Property taxes in texas

General Landlording & Rental Properties
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Property taxes in texas

Steve S.
Dallas, TX 路 Member since 2014 路 650 posts 路 53 votes

I'm curious if there's any tools or obvious formulas that could help me understand turner impact of property taxes in a rental property I may buy. 

As an easy example, let's assume property tax rates are (2% - that would be nice ;)) and the property is appraised at $200,000. 

That means property tax would be $4,000 for the year. 

If I'm in the 28% tax bracket, how much of that could I write off and is there a general ratio or percentage that could be applied for quick back of envelope math?

I'm thinking, although I'd have to pay $4,000 that I could write off some of that in a way that my net outlay wouldn't be $4,000 when all is said and done. 

Is that correct or is it just interest that could have a net positive impact?

Do most of y'all own your rentals through a corporation you form?  How important are these considerations when purchasing rentals?

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Jay HinrichsBusiness Member
Real Estate Consultant 路 Summerlin, NV 路 Member since 2014 路 45k+ posts 路 66k+ votes
7y
Originally posted by @Lisa Horgan:

@Jay Hinrichs

What do you mean by "And with tenants you never know if they water the foundation like they should etc."?

Do the foundations get too dry and crack?

Sorry if this is a noob question. I've just never heard of this. I live in California, and am looking to invest in Texas.

Thanks in advance for any explanation! 馃檹

 Exactly foundation because of expansive soils. 

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  • Andy WebbPro Member
    Rental Property Investor 路 Carrollton, TX 路 Member since 2013 路 750 posts 路 538 votes
    10y

    @Steve S. - don't focus on your own tax bracket - with a rental the property taxes will not have a direct impact in that sense.  That $4000 in your example will be an actual cash outlay and will be netted against your rental income.  In this sense it reduces your rental income 1-to-1, and any remaining income (after other real expenses and depreciation) is what will be taxed.  We typically have paper losses thanks to depreciation, so no taxes.

    I think the bigger consideration is what do the hefty Texas taxes do to your cash flow: are you positive or negative at the end of the day in real cash terms.

    Be sure to protest your property taxes each year to try to keep the tax appraised value down.  If you buy a house at a discount due to condition/distress, most appraisal districts will just go with your purchase price for the first two years.  Good luck after that.  For example, we paid 98k for a house that was on the tax rolls for 130k.  The CAD lowered our value to 98k for the past two years, saving us substantially on our property taxes - it is a nice bonus for a while, but nothing I bake into my analyses up front. 

    Hope that helps,

    Andy

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  • Steve S.
    OP
    Dallas, TX 路 Member since 2014 路 650 posts 路 53 votes
    10y

    very helpful. Thx

    So at $4000 that's $333 month. If renting for $1500 how does that all net out?

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  • Jeff Gates
    Investor 路 Cathedral City, CA 路 Member since 2014 路 481 posts 路 170 votes
    10y

    When you evaluate a income property investment.

    The 1st step is to look at PITI.

    Principal

    Interest

    Taxes

    Insurance

    Then the second step is CAM

    If the investment does not make sense, don鈥檛 do it. 

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  • Jay HinrichsBusiness Member
    Real Estate Consultant 路 Summerlin, NV 路 Member since 2014 路 45k+ posts 路 66k+ votes
    10y

    @Steve S.  two things with Texas to be acutly aware of

    1. and your on track is property tax's

    2. foundations

    both of those kill cash flow in Texas.. back into the numbers before you commit.

    put money aside for foundation repairs in your initial assessment.. if you never need them that's fine but when you do you have allocated for it up front.

    I have done about 15 flips in Texas last year or so and I would say 14 needed some sort of foundation work... tuck pointing etc.. it is what it is there.  And with tenants you never know if they water the foundation like they should etc.

    Podcast Guest on Show #222
    JLH Capital Partners51 Review
    WebsiteView Page
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  • Andy WebbPro Member
    Rental Property Investor 路 Carrollton, TX 路 Member since 2013 路 750 posts 路 538 votes
    10y

    @Jay Hinrichs - right on with the foundations!  8  or our 9 rehabs have needed them to varying degrees - from 8 piers to 28, though you can certainly go higher!

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  • Tom MacDonald
    Houston, TX 路 Member since 2013 路 58 posts 路 7 votes
    10y

    Good to know about the foundations in Texas, thanks for sharing!

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  • Lisa Horgan
    Rental Property Investor 路 Irvine, CA 路 Member since 2019 路 6 posts 路 1 vote
    7y

    @Jay Hinrichs

    What do you mean by "And with tenants you never know if they water the foundation like they should etc."?

    Do the foundations get too dry and crack?

    Sorry if this is a noob question. I've just never heard of this. I live in California, and am looking to invest in Texas.

    Thanks in advance for any explanation! 馃檹

    0Reply
  • Jay HinrichsBusiness Member
    Real Estate Consultant 路 Summerlin, NV 路 Member since 2014 路 45k+ posts 路 66k+ votes
    7y
    Originally posted by @Lisa Horgan:

    @Jay Hinrichs

    What do you mean by "And with tenants you never know if they water the foundation like they should etc."?

    Do the foundations get too dry and crack?

    Sorry if this is a noob question. I've just never heard of this. I live in California, and am looking to invest in Texas.

    Thanks in advance for any explanation! 馃檹

     Exactly foundation because of expansive soils. 

    Podcast Guest on Show #222
    JLH Capital Partners51 Review
    WebsiteView Page
    1Reply
  • Frank Wong
    Real Estate Broker 路 Bay Area 路 Member since 2018 路 1k+ posts 路 3k+ votes
    7y

    The foundation issues are very common.  I see repair cost range from $5,000-$10,000 but will depend on the size of the home.  Nothing like CA where it can start at $60,000 for a foundation repair.  

    1Reply
  • Lisa Horgan
    Rental Property Investor 路 Irvine, CA 路 Member since 2019 路 6 posts 路 1 vote
    7y

    @Jay Hinrichs Thank you!

    @Frank Wong Thank you, that's a huge cost difference.

    0Reply
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