What is the Property tax on rented properties in Texas?

Question

I am planning to buy a single-family house in Austin, Texas or surrounding cities and rent it out. I learnt that property taxes for owner-occupied homes are different from that of rented Properties. What would be the approximate property taxes on rented properties in Texas? And also is it advisable to invest in Austin area in Texas considering property taxes are high?

Justin R. · Answer

A LOT! Texas was my first out of state area which I started purchasing rentals (2011). I am currently selling them all, as the cash flow has actually declined. Texas has high property tax because it is a huge portion of local government revenue, as their is no state income tax. Furthermore, Texas unlike many other states, doesn’t have any protections against hyperinflation for non homesteaders. So, if your assessed value goes up by 25 percent in one year, your taxes go up by 25 percent. I like Texas, just over the property taxes...

Andrew Allen · Answer

They’re not taxed differently. It’s just that the tax appraisal on a homestead can only be increased by 10% a year. That doesn’t apply to rentals. If you have a home that’s appreciated for 5-10 years as a homestead, the taxes could go up significantly as soon as that exemption is removed. This can also be a trap for investors...you can’t look at what a homeowner is paying in taxes because the taxes will potentially go up a ton as soon as you buy it.

Jay Hinrichs · Answer

this is quite common .. and a real shocker to many out of state investors who look at a proforma and it has owner occ tax's on it run their numbers then they buy and the tax's then increase when the next bill comes out and some times substantially wiping out all cash flow.

Derek Janssen · Answer

I used to have a rental outside of Dallas. Sold it in 2012. Taxes were ~2.8% - every damn year... I have a buddy who is selling his properties in Austin also entirely because of the property taxes.

Justin Fox · Answer

You usually get a discount on the home's taxable value for the different entities (up to 30% for some, 20% for ISD (here at least)) as well as a 10% cap in increased value, when homestead. So when evaluating a property in Texas, always, always use either the purchase price or current valuation, which ever is higher, and multiply that value by the collective property tax rate to calculate your property tax carrying cost.I'm doing great in Texas, you just have to buy good deals and appeal your taxes every. single. year. I don't even have a city or water district tax and my rate is 2%.If you ever find that you can't increase rents and aren't happy with the flow, sell. Or... sell your current home, move into the rental and sell it in two years.

Poem Turner · Answer

Great insight @Jim Cummings! @Suneel P. While the taxes in TX are higher, and rental properties don't benefit from the homestead exemptions, rental rates usually account for the tax bill making it covered by the renter. So while I won't say it doesn't matter, it is accounted for if the property is priced correctly.

Jim Cummings · Answer

@Suneel P. Below is an example of 4 Different Properties, all are in the GREATER Austin Area. The Central Appraisal District (of each county) Determines the Taxable Value (TV) of each Property Annually. The Tax Rate (TR) is established by the Individual Tax Jurisdiction annually.TV X TR = Property Taxes Due.A Homeowner can declare the property they Own and Occupy as their Homestead, and apply for a Homestead Exemption. The Amount Of Homestead Exemption allowed by each Tax Jurisdiction varies, but when you add up the various exemptions allowed it typically averages somewhere around 8.00%.For Example: Consider Property B has an Established Tax Value Of $200,000. 1. You Own property B as a Rental Property. (Tax Rate 2.2140). TR X TV = $4,428.002. You Own property B as a Homeowner with a Homestead Exemption. TR X TV = $4,428 - approx 8.00% = $4073.76.Taxable Value for a Homeowner can only Rise by 10% Annually (State Law)Taxable Value for an Investor has NO Cap on annual Increases. NOTE: Important to watch the Taxable Value annually and protest if Value rises disproportionate to market Value. Taxing Property Property Property Property Jurisdiction A B C D Austin ISD 1.19200 1.19200 N/A 0.00000 Round Rock ISD N/A N/A N/A 1.30480 Lake Travis ISD N/A N/A 1.40750 N/A City Of Austin N/A 0.44480 N/A N/A City of Lakeway N/A N/A 0.17410 N/A City Of Round Rock N/A N/A N/A 0.43000 Travis Cnty 0.36900 0.36900 0.36900 N/A Williamson Cnty N/A N/A N/A 0.42653 Tr Cty ESD 0.10000 N/A 0.10000 N/A Tr Cty Hosp Dist 0.10739 0.10739 0.10739 N/A Austin Comm Coll 0.10080 0.10080 N/A 0.10080 Wtr / MUD District 0.04770 N/A 0.77250 0.02000 Wm Cty Rd District N/A N/A N/A 0.04000 Tax Rate 1.9169 2.2140 2.9305 2.3221

Andrew Allen · Answer

Suneel even considering the taxes it’s quite a stretch to conclude that rent houses in Texas aren’t good investments...

Jim Cummings · Answer

@Suneel P. As in most situations "It Depends"! It depends on what you're objectives are, are you looking to invest for Cash Flow, or looking for an Appreciation Play?Understand you are moving to Austin - do you have a specific time frame to do the purchase or lose the company benefits of payment of Closing Costs?I'm confident with some diligent searching you will most likely find a property with some degree of Positive Cash Flow. It's becoming more of a challenge with accelerating prices. I'm even more confident you'll have several more years of rising prices in the Austin Market for Appreciation. With 26 years as an Agent / Broker in Austin, I still have contacts with Agents & Lenders that could assist you in your Search.

Maurice D. · Answer

Is there anything specific drawing you to Austin?Taxes are high, but you factor that into your rent. SFR's won't cash flow a lot in TX.