It
takes a mighty brave or nimble man to criticize Texas. I'll admit that
I'm one fast hopping coward so you'll pardon the lack of my usual
jocularity while I get right to the point.
Californians shouldn't buy investment property in Texas because property taxes are just too high. Now I am an EXPERT on taxes. So are the other 32 million people that live in the Golden State. We're experts because the only thing not taxed here is a day at the beach and we're pretty confident that Sacramento will screw that up soon. California investors have bought (and sold) Vegas in 2004, bought (and held) Arizona in 2005, and have their hearts set on the Lone Star State in 2006 and 2007. Our rising home values have created equity and a false paradigm that a property under $200,000 just "has to have a huge upside". That's juvenile thinking and here's why that is wrong:
Property taxes are heavily biased towards residents of the taxing authority. The residents get the services, the taxpayers get screwed (especially if you're an out-of-state investor). Now Texas has a light tax load when compared to other states (we'll get to that in the next paragraph) but the property tax burden in Texas is extremely high when compared to the other states. One reason for high property tax rates is the shrinkage in the value of taxable property. Taxable property values have only recently surpassed their 1985 peak because of the growth in tax exemptions over the past 20 years.
The other reason is that there is no personal income tax in Texas. And this is where the residents win and the out of state investors get shafted. Now I'm familiar with the concept that the landlord can transfer that high property tax to the tenant but local incomes are going to set a local market for rents. With no personal income tax, Texas employers can offer lower wages...wages drive rental markets. That transference of the high property taxes just won't happpen. Appreciation? High property taxes are insidious to appreciation as they hamper the affordability factor of home ownership. Texas ranks 34th in all of the states in median income with a 9.9% drop in real wages this decade (adjusted for inflation). That drop places them in the top five states in income declines.
Now, Allison in Galveston, Sweet Eilleen in Abilene, and Rosanna down in Texarkana...don't jump on me just yet. As you can see, I am a George Strait fan. Californians should consider moving to Texas and should consider it really soon because there are some great opportunites unfolding there. Texas is the fourth most affordable state in the country. Houston is the least expensive large metropolitan area in the country. Texas will be one of the huge population gainers over the next twenty years as the warm climate, friendly people, central location and affordability are appealing to baby boomers as a retirement haven.
Austin is quickly emerging as the tech-center of the South. Houston has always created wealth through energy. San Antonio is the gateway to commerce with Mexico, and Dallas is an emerging money center in the international arena. I doubt that you'd ever be out of work in Texas.
Texas is going to have to look long and hard at their tax revenue code these next 5-10 years; it's not very friendly to property owners. Californians are hardest hit in the nation by income taxes. It makes no sense to invest your after tax dollars in another heavily taxed investment. Pull the equity out of the homestead in Anaheim for a 4-plex in Austin? It doesn't pencil out. Sell the condo in Danville for a palace (and great job) in Dallas? Now you're making sense!
