Rental Property Investor · Germany · Member since 2017 · 74 posts · 22 votes
San Antonio Buy & Hold Investors,
I'm interested in perspectives on the phenomenally high San Antonio property tax. I have two SFR properties in the NE area in B+/A- neighborhoods and I'm forking out about $10K per year in tax between the two. I'm thinking of selling and putting that equity to work in another market where property tax is reasonable and cash flow would be much better (not as interested in appreciation, which I understand is good in SATX right now).
Convince me that I’m completely right and should do this ASAP.
OR...
Convince me that I’d be making a terrible mistake!
Flipper/Rehabber · Fayetteville, AR · Member since 2016 · 130 posts · 62 votes
7y
@Eric Chase Property taxes in Texas are higher than the majority of other states mainly because it is the primary source of income for the state and local government since we don't have a state or local income tax. Since that is the case, it only makes sense to invest in Texas from out of state if all costs (including taxes) still gets you the ROI that you are looking for. Otherwise, it probably makes more sense for you to sell the properties and invest elsewhere.
Investor · San Antonio, TX · Member since 2017 · 344 posts · 268 votes
7y
Hey Eric,
I’m not really answering your question, but....
Do you protest your taxes? The deadline to submit is today, let me know and I can look into comps for you and hopefully help you with the problem a little in the interim while you are deciding what to do with the properties.
Flipper/Rehabber · Fayetteville, AR · Member since 2016 · 130 posts · 62 votes
7y
@Eric Chase Property taxes in Texas are higher than the majority of other states mainly because it is the primary source of income for the state and local government since we don't have a state or local income tax. Since that is the case, it only makes sense to invest in Texas from out of state if all costs (including taxes) still gets you the ROI that you are looking for. Otherwise, it probably makes more sense for you to sell the properties and invest elsewhere.
Wholesaler, Rehabber and Landlord · San Antonio, TX · Member since 2014 · 2k+ posts · 2k+ votes
7y
The taxes should be just another cost of owning the property along with the insurance (which is kinda high in Texas also). When you buy the property you should figure in all of that. It should cash flow from the beginning. If the taxes are causing things to get a little lean, you should be able to raise rents. If you cant raise rents, sell.
Rental Property Investor · Germany · Member since 2017 · 74 posts · 22 votes
7y
@Rick Pozos
Thanks for your thoughts. Your point about calculating costs is well taken. I started in SATX and didn’t do that as well as I now know how to. However, we now own one of those houses free and clear, and even with that, I have a hard time stomaching the gigantic yearly tax bill! Im having a hard time thinking of a reason to keep that equity tied up when it could be working so much harder in a better market. But that’s why I’ve got BP to make sure I’m not missing something!
Rental Property Investor · Montgomery, AL · Member since 2018 · 80 posts · 51 votes
7y
@Eric Chase I’ve been considering buying in NE San Antonio as well.. military moved me here last year. Those extremely high taxes have been the primary reason we don’t pull the trigger on a rental here. The numbers don’t work for me... better for those seeking appreciation or less concerned about cash flow I would think.
Flipper/Rehabber · Fayetteville, AR · Member since 2016 · 130 posts · 62 votes
7y
@Eric Chase I wouldn't want to keep all my equity tied up in the property either. Will it cash flow if you refinanced at the maximum allowable percentage (70%-80% of the appraised value)? If not, I would probably sell and try to make better use of the equity.
I'm interested in perspectives on the phenomenally high San Antonio property tax. I have two SFR properties in the NE area in B+/A- neighborhoods and I'm forking out about $10K per year in tax between the two. I'm thinking of selling and putting that equity to work in another market where property tax is reasonable and cash flow would be much better (not as interested in appreciation, which I understand is good in SATX right now).
Convince me that I’m completely right and should do this ASAP.
OR...
Convince me that I’d be making a terrible mistake!
Cheers!
Eric
Without knowing all the numbers it's impossible for us to say whether the overall return is reasonable or not.
You could always sell them to me. I've been ramping up my flips in / around San Antonio. : )
@Jeff C., fair point. Rents are at market rate but could be raised slightly after current leases expire. One of the properties is leveraged and roughly breaks even. The other is free and clear, and brings me about $17.5K per year before expenses. Knowing these properties each bring in around $1400-$1500 per month means even if they were both free and clear I'd be into April of each year before I could break even from property taxes alone. It seems I could get a far better return in numerous other markets, but I want to keep getting others' thoughts before I make any moves.
A good counter-argument to selling is SATX's explosive growth, which certainly gives me pause. Since 2010, both zip codes I'm in are experiencing double-digit growth rates (16% and 26%).
I agree with @Rick Pozos, you need to figure in the cost of taxes and insurance and see if the numbers still work.
I have seen where in different markets you get different benefits. Some are great for cash-flow, others have fantastic appreciation, and others seem to just be easy to start investing in.
You have to see if the numbers make sense for you. If you have crazy high taxes, that is usually made up for in higher rents.
I would also just take a look with @Aaron Bihl and see if he thinks you can protest your taxes for next year. Maybe something has changed from last time you looked at it, or he has some other numbers. Either way, you don't lose anything by looking at it. If you can save $1000 per year, that is gravy for you.
We see a lot of investors who look at taxes and insurance as "fixed expenses" in the sense that they can't be changed. We have seen folks save thousands of dollars per year by getting those taxes down or lowering their cost for insurance or both.
If that isn't going to work for you, I agree that you either need to look at raising rents or selling. I would just say that before you sell, you want to make sure you have another purchase lined up that is BETTER that what you have today.
Great points, Sir James! Thanks for taking the time to reach out with such a thoughtful response. A part of me wants to stay in SATX just for diversification purposes since growth is so high (and I'm still making money), while purchasing additional properties in other markets and just not buying anything else in SATX.
Richmond, TX · Member since 2018 · 29 posts · 31 votes
7y
So I've been looking at small MF units in San Antonio for a month now, and this is the problem that Eric is encountering:
This is the tax appraisal valuation for a 4-plex in NE Bexar County:
Here is another one:
You can see that in each case the appraisals (and the tax rates) have increased 30-40% over the last 3 years. Current rents are challenged to produce a decent NOI at these new tax rates - the first saw it's property tax go from $4,700 to $7,600/year.
If you pass that cost through to tenants their rents will go up 12-15% to cover it - not a killer, but definitely a place where you might be looking for new tenants soon.... In the properties I see for sale, it looks like several of them are preferring to sell the property than to raise the rents, which makes me think the neighborhood doesn't support the higher rents, and discourages me from digging further into the deal as I run my high level screens over the area.
Rental Property Investor · Montgomery, AL · Member since 2018 · 80 posts · 51 votes
7y
@Eric Chase I hope you share what you ultimately decided. Another thought is where you believe we are in the RE cycle. If you think a recession is coming like some, then the nice appreciation numbers may decline for a while, even possibly decline. The area seems to be booming now though.
Rental Property Investor · Germany · Member since 2017 · 74 posts · 22 votes
7y
@John McGonigal, thanks for thinking about this and providing thoughts. I was just talking with my wife about this very thing last night at dinner. What we've come up with so far is that since property taxes will always be a percentage of the property's assessed value, it doesn't seem like it would matter where we are in the cycle: the more the property is worth, the more we will pay. And if values decline, we are still paying a mind-boggling 2.6-2.8 percent... I will likely sell but can always be persuaded with a good argument!