When it comes to buying property in Dallas TX, or anywhere else for that matter, there are certain opportunities available to investors to cut costs and save a few dollars here and a few dollars there.
For example, convincing the property seller to lower the sale price, or getting a deal on contracting services.
However, not every aspect of real estate investing offers opportunities to negotiate. As far as property tax is concerned, the costs are inevitable.
You see, property taxes are what you call a fixed cost. This means that if you buy property in Dallas TX, you will be mandated to pay this tax for as long as you own that property.
With this in mind, it pays to have a good handle on property tax rates in Dallas-Fort Worth before investing and what these taxes mean for your investment.
Figuring out how much property tax you should pay is nothing like quantum physics.
You take the total assessed value of property in the area (otherwise known as the mill levy of the area) and divide it by the amount of tax revenue the government needs in a given year. You then multiply it by the assessed value of a property, and voila!
A property needs to be reassessed every year to ensure accuracy.
There are several ways to go about property assessment, but the main thing to bear in mind here is this: the amount you pay in property tax is dependent on the overall value of property in your area. The higher the value, the more you can expect to pay.
Interact with a bunch of real estate investors and you will quickly realize property taxes are an area of concern for many of them.
And it is not without good reason. Not only is this an aspect you have no control over when you own property in Dallas TX, but also the rates can swing wildly from year to year.
For example, should the local government decide it requires funds to undertake a certain project in the area, it can (and often does) raise these funds by simply raising property taxes.
The bad thing about this tax is that much as it remains a fixed cost, the only thing fixed about it is the mandatory payment investors are required to make without fail.
Otherwise, it is variable in nature, always going up and down, which makes it hard for investors to know with certainty the actual costs of maintaining a property.
As a result, a property may end up costing you more than you get out of it, especially if you own a rental property with tight profit margins.
This is why when assessing the value and profitability of rental property in Dallas TX, it is best practice to factor in property taxes and how they may change.
But there is a silver lining in this.
If your rental property is bringing you income, you can deduct the property tax paid from your taxable income (write off). This should help you recoup some of that cost.
When it comes to the issue of taxes, it is an open secret that Texas is one of the most appealing states to live in.
You are not required to pay personal income tax, neither are you required to part with residential real estate transfer tax when you sell your house. This, mind you, is one of only 12 states that have this provision.
Based on a 2017 report by Dallas News, homeowners whose property value ranges between $100,000 and $250,000 witnessed a 12% rise in appraised values from the year 2015 to 2016.
During the same period, properties with a value between $250,000 and $500,000 saw a 10% increase.
The common theme is that the more expensive the home, the more tax owners of property in Dallas TX have to grapple with. Well, it actually depends on how you look at it because, technically, you pay a lesser percentage the more expensive the home.
Here is what we mean.
During that same period, properties with a value of between $500K and $1,000,000 had an 8 percent increase in property tax, while those valued above one million dollars witnessed a 6.7 percent increase or less.
That is roughly a half the increase imposed on properties valued for less – although the actual amount you part with in the case of more expensive properties is more, as obvious as that may sound.
As an investor, you always hope your investment increases in value because that way, your asset is worth more money.
Looking at it from the perspective of property taxes, though, it also means you will have to contend with more property taxes when the value of your property in Dallas TX increases.
As the Dallas real estate market continues to heat up, which had led to a rise in property taxes, many are worried this will become the trend in the Dallas-Fort Worth area.
Fortunately, this won’t be the case, thanks to new legislature.
Not so long ago, the Texas Senate passed legislature aimed at shielding owners of property in the state from rising property taxes.
SB2 (Senate Bill 2) marked the first step in property tax reform that mandates taxing authorities to vote if they plan to collect more than 5% of what they collected in the previous year.
This shields property owners from spikes in property tax that at some point could even breach the 20% mark.
While the bill wasn’t without controversy with some arguing that it falls short in effectively checking cap appraisals, many consider it a step in the right direction in the regulation of property taxes in DFW and the greater Texas area.