Texas (Financially) Deadly Property Taxes!

[Justin R.]

Living in California I started investing out of state in 2010. At the time, an investor could invest almost anywhere in U.S. and pencil out a good return. I chose Texas due to what I felt was going to be an appreciating market (DFW), and extremely good rent to price ratio. In 2010 I was able to buy houses for 80-100k in Solid B class areas, and rent them for 1200-1400 a month. 

The cash flow here was about as good as anywhere, yet the market was strong and vibrant.  Then, the Texas property taxes started showing its face. 

Throughout the course of the next 8 years home appreciation went rampant, doubling in values in my area. Although this would typically be a good thing, it takes its toll in Texas. At the time my effective property tax rate was a staggering 2.8% of the property value (Keller ISD.) In Texas there are no statutes which limit the growth of property taxes for non-homesteaders. Even with decent rent growth year over year, it just couldn't keep up with property tax increases. 

The result - DECREASING ANNUAL NET OPERATING INCOME & DECREASING RETURN ON EQUITY

I am not saying investors should not invest in Texas. I actually did quite well by selling my Texas portfolio and 1031 into another location. Texas has a lot to offer, and I truly believe it is a great state that will continue to strengthen. But, if you are from out of state, and already pay a state income tax, you are virtually paying double taxes when investing in Texas (Texas garners a lot of their state revenue off property taxes.) 

There is plenty of opportunity in Texas, just make sure you account for current, AND FUTURE property tax growth.

Justin Rick

[Guy Gimenez]

I assume you started investing out of state because California is very toxic for landlords and the prices make investing untenable in most instances. And you're not alone. Look at the growth of Texas versus California in 2022/2023...California has a net loss of .19% and Texas has a net gain of 1.6%. Investors in Texas love California investors because we know they'll overpay for properties we're selling...it's actually a long standing joke here but one that I've personally confirmed. I agree taxes are high here and I don't like it either, but we don't have not state income tax here either which is why between 2010 and 2020, 25% of the net positive migration to Texas was from California. We saw some of the highest tax increases (post Covid) that I've ever experienced in my 24 years of investing yet we successfully raised rents on our properties to ensure we maintain our cash flow and not one tenant left. Another issue is that out of state investors seldom bother to protest their taxes which is an essential part of the process each year...if you don't push back, that's on the investor. Government everywhere is like a parasite that needs a host (taxpayer) to survive. You have to push back or accept the consequences for not doing so.