Texas REI - Property Taxes

22 Replies

Hello BP community,

I’m looking into buy & hold properties in the Dallas Ft. Worth area, but I’m concerned about the high property taxes in Texas. Can anyone tell me about the “basic homestead exemption”? I’d like to find out if Texas is a good state for buy & hold, or if the property taxes would wash out most of my cash flow. 

Thanks,

Jon

Texas, and especially the major cities, have PUNISHING levels of property taxes. Homestead exemptions are only for owner occupants. Basically, 1/4 to 1/3 of gross rent (before vacancies) goes to property taxes.

Isn't it everywhere?

Just looked up a rental listing in Shaker Hts, OH - rent is $3000/mo. as listed

House MV=190,800

Taxes= 8289

It means 26% of gross rent.

However, there will be rental inspection, 10% PM, insurance etc, so the NOI. Is going to be not more than in TX

Taxes are horrible everywhere but in OHyou also pay state income tax. In TX it's included into the property tax

Where do you live? If you're a Texas resident, the high property taxes are somewhat buffered by the fact that there's no state income tax. I've done some investing in Texas, and live in California. This is basically the worst of both worlds taxwise as I'm subject to Texas property tax along with high California income taxes.

Thanks for the feedback,

@Ricky Williams  Wow, that’s ridiculous that up to 1/3 of gross rent goes to property taxes in Texas. Do you have any buy & hold properties in TX?

@Jeff Cagle  interesting to hear that there’s no state income tax in TX....currently, I’m living in Tokyo, but  I’m actively searching for investment properties. Texas is on my radar because of the booming economy and the (relatively) cheap houses available. Are you planning on holding your investments in TX or will you cut your losses before property taxes consume your cash flow?

@Jon Gorham I bought those properties in 2006, and sold them just under two years ago. These were in Austin. The cash flow was good at 2006 prices, but buying at todays prices and cash flowing would be a lot more challenging. The huge equity run up made it more attractive for me to simply sell and fold that money into my fix & flip operation in CA. I felt like I had captured the bulk of the price move. I can't see an equivalent run up from here.

There is a reason I don't buy and hold in my home state of Texas. (7 generations).

My residential home, in the suburbs of Austin, Texas is about 1,700 SQ FT built in 1993 valued at $230,000

Property Taxes over the years on this property

1999 - $363

2000 - $413 +

2001 - $511+

2002 - $668 +

2003 - $1,371 +

2004 - $1,361 - 

2005 - $1,336 -

2006 - $1,479 +

2007 - $1,613 +

2008 - $3,350 + big jump 

2009 - $3,389 +

2010 - $3,478 +

2011 - $3,508 +

2012 - $3,314 -

2013 - $3,486 +

2014 - $3,831 +

2015 - $4,055 +

2016 - $4,433 +

2017 - $4,850 +

2018 - Will be crossing the $5,000 + mark on the estimated tax. (Got a new roof)

Population Growth = School Growth (New Schools)

Schools that look like Taj Mahals, with football stadiums that rival colleges with score boards to match. 

North of Austin, Texas in the suburbs where I live

(Population)

Cedar Park, Texas 42,000 in 2008, now 77,000 in 2018

Leander, Texas 23,000 in 2008, now 50,000 in 2018

People with homes paid off feel like they are back to paying mortgages with what they have to set aside for taxes.

Getting to where you don't want to add to your curb appeal.

Everybody is moving here, but everyone can't afford the housing with the taxes here, so developers build tons of new apartment building (they are everywhere) But then the rents are through the roof trying to keep up in covering the taxes every new year, cash flow is the pits.

This effects the demographics in the school districts as starter families can't buy in at these prices so elementary schools shrink while middle and high schools boom with more established families coming in with older kids. 

Here is what I pay outside of Texas

ALABAMA PROPERTY - $697 (cash flow $402 on a $905 rent) Pay 8% on PM

2 GEORGIA PROPERTIES - $810 (Dallas GA) (Cash Flow $251 on a $1,015 rent) ; $1762 (East Point GA) (Cash flow $500 on a $1,425 rent) 9% on both for PM

I see the GA taxes going up in the Atlanta area as it continues to boom. (If Amazon comes in major boom) That $810 is going up to $1,307 for this tax year. 

OHIO PROPERTY - $2,043 (Cash flow $388 on a $935 rent) 10% on PM

What I pay total on my investment properties in taxes is almost equal to what I will be paying on my residential. 

So, by living in Texas I avoid state income taxes (where some of my properties are located), and by buying and holding outside of Texas I avoid high property taxes and low cash flow.

All about what you want, cash flow or ROI. I am guessing even all these posters saying how much they paid in property taxes the last decade made better ROI than most anywhere in the country. So yes, taxes are usually in the mid 2% here but I think it is still one of the best places to invest for return on investment. Austin has 118 people moving here every day, has the state government and huge university to bolster its economy along with being a huge tech hub and now soon a medical hub. The 11th largest city in the nation, predicted to double in size in the next 15 to 20 years. So you can go to Alabama or Cleveland or wherever and find your 1 and 2% rule for great cash flow but at the end of the day, if I am buying and holding, 5 to 10 years from now I bet I make more money here in Austin.

Don't let property tax scare you away from investing in Texas.  Yes, they are high compared to places with state income taxes, but you really need to run the numbers.  Use the BP calculators to see if the deal is profitable.  That's what really matters.

I have owned an 1100sf SFH rental in west Fort Worth for about 3 years. Now rents for 1300/mo. Estimated annual property tax is going up to 3900. It still cash flows well, and appreciation is pretty good. Now I don't intend to sell anytime soon, but with appreciation so far it would be a nice profit if I did.

I bought it at a discount from another investor by accepting the in-place tenant, who was at below market rent.  Tenant moved out, I rehabbed the property, raised the rent, and it's been great ever sense.  But I ran the numbers before making the deal.  ANYWHERE is good to invest if the deal returns a reasonable profit.

Good-luck and Happy Investing!

@Cory S. Thanks for the detailed breakdown of your property taxes in Texas. It seems like it's going the same way as Illinois. The only difference is that Texas has a much more diverse and booming economy (Illinois is practically bankrupt). Since you live in the state of Texas, wouldn't you be able to take advantage of the basic homestead exemption ?  That way you could reduce your property taxes and take advantage of the lower income tax while maintaining your cash flow in Alabama and Georgia, right?

@Trent Honea  You're right. If you can get a deal that cash flows, go for it (no matter the location)! My main concern is that the property taxes would continue to rise while the rent would remain roughly the same. Although I'm sure that the demand for housing is increasing in Texas (especially in the DFW and Austin areas), I would not want to invest in a property betting on appreciation. 

@Jon Gorham   Jon, the taxes vary by city, county, and school district.  Some are higher and some are lower, but you will pay 2.6%-2.8% of the appraised value annually.  Mike Burkett - SFI Loans - Hard Money Lender - Dallas

@Jon Gorham the Basic Homestead Exemption is only for people who own and occupy the home. You will never be able to utilize it as an investor and nobody else will either, regardless of where they live.

The property tax is broken down into 6 taxing units with the exemptions in place that reduces the county's value on the property when applying the 6 individual unit tax rates. 

HOUSE VALUED AT $195,592 (according to the County) 

My tax bill is as followed..

Austin Community College - $5,000 exempted reduces value to $190,592 (tax rate 0.100800) ( $192.11)

City of Leander - $0 exempted $195,592 value (tax rate 0.577867) ($1,130.26)

Leander ISD - $25,000 exempted reduces value to $170,592 (tax rate 1.511870)($2,579.13) 

Upper Brushy Cr WC&ID - $10,000 exempted reduces value to $185,592 (tax rate 0.020000) ($37.12)

Williamson County - $0 exempted $195,592 value (tax rate 0.426529) ($834.26)

Williamson County FM/RD - $3,000 exempted reducing value to $192,592 (tax rate 0.40000) ($77.04)

Yes, I say go for that higher cash flow, if you need that passive income now, which is the whole point I got into income properties in the first place. (Over $1,500 a month in extra cash from my four properties; and no I don't touch any of it as I am saving for more properties and my approaching retirement, so I will continue to go outside the great state of Texas.

Small fish like me need to supplement their income and with a future pension on the horizon that will annually reduce in spending power with inflation, I can't afford low cash flow and bank on a speculated ROI 10 years down the road.

Don't get me wrong all my properties are appreciating as well (Yes, Texas is one of if not the strongest in that, and if you got the means go for it, but there are other good housing markets with again higher cash margins) as I also didn't get into real estate to loose money over all and my properties are all located in emerging or stable markets. 

@Cory S, what was your property appraised for in 1999?  I agree RE taxes in the State are obnoxious, but to say your taxes increased from $363 in 1999 to over $5,000 in 2018 only tells one side of the story.  Sounds like you are sitting on an asset that has appreciated considerably.  Depending on where your property is located, you can expect real estate taxes to be around 3% of the county's assessed value.  ($100K assessed value will equate to around $3,000 in taxes).  Tax rates can be lower, around 2.5%, but they can also be higher.  As others mentioned, there are no state income taxes here.  Also, can't the RE taxes be deducted when calculating your taxable income?  This will slightly reduce the impact...

Yes, believe me I understand all of that, in respects to the real estate tax rate in the area. 

The area we live in actually has seen a tax rate decrease for 6 straight years as well as a combined homestead exception that decreases the annual tax bill by another $2.00 for residents, but when you factor in those high home appreciations you are actually looking at an $18 increase.

Our property tax base is expected to increase by 6.6% to nearly $8.6 Billion in net taxable value. 

We bought our house in 2009 so I don't know about the value on the property back in 1999 as I was just showing the property tax history from the William County Tax Records since 1999. 

Yes, it has appreciated well over the years from $144,900 to $230,000 and will be paid off in 2023.

That is great and all if the housing market is still booming 10+ years down the road when we decide to sell, but again like I said I'm an investor for high cash flow and the property taxes around my area effect that greatly not to mention all the competition with all the new luxury apartments in the area with an average rent of $1,100 with rent houses at $1,700 and rising.

Outside my area I have found a balance of high cash flow as well as appreciation.

And no, I can't deduct when calculating my taxable income because I do not itemize as I use the standard deduction.

Happy investing Jon and I hope you find the right fit. :) 

@Cory S. if you're talking about investment properties - property tax decreases your taxable income.

If it's about your primary residence and sch.A is not possible, you can still deduct part of all expenses for your house on sch.C - as your home office. If you file business income and don't have an office outside your home, it's all utilities, insurance, property taxes, landscaping - proportionally the size of your office to the size of the house. 

Let's say, it's 7-8% so part of everything will be deducted....unless you already use standard deduction for your home office.

Originally posted by @Jon Gorham :

Hello BP community,

I’m looking into buy & hold properties in the Dallas Ft. Worth area, but I’m concerned about the high property taxes in Texas. Can anyone tell me about the “basic homestead exemption”? I’d like to find out if Texas is a good state for buy & hold, or if the property taxes would wash out most of my cash flow. 

Thanks,

Jon

 There's no homestead exemption for landlords. Figure about 2.5% annually of the appraised value as property taxes. I'm having success with buy and hold despite the taxes.