Do people consider property taxes rates when choosing a market

Sunnyvale · Member since 2024 · 3 posts · 1 vote

Hi everyone!

I'm just starting to get into RE investing, I was wondering if property taxes play a big part in where people choose to invest.

For example investing in Texas probably has a 3x increase in property tax rate compared to Oklahoma. After the mortgage is paid off, wouldn't you be paying 3x the property tax which eats into the net income? So in my head, I would assume that for the same price, Oklahoma would be a better choice!

However it seems people don't talk about this part?

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Rick Albert

Real Estate Agent · Los Angeles, CA · Member since 2018 · 2k+ posts · 1k+ votes

It can be a factor but it just depends.

You used Texas as a great example. They don't have state income tax. So as an out of state investor, the higher property taxes are a turnoff because I don't really benefit from the no state income tax plus in real estate there are tax write offs. So one argument can be that you need to find a hybrid of low state income tax (where you have write offs anyways) and lower property tax.

It is a factor in your net cash flow but that's about it. If the numbers work, go for it. If it doesn't, move on.

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Rick Albert
Real Estate Agent · Los Angeles, CA · Member since 2018 · 2k+ posts · 1k+ votes
1y
It can be a factor but it just depends.
You used Texas as a great example. They don't have state income tax. So as an out of state investor, the higher property taxes are a turnoff because I don't really benefit from the no state income tax plus in real estate there are tax write offs. So one argument can be that you need to find a hybrid of low state income tax (where you have write offs anyways) and lower property tax.
It is a factor in your net cash flow but that's about it. If the numbers work, go for it. If it doesn't, move on.
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Steve Harlow
Investor · Irvine, CA · Member since 2014 · 81 posts · 30 votes
1y
Yes I consider prop taxes as it all fits into cash flow. Do your own research as some states have deductions for residents and those that live rather than use for a rental. So look at the exemptions.
Also some states have caps on increases. Common web sites are useless so go to tax sites for the county.
Case in point Calif is a high tax state for RE. Well maybe not as it has some of my lowest tax bills. One-fifth of Indiana and one-tenth of Texas for the same value property.
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Ryan RomingerBusiness Member
Real Estate Broker · Indianapolis, IN · Member since 2018 · 340 posts · 144 votes
1y
Property taxes definitely play a big role in investment decisions, but they’re just one piece of the puzzle. While Oklahoma has lower property taxes than Texas, other factors like insurance costs, rent growth, job markets, and landlord-friendly laws also come into play. Texas, for example, has no state income tax and strong population growth, which can drive higher rents and property appreciation.

A lower property tax state like Oklahoma might seem better for cash flow, but if appreciation and demand are stronger in Texas, the long-term returns could still be worth it. It really depends on your investment strategy—cash flow vs. appreciation vs. overall market stability.
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Becca F.
Rental Property Investor · San Francisco Bay Area · Member since 2022 · 1k+ posts · 1k+ votes
1y
I'm do consider property taxes and if there is a property tax increase cap for investors now. Before I wasn't looking at those factors as much.
As far as Texas I do know California investors who have bought there, but more recently it seems to be commercial real estate, apartment complexes specifically.
I've also found that even though the Midwest is affordable from lower purchase prices, the property tax rates can be pretty high. Mine are 2.7% and 2.77% for Indianapolis metro area (two different counties). My property taxes increased 17% in the last year, reducing my cash flow unless I do a significant rental increase.
I compared notes with Nevada and Arizona investors and their property tax rates are much lower for a single family home that is worth more than twice as much.
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Alecia LovelessPro Member
Member since 2019 · 3k+ posts · 2k+ votes
1y
I always consider the property taxes in my underwriting of a deal.

I don't usually factor in the tax rate on its own but consider the comprehensive whole based on which markets I am finding deals in.

I would be sure you're looking at the overall market for appreciation, growth, and rentability.

if you choose the Texas market be sure to look at the taxes for the last 3-5 years and not just the current one because many municipalities have seen overall tax bills double in the past 3-5 years due to needed infrastructure improvements and no real property value increases or increased rents.
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Theresa HarrisPro Member
Member since 2019 · 15k+ posts · 11k+ votes
1y
Property taxes and insurance are both important. I'm in Canada, but the difference in rates between provinces is significant for both. In AB a larger, but less expensive home than in BC has higher property taxes and insurance rates.
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Chris SeveneyBusiness Member
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Investor · VA · Member since 2015 · 21k+ posts · 19k+ votes
1y
Quote from @Harry Zhang:

Hi everyone!
I'm just starting to get into RE investing, I was wondering if property taxes play a big part in where people choose to invest.

For example investing in Texas probably has a 3x increase in property tax rate compared to Oklahoma. After the mortgage is paid off, wouldn't you be paying 3x the property tax which eats into the net income? So in my head, I would assume that for the same price, Oklahoma would be a better choice!
However it seems people don't talk about this part?

Yes we factor not only existing property taxes but potential increases in taxes and insurance. It is well known for those in the industry these costs are skyrocketing across the country especially in areas where it is more common to be hit with storms. Since it has a major impact on cash flow - something you should definitely pay attention too.
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Lisa Choi
Real Estate Agent · San Antonio · Member since 2024 · 103 posts · 42 votes
1y
Hi Harry!
Great question! Property taxes definitely play a big role in real estate investing, but they’re just one piece of the puzzle. While Texas has higher property taxes than Oklahoma, investors still flock here for a few key reasons:

No State Income Tax – Many investors prefer Texas because it offsets the higher property taxes with no state income tax, which can make a big difference in overall returns.

Market Appreciation – Texas cities like Austin, Dallas, and San Antonio have seen strong appreciation over time, which can outweigh the higher tax burden in the long run. Oklahoma may have lower taxes, but if property values don’t appreciate as much, your overall returns might be lower.
Job Growth & Demand – Texas has strong population and job growth, which fuels rental demand and rent increases. If rents are rising faster than taxes, your net income can still be strong.

Rent-to-Value Ratio – It’s also important to look at how much rental income a property can generate relative to its price. A cheaper property with lower taxes isn’t always a better investment if rents are lower too.

Property taxes matter, but they should be weighed alongside appreciation, rental demand, and overall cash flow potential. Sometimes, paying higher taxes in a high-growth market leads to better long-term gains!

Are you considering a specific market to invest in?
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Bruce Lynn
Real Estate Broker · Coppell, TX · Member since 2011 · 5k+ posts · 4k+ votes
1y
It is a consideration, but I don't know that it is always a good comparison. For example Texas vs California. Texas might be 2.5% where CA might be 1%, but if the values in CA are 3x higher than CA your effective tax rate is lower in TX than CA. You also have to think about rent ratios. Most of my CA investors that moved capital to TX we getting about 1/2% a month on rent based on the home costs and in TX got closer to that 1% target.

What I try to focus on more than taxes is demand and growth prospects. How many people are moving to where you want to invest? How many jobs are being created. Rare is the day I hear people moving from Texas to Oklahoma, but I often meet people moving from Oklahoma to Texas. Lots of teachers do it for increased pay in Texas. Rare do I hear about a company moving from CA to Oklahoma, but I do hear a lot of companies moving from CA to Texas.

So end the end, lots of things to consider. Taxes is just one consideration.
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Allan C.
Rental Property Investor · Member since 2018 · 828 posts · 811 votes
1y
You need to account for them, but unless you are buying SFH, over time returns should be comparable despite rate differences between states. If you're purchasing a MF property you are competing against other investors, so the price of the property will reflect tax rates (ultimately NOI potential).

investors or looking for competitive returns, so they will move to areas where returns are higher, until they crowd the market. High tax markets don't mean returns are lower and vice versa. You need to focus on the fundamentals, which are risk, effort and barriers to entry.
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