Texas Property Tax Blood Bath

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Texas Property Tax Blood Bath

Sam White
Rental Property Investor · Dallas, TX · Member since 2013 · 85 posts · 248 votes

Blood bath is dramatic, but hoping to get some conversation going on this. lol.

Homeowners across the state of Texas are getting jaw-dropping tax notices in the mail this month.  Huge reassessments of value on their property which in many cases are making it unaffordable.

So yes, on one side of the ticket, get your cash ready because I believe many people will decide to sell.

But in the interest of homeowners and landlords alike, I believe Texas needs property tax reform.

I am not the lobbying type.  I am much more interested in putting my nose in the grind and making more money than complain about things.

However as a young landlord, I see this being an issue that needs to be addressed for the health of our real estate market.

Property taxes in Texas are antiquated both in concept and as a funding source.  I live in Dallas County and there is much talk about politically mobilizing on this issue.  Whether it be a rate adjustment or total reform as a goal.

So I wanted to get some feedback from BiggerPockets members on ideas, and organization on this.

Even if it is just compiling an email list to get signatures to send to politicians.

The ones who spend our tax dollars voice their opinion regularly.  It is important they hear ours.

Sam White 

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Russell BrazilBusiness Member
Moderator
Real Estate Agent · Washington, D.C. · Member since 2012 · 17k+ posts · 30k+ votes
9y

High property taxes come with having no state income tax. At least with a property taxes you can essentially choose how much you are paying the state. Want to pay less taxes, own a cheaper house. With an income tax you have no such power.

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  • Russell BrazilBusiness Member
    Moderator
    Real Estate Agent · Washington, D.C. · Member since 2012 · 17k+ posts · 30k+ votes
    9y

    High property taxes come with having no state income tax. At least with a property taxes you can essentially choose how much you are paying the state. Want to pay less taxes, own a cheaper house. With an income tax you have no such power.

    [email protected]301-893-4635Podcast Guest on Show #192
    District Invest Group545 Reviews
    WebsiteView Page
    20Reply
  • Andrew Johnson
    Real Estate Investor · Encinitas, CA · Member since 2016 · 3k+ posts · 3k+ votes
    9y

    @Sam White Are you saying that your assessed value is wrong?  That you think your property is worth less than the assessor?  Do you have documentation (like an appraisal) to back it up?  If the answer is "yes" there is an appeals process.  It's the government, you can pretty much appeal anything.  And if the property did have a homestead exception and it doesn't now, well you knew the increase was coming.  

    But let's take a big step back and go on your thesis that "property taxes in Texas are antiquated both in concept and as a funding source."  California thinks so, we have Prop 13, everybody loves in on paper.  Until they realize that it comes with a state income tax.  If you think your property tax is rough trying seeing your marginal income (like rental cash-flow taxed at ordinary income rates) taxed at 10% to 13%.

    I'm not saying I'm in favor of massive property taxes, I'm not.  But if I had the choice between property taxes and a state income tax, I know which side I'm on in that discussion.  

    5Reply
  • Account Closed
    Investor · Leander, TX · Member since 2016 · 299 posts · 402 votes
    9y

    The massive flood of Californians into Texas is testament to that as well.

    15Reply
  • Sam White
    OP
    Rental Property Investor · Dallas, TX · Member since 2013 · 85 posts · 248 votes
    9y

    Andrew, completely agree with your point on income taxes.  There are many things Californians have to deal with, that I hope and pray never come to Texas.

    I don't really wish to compare and contrast Texas with California in this conversation though, because that sets my bar very, very low.

    One solution I have heard thrown around is raising the sales tax, to reduce the property tax rate. 

    As far as it being antiquated, I am referring to the structure of school funding tied to property taxes.

    1Reply
  • Sam White
    OP
    Rental Property Investor · Dallas, TX · Member since 2013 · 85 posts · 248 votes
    9y

    @Russell Brazil When I bought them they were cheap lol. 

    0Reply
  • Andrew Johnson
    Real Estate Investor · Encinitas, CA · Member since 2016 · 3k+ posts · 3k+ votes
    9y

    @Account Closed  You speak the truth!  Just for raw numbers sake, a couple in California that makes $100K pays around $5,900 (more if you're single) for state income tax.  A $300K home in Texas will have ballpark 2% for a property tax, so that's $6,000.  The difference is you can get a decent home for $300K in Texas and you can't even get a condo where I live for $300K.  Taking home prices, earning potential, Texas heat, etc. out of it you're always stuck with the end result of "the money has to come from somewhere".  If it's not property tax it's income tax, sales tax, gas tax (yay California!), etc.  Pick your poison. 

    4Reply
  • Sam White
    OP
    Rental Property Investor · Dallas, TX · Member since 2013 · 85 posts · 248 votes
    9y

    From a landlord/business perspective I am not concerned.  Yes our values have gone up.  So I can raise rents and refinance equity out.

    My concern is becoming like the states that y'all live in. 

    I see people burning dumpsters and screaming for more government programs.  And as a property owner, we hold the checkbook for the decisions of weak politicians.

    3Reply
  • Andrew Johnson
    Real Estate Investor · Encinitas, CA · Member since 2016 · 3k+ posts · 3k+ votes
    9y

    @Sam White I don't disagree with your point about holding the checkbook! But there's benefit to having it be *one* checkbook. When you start talking about augmenting other taxes you open the doors to having *all* of them nudged up. Again, take a look at the sweet state of California. The difference with high property taxes is that you can factor them into the price that you'll pay for a property. In theory, it's hard to get them to increase if the assessed value doesn't increase. More cost *should* come hand-in-hand some benefit (read: appreciation). Sales taxes, gas taxes, income taxes, etc. don't quite work the same way. A higher sales tax doesn't make my pair of Nike's more valuable. A higher gas tax doesn't make my car more valuable. But a 2% property tax you can at least adjust and factor into the price you pay for a property when computing ROI. Anyway, this has unintentionally evolved or devolved into a tax conversation! That said, I think the health of the Texas real estate market has a lot more to do with job growth, favorable conditions for corporate growth, and no state income tax. Those things all pull in people from other states and that population growth helps the real estate market more than a 2% property tax hurts it. My opinion anyway, but I'm no economist.

    https://en.wikipedia.org/wiki/List_of_U.S._states_by_population_growth_rate

    2Reply
  • Gautam Venkatesan
    Investor · Dallas, TX · Member since 2013 · 619 posts · 128 votes
    9y

    https://www.dallasnews.com/news/watchdog/2017/04/20/file-texas-property-tax-protest-must 

    0Reply
  • Gautam Venkatesan
    Investor · Dallas, TX · Member since 2013 · 619 posts · 128 votes
    9y

    Why you must file a Texas property tax protest

    0Reply
  • Sam White
    OP
    Rental Property Investor · Dallas, TX · Member since 2013 · 85 posts · 248 votes
    9y

    @Andrew Johnson Hey nothing wrong with devolving into a tax conversation!  Our country was founded on tax conversations, so I think we are in good company. 

    Completely agree with your assessment of taxes across the board, and where I would "rather" be taxed if I must be taxed more and more.

    My fiancé is a nurse at the county hospital, so once we marry, I will get some of my property taxes back in the form of her salary. hah.

    0Reply
  • Stephen Masek
    Investor · Mission Viejo, CA · Member since 2012 · 627 posts · 204 votes
    9y

    Indeed, it is well past time for a Texas version of California's Proposition 13.  Of course, property taxes have never been a good idea, as the tax has almost no relationship to the amount of government services provided.   

    If you add the cost of cooling, property taxes, and so forth, the total cost of living in Texas is a wash with the total cost of living in coastal southern California.  We pay the huge California income tax, but just $4,000 per year in property taxes on our 4 bedroom, 3 bathroom house in southern California worth $1,000,000, and an average of just $200 per month for water, gas and electricity.   

    1Reply
  • Eric James
    Investor · Malakoff, TX · Member since 2017 · 2k+ posts · 2k+ votes
    9y

    @Sam White: are you saying the property tax rates are going up, or the assessments? I was recently looking for a primary residence in the Dallas area and noticed that the assessed values were almost always considerably lower than listing and sales prices. I think I heard this can come about due to a limit on how much the assessments can be raised. I'm certainly not in favor of higher property taxes, but if properties are appreciating higher property assessed values and  taxes  go along with that. Or are you referring to something else?

    0Reply
  • Matt R.
    Sherman Oaks, CA · Member since 2013 · 3k+ posts · 2k+ votes
    9y
    Originally posted by @Stephen Masek:

    Indeed, it is well past time for a Texas version of California's Proposition 13.  Of course, property taxes have never been a good idea, as the tax has almost no relationship to the amount of government services provided.   

    If you add the cost of cooling, property taxes, and so forth, the total cost of living in Texas is a wash with the total cost of living in coastal southern California.  We pay the huge California income tax, but just $4,000 per year in property taxes on our 4 bedroom, 3 bathroom house in southern California worth $1,000,000, and an average of just $200 per month for water, gas and electricity.   

    These new tax bills are happening across the country. The few states like prop 13 Cali can accurately forecast accordingly otherwise for buy and holders it is as if you hope it does not appreciate or get reassessed. Many will find this whole property tax thing is like taking a pay cut every year. I once compared same to same Texas vs Cali, long term the difference was multiple 6 figures in actual profits. 

    1Reply
  • Curtis J.
    Investor · Lovington, NM · Member since 2016 · 46 posts · 25 votes
    9y
    The plus of property tax v income tax is people see one big number and are forced to realize that they are overtaxed. With income taxes over half of Americans see them as a pay day. If we were to only pay income taxes quarterly, like a business, the people would be more outraged at the govt for pissing away their money. Personally I'm against taxing something I already own, and most taxes in general, but that's a blood boiling topic for another day. But I love the concept of people being forced to see what the crap they vote for costs in one lump some.
    2Reply
  • Steve B.
    Engineer · Portland, OR · Member since 2014 · 1k+ posts · 1k+ votes
    9y
    Sam White please don't fall for that old sales tax offsetting other state taxes scam many states try to pull. In Oregon, every year the politicians give very logical reasons why a sales tax is a great idea, and how it will reduce other taxes. Every time they try to raise it the voters reject it. This shows that even the politically ignorant and largely financially illiterate general public have enough common sense to recognize an obvious scam when they see one. If you vote in a sales tax, don't expect any long term reduction or offset in any other taxes. The state will just "create" more jobs and defined public employee pension benefits to absorb that gain while structurally increasing their expenditures permanently
    4Reply
  • Justin Fox
    Software Developer · Vidor, TX · Member since 2015 · 922 posts · 639 votes
    9y

    The only way I'd be for a sales tax increase, is if they only added an additional 2% threshold for the ISD and completely got rid of the entity on the property tax.  Would reduce the property tax bills ~60% with a sales tax cap in place, and people from other towns and passing through would help fund it.

    Mass/bulk appraisals via aerial photos aren't accurate.  Comparing 'like' homes via home sales is inaccurate, as homes prepped for sale are usually repaired to better condition for selling.

    Appraisal board members are appointed/nominated by the taxing entities, kind of a conflict if you ask me.  I'm sure the county, road & bridge, nav and port, drainage district, water control, city and ISD all nominate people who have the average citizen's best interests at heart : /.

    They need to cap the rate increase to .10 or .20 per 100 every 3/4 years (freeze it in between).  They also need to freeze assessments with max 1% increase annually and only be able to hit the 10% when the home exchanges hands and cap it at 10% for non homestead as well.  Also, make 10% the cap period.  No roll over allowed anymore.  Lastly, kill the bond addiction for poorer districts.  They just impoverish themselves even more when, in reality, they should be consolidating their m&o on their own dime not expanding.

    I would argue that income/sales tax are a better alternative due to being more based on one's ability to pay.  You make less money, you pay less.  If sales tax is too high, you can buy less.  Property taxes are based on how much your neighbor was paid to leave the area and then you're punished with his/her assessment, regardless of your current income/misfortune/hardship.

    For now, don't improve your property and leave it moldy.  Leave that kitchen tile cracked, hole in the sheet rock and worn hard wood.  You'll need all that ammo for those vagasaurs at the ARB hearings.

    2Reply
  • Jacob Smith
    Katy, TX · Member since 2016 · 34 posts · 20 votes
    9y

    .

    0Reply
  • Seth Borman
    Rental Property Investor · Phoenix, AZ · Member since 2016 · 553 posts · 314 votes
    9y
    Look up an organization called Strong Towns. Texas is trying to finance expensive sprawl development with property taxes... and that's expensive.
    1Reply
  • Fred Heller
    Real Estate Agent/Property Management · Houston, TX · Member since 2014 · 1k+ posts · 827 votes
    9y

    That's the price of living in a no-income tax state. The money has to come from somewhere. Our property taxes are high (God help you if you live in a MUD). Our sales tax rates are pretty high too. The sales tax in Houston is 8.25%. And TXDOT can't seem to build a new highway without making it a toll road.

    Speaking of property taxes, the state recently held Houston ISD hostage. They threatened to "detach" some commercial properties from Houston ISD and give the property taxes to smaller school districts. The only way to avoid this was to pay the state a ransom of something like $77 Million. So last week we held our noses and voted to pay the ransom. 

    2Reply
  • Chad Clanton
    Contractor · San Antonio, TX · Member since 2013 · 647 posts · 205 votes
    9y

    Sales tax is already around 8.5% here, and with properties' tax assessments increasing literally well over 100% on many properties (no change of hands, status, etc, just the assessments), I'd say the system is pretty goofed up. Personally, I'm thoroughly convinced we paid less in income tax when we lived in VA than we do now in property tax, sales tax, various and sundry fees, etc. Not a fan of how the city/county can, and does, just change the assessments when they feel like it. That's my perception and opinion, anyhow; I'm sure they vary.

    1Reply
  • Scott Newton
    Northridge, CA · Member since 2017 · 14 posts · 5 votes
    9y

    The same thing happend in California in the 1970's; people were literally being taxed out of their homes. Elderly, fixed-income people had no option but to sell and relocate. At that time, California was not completely a lost cause, and the people rose up to put a stop to this rampant money grab by the state. Proposition 13 pegs Property taxes in California at 1% of the purchase price of the home, and can only go up a prescribed amount per year ( they can go down too). What's great about this  is that homebuyers can project their property taxes into the future at the time of purchase and thereby have comfort in knowing they won't later be taxed out of their homes. https://www.hjta.org/

    2Reply
  • Andrew Herrig
    Rental Property Investor · Dallas, TX · Member since 2012 · 502 posts · 263 votes
    9y

    My personal finances would certainly prefer an income tax of 5-10% over our current property taxes. Between my 8 rentals I am paying around $30k per year in taxes. If I was taxed on the cash flow I would certainly pay far less.

    There is of course a trade-off. I think part of what keeps real estate affordable is our astronomical property taxes. Without that property values may rise faster than they have been.

    I think the real issue the last 2-3 years is that tax assessed value was kept artificially low during the recession, and did not reflect market value. 2-3 years ago, after appreciation had already started to take off, there was a shift in philosophy to raise the tax assessments to market. So you had the double whammy of rising real property value and tax assessments being brought up from below-market value.

    In my mind, the question is, what is the government doing with this windfall of revenue? I haven't seen much benefit from my doubling of property taxes over the last 3 years...

    1Reply
  • Chad Clanton
    Contractor · San Antonio, TX · Member since 2013 · 647 posts · 205 votes
    9y

    SA just approved a 10yr, $300 million project to renovate the Alamo plaza, and lots of other neat little tourist projects. They also just passed an $850 million dollar bond for roads, etc. My problem is what happens when you spend tons of money bringing tourists and middle class folks into the city, but you take a 1/2mi walk from those areas and things are completely rundown because there's no required upkeep and all that revenue never gets spread around very much. Also not super impressed with the schools that we pay for. There's got to be a balance, it can't just be "let's renovate Hemisfair/the River Walk/Alamo, etc" and ignore the basics. Taxes are "supposed" to have some general benefit, not just pay for another coat of polish.

    2Reply
  • Account Closed
    Investor · Leander, TX · Member since 2016 · 299 posts · 402 votes
    9y

    Wow, $30K a year in property taxes! 

    One reason I went out of state for my investments

    $2K a year on my Cleveland, OH house

    $900 a year on my Birmingham, AL house

    $810 a year on my Dallas, GA house

    0Reply
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