[REN #767] Real Estate Investing: Lower Property Taxes in Texas

Picture of US flag and Texas flag for Real Estate News for Investors Podcast Episode #767

Texas is cleaning up its image as one of the states with the highest property taxes. Lawmakers passed a reform measure that will slow the growth of property tax increases, by lowering the amount that districts can raise property taxes each year. This is great news for homeowners and investors with property in Texas.

As you’ve probably heard, Dallas and Houston economies are booming, along with population growth. Jobs abound, salaries are increasing, home prices are low and rents are high. So Texas has been a very attractive place for real estate investors — except for those high property taxes that can eat into cash flow.  So, this tax legislation could make a big difference for those who already own property in the Lone Star state, and for those who are thinking about it.

The legislation is called the Texas Property Tax Reform and Transparency Act. According to the Dallas News, it was passed to correct some major flaws in the property tax system. (1) Let’s take a look at what it does.

District Tax Hike Controls

One of the most important things that this legislation does is to control the rate of property tax growth. Right now, local governments can raise property taxes as much as 8% per year before members of the public can protest. The only exception to that rule is in Houston where the city limits property tax hikes to 4% per year. The new rule will lower both those caps to 3.5%. For school districts, the cap will be set even lower, to 2.5%.

If a district feels there’s a need to raise property taxes higher than those two numbers, the proposal must be decided by voters in a major election. Under the new rules, the proposal will be automatically added to November election ballots. The rules specifically state that it has to be on the November ballot, and not one where it will get lost in a low-turnout election.

Currently, Texas has the third highest property tax rate in the nation, according to Memphis Invest. The blog says that 525 Texas cities increased their property tax rates by more than 3.5% in 2017. That’s about half of all the cities in Texas. The Dallas News says, many cities would automatically hike property taxes by 7.99% to boost their budgets. If voters didn’t like the idea, they had to petition for an election. Now the cap is lower and anything over that is automatically put on the ballot.

This lower cap will give homeowners and investors more control over their yearly property expenses. But, with any hot real estate market, higher prices will also boost home values and appraisals, and those will lead to higher tax bills as well. But if you are an investor, and you are getting good appreciation, that may be a small price to pay.

Appraised Values

This legislation also clears up some confusion about the difference between appraisals and tax rates. The process has four stages: valuing the property, protesting the values, adopting the tax rates, and collecting the taxes.

Property owners are sent two notices for the appraised value and later, for the new tax rate. There’s apparently been some disconnect between the two, so the new system will be more transparent. The two notices will continue to be sent separately, but the process will be more understandable, including the option to protest the appraised value of the home. There will also be an online database for tax rates and other information.

Appraisal Standards

Members of the appraisal review board will undergo more rigorous training. They must also evaluate properties according to one statewide manual issued by the Texas Comptroller. And, they won’t be allowed to meet on Sundays, according to Memphis Invest.

It’s not clear how the ban on the Sunday meeting will affect the work that they do. But the new rules are good for anyone who owns property in Texas, or is thinking about buying some.

Investing in Texas

Houston offers a great investing opportunity. (2) It’s a stable, landlord-friendly market that will give you both cash flow and appreciation. It’s the fourth most populous city in the nation with a median home price around $144,000. That’s about 30% below the national average. And, it has a median rent of almost $1,300 a month which is about 25% above the national average. You can’t beat that!

Houston is known as “Space City” because of NASA’s presence at the Space Center. It also has dozens of Fortune 1000 companies and a broad industrial base that includes energy, manufacturing, aeronautics, and transportation. It has both strong population and job growth, which are two very important factors for a hot rental market.

Dallas is the fourth most populous city in the nation, also with strong population and job growth. (3) Dallas has gained a reputation as one of the nation’s top destinations for tech workers, and start-ups. That’s pushing up demand, and home prices which are higher than in Houston.

But, the median price of $174,000 is still below the national average. Rents are also higher, and investors are taking notice. According to the Dallas News, a record number of investors snapped up homes in the Dallas area last year. Data firm CoreLogic says investors bought more than 14% of the low-priced homes in 2018.

The new property tax rules take effect in Texas on January 1st of next year.


(1) Dallas News Article

(2) Houston Real Estate Market

(3) Dallas Market

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