property taxes aren’t the whole picture when it comes to residents’ tax burden. And how do migration patterns and tax burdens align with real estate appreciation? What does the data indicate about opportunities for real estate investors?

Glad you asked.


Tax Burden – The Trifecta

Property taxes matter, especially to real estate investors, but for residents they make up only one of three variable taxes: property tax, income tax, and sales tax. (We’ll dive into property taxes in more depth later, fear not!)

Last week, WalletHub compiled all three tax types into a chart outlining tax burden for each state. They broke down each of the three tax types as a percentage of income in that state.

Source: WalletHub

Here are the top ten highest-tax states:

Overall Rank State Total Tax Burden
Property Tax Burden
Individual Income Tax Burden
Total Sales & Excise Tax Burden
1 New York 12.94% 4.55% 4.76% 3.63%
2 Hawaii 11.27% 2.11% 2.64% 6.52%
3 Vermont 10.75% 4.96% 2.29% 3.50%
4 Maine 10.73% 4.65% 2.58% 3.50%
5 Minnesota 10.24% 2.87% 3.59% 3.78%
6 Connecticut 10.23% 4.16% 3.24% 2.83%
7 New Jersey 10.14% 5.31% 2.32% 2.51%
8 Rhode Island 10.09% 4.80% 2.15% 3.14%
9 Illinois 10.00% 4.14% 2.66% 3.20%
10 California 9.52% 2.72% 3.44% 3.36%


And the lowest-tax states:

Overall Rank State Total Tax Burden
Property Tax Burden
Individual Income Tax Burden
Total Sales & Excise Tax Burden
41 Montana 7.51% 3.61% 2.56% 1.34%
42 Wyoming 7.29% 3.77% 0.00% 3.52%
43 Alabama 7.19% 1.41% 1.85% 3.93%
44 South Dakota 7.12% 2.83% 0.00% 4.29%
45 Florida 6.79% 2.76% 0.00% 4.03%
46 New Hampshire 6.70% 5.33% 0.13% 1.24%
47 Oklahoma 6.61% 1.38% 1.69% 3.54%
48 Tennessee 6.45% 2.06% 0.09% 4.30%
49 Alaska 6.27% 4.84% 0.00% 1.43%
50 Delaware 5.59% 1.83% 2.59% 1.17%

That’s a big difference in tax burden; the tax burden in New York is nearly two-and-a-half times that of Delaware.

So now that we have a better grasp of which states are high-tax and which are lower-tax, let’s look at which states Americans are leaving, and where they’re moving instead.


Migration Patterns: Where Americans Are Moving

Continuing a long-term trend, Americans are largely moving away from the Northeast and Midwest, to move south and west.

Surprising no one, these tend to be the higher-tax states.

Take a look at the map:

Look familiar?

It’s not a perfect match with the tax burden map, of course. Look at Vermont – high taxes, cold winters, but people are flocking there in droves (whatever a “drove” is). Although even I have to admit that the people in Vermont are friendly, the beer is excellent, and the hiking and skiing are great.

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So what happens if we cross reference the top inbound migration states with their tax rank, and do likewise with the top outbound migration states?


Top Outbound Migration States Tax Rank (higher rank indicates higher taxes) Top Inbound Migration States Tax Rank (higher rank indicates higher taxes)
1. New Jersey 7 1. South Dakota 44
2. Illinois 9 2. Vermont 3
3. New York 1 3. Oregon 27
4. Connecticut 6 4. Idaho 39
5. Kansas 20 5. South Carolina 37
6. Kentucky 22 6. Washington 33
7. West Virginia 14 7. District of Columbia N/A
8. Ohio 13 8. North Carolina 28
9. Utah 25 9. Nevada 30
10. Pennsylvania 24 10. Arizona  31


The numbers don’t lie. The average tax burden rank for the outbound migration states is a high-tax rank of 14.1, while the average tax burden for the inbound migration states is a relatively low-tax rank of 30.2.

You may have also noticed that all of the ten outbound states are in the top half of states with high tax burdens. The top four outbound migration states are particularly telling, all within the top ten highest tax states.

Americans are moving out of high-tax states, and moving into lower-tax states.


Circling Back: Property Taxes

Americans paid nearly $300 billion (that’s $300,000,000,000!) in property taxes last year.

Property taxes are particularly relevant to real estate investors, given their direct impact on cash flow. What’s tricky about property taxes is that they vary by county, not by state. So while we can look at state averages, like WalletHub did, the data has its limits.

But even when we drill down to the local level, the property tax map tells a familiar tale:

Look at all that orange in the Northeast and Midwest! Like Halloween all year round, terrorizing residents’ budgets.

It’s worth noting that Texas, with its high property taxes, actually has a relatively low total tax burden, because it imposes no income tax. That’s one reason why it’s not suffering from outbound migration like most of the other regions with high property taxes.

United Van Lines noted in their report that while many Americans are moving into cities, that trend is still heavily overshadowed by the trend away from the Northeast and Midwest.


Real Estate Recovery Post-Recession

It’s not exactly rocket science; the states with the most inbound population growth have experienced a faster recovery.

Top Inbound States 5-Year Home Price Change (Attom Data) Top Outbound States 5-Year Home Price Change (Attom Data)
South Dakota N/A New Jersey 5.10%
Vermont 2.60% Illinois 27.60%
Oregon 54.20% New York 0.60%
Idaho 65.80% Connecticut 1.30%
South Carolina 32.70% Kansas 23.20%
Washington 43.30% Kentucky 41.90%

The average home value in the top destination states appreciated by 39.7% over the last five years. In the top outbound states? Homes only appreciated an average of 16.6%.

It’s worth noting the major outliers on each list. Vermont’s homes only appreciated by 2.6% over the last five years, which is a heck of a coincidence, considering it’s also the only high-tax state among the top inbound states. Similarly, the outbound state with the strongest appreciation, Kentucky with 41.9%, ranks lower on tax burden than the other states on the outbound list.


Opportunities for Investors?

Inbound migration means population growth, which is the greatest single predictor of real estate appreciation. Investors always want to keep an eye on what markets are growing quickly, because those markets usually experience demand growth that outpaces new housing supply.

Tax burdens also matter for investors, and not only because of their strong correlation with migration patterns. Lower property taxes are particularly relevant to real estate investors, because of their direct impact on cash flow.

Don’t think property tax bills make much of a difference to your cash flow? Consider that the average annual property tax bill in Alabama last year was $776. Compare that to the average property tax bill in New Jersey: $8,477. The monthly cost of that tax bill is almost as high as the annual tax bill in Alabama!

Low-tax, high-migration states, cities and towns are a gold mine for real estate investors. You don’t need to invest in your own backyard if you’re an experienced investor, although in our passive income course we always caution newer investors to start within an hour of home.

Tax burdens don’t tell the whole story; after all, California has relatively high tax rates but it’s hard to argue with the weather in San Diego. But there’s a clear correlation between tax burdens and Americans’ moving patterns. If you want to invest where demand is sure to grow, look at states where taxes are low and movers are inbound, rather than fleeing.

What are your thoughts on the above data? Would you consider moving to a lower-tax state?



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