Is Texas as cheap as it seems?

[Vikram C.]

While doing the due diligence for an apartment building in Texas I noticed that the property tax rate was quite high compared to many other states. I understand the state has no income tax, but that's not relevant to out-of-state investors.

I think when we look at Texas properties, we should consider the real price to be about 25% higher than what we pay to account for this tax differential. Here's how the numbers look to me based on a simplified example:

Gross Scheduled Rent: $200
NOI: $100
CAP: 10
Purchase Price: $1,000

Comparing Texas's approximately 3% property tax with a state that has 1% property tax, we get a 2% hit each year based on the property value, which means the real comparable NOI is lower by $20.

Thus, comparable NOI = $80
This means we should have paid $800 for the property and not $1000.

If we do not account for this while comparing investment opportunities in different states, we could end up paying a whopping 25% more for a texas property than a comparable property in a state with lower taxes.

I understand there are ways around this, such as setting up a C corp, taking salaries out, etc. but none of them are costless.

Anyone having a contrary viewpoint? Or a solution to this problem? If it were a small difference, I would not think much about it but paying 25% extra seems like a lot to me.