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Retiring in Texas?
Old 03-28-2007, 10:09 AM   #1
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Retiring in Texas?

I was talking to my next door neighbor about his retirement. He retired in 2000 at age 50. Aside from the market risk he incurred, the thing he did not plan on was the increase in property tax. He picked a spot on a lake that had been developed in the late 70’s and hit hard by the down real estate market of the 80’s and 90’s. In 2000, it was possible to get an acre on the lake, with 200 front feet on the lake, for less than $15,000, and a total home cost of less than $120,000 for a 2,800 sq.ft. home.

What he did not count on, was the Texas law that allows jurisdictions to increase property taxes as much as 10% per year as the market value of his home increased. For the first few years of his retirement everything was OK. Then folks around these parts began to find the subdivision, which my builder called ‘the best kept secret in Texas’. His $120,000 house is now closer to $350,000 and rising, and his taxes are on following suit.

This is not a problem for the near 65 year old retiree as both the school district and county taxes are capped when you reach 65 for this area. The only tax left is a utility tax, and it is going down as property values go up. However, the further you are off the 65 figure, the greater the effect of Texas property taxes affect you.

Overall Texas has one of the lowest total tax rates, however, I would caution the early retiree to be cautious of the potential for a sizable increase in property tax before you reach the age of 65.
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Re: Retiring in Texas?
Old 03-28-2007, 10:13 AM   #2
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Re: Retiring in Texas?

Property taxes are a problem in many states.
What is the range in tax rates in TX?
How will the recent tax reform affect it in the near future?
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Re: Retiring in Texas?
Old 03-28-2007, 10:27 AM   #3
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Re: Retiring in Texas?

Texas has got to be one of the worst states for early retirees from a tax perspective... no income tax but sky high property and other taxes.
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Re: Retiring in Texas?
Old 03-28-2007, 11:03 AM   #4
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Re: Retiring in Texas?

My property tax is a bit over 3% of my home value..
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Re: Retiring in Texas?
Old 03-28-2007, 11:13 AM   #5
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Re: Retiring in Texas?

Quote:
Originally Posted by Rustic23
Overall Texas has one of the lowest total tax rates, however, I would caution the early retiree to be cautious of the potential for a sizable increase in property tax before you reach the age of 65.
That's good advice for retirement budget planning.

I think it's also important to consider the entire tax picture. You wouldn't avoid a state just for its property tax, any more than you'd choose to live there for its low taxes.

Hawaii regularly scores high on the national "retiree tax-friendly" surveys. However it achieves that status on the backs of its workers. If a state is low in one area, it's surely making it up in another.
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Re: Retiring in Texas?
Old 03-28-2007, 11:46 AM   #6
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Re: Retiring in Texas?

Rustic23, you're absolutely right and you're doing the forum members a real service by warning them about retiring to Texas. Be sure to also remind them about the Ebola virus outbreak.

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Re: Retiring in Texas?
Old 03-28-2007, 12:05 PM   #7
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Re: Retiring in Texas?

The key to retiring in Texas is to get a reasonably priced home or condo (definitely not a mcmansion) that is VERY energy efficient. Not only are property taxes high, but unless you live in a co-op area, utilities are outrageous. The state legistlature is finally waking up about that. In addition, we pay among the highest home insurance rates in the country because of wind/hail damage potential.

When you are working and have a high income the lack of a state income tax makes up for the high property taxes, utilities and insurance rates for the most part. However, in retirement, a small home or condo will mean low taxes, lower utilities and insurance. The advantage Texas has is that you can find a lot of very nice homes that are reasonably priced so taxes, etc can be minimized.

By the way, we pay 2.35% of our home's value in property taxes. However, we are supposed to get some property tax relief this year (although I'll believe it when I see it). We will be downsizing in a few years when our youngest finishes high school. If DH wasn't still working we would have downsized already.
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Re: Retiring in Texas?
Old 03-28-2007, 03:35 PM   #8
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Re: Retiring in Texas?

200k house in Texas = a 500 to 700k one in Sacramento, Ca

I might take my chances on them higher property taxes and ebola and scorpions and snakes and fire ants and twisters and stampedes.
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Re: Retiring in Texas?
Old 03-28-2007, 03:44 PM   #9
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Re: Retiring in Texas?

Ditto.

200K house in Houston = 750K to 1,000K in Southern California.

Effective tax rate is 2.8% for me. Expensive? I'm hoping that scorpions, rattle snakes, heat, and humidity keep people from Cali, Florida, NJ, Mass away so we can maintain our sane standard of living 8)
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Re: Retiring in Texas?
Old 03-28-2007, 05:32 PM   #10
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Re: Retiring in Texas?

It's the flooding and tornadoes that keeps Texas insurance rates sky high. Texas is the #1 State for high insurance rates. After all, the Austin-San Antonio corridor is the premier flash flood area of the nation.
Property taxes can be low in some of the counties, but beware if that county is close to a metro area. For example, Parker County is just to the west of Ft. Worth, which is prime territory; however, Parker County also is one of the prime counties for getting struck by tornadoes, too, so be careful when doing this homework. If a county's property tax rate looks too low for the area, I suggest you dig a little deeper to see if there is a reason it is so low.
Another negative about Texas is that your property will appreciate at a snail's pace compared with other cities. It's discouraging, but there is just too much land in Texas available and no density; hence, Texas has very poor property appreciation historically.
My utilities were about the same in Chicago as in Houston, so I didn't see much difference there.
The plus side for Texas is that Texas has the lowest housing prices in the nation.
If you are willing to live in a condo or bungalow or smaller ranch home, your utilities and property tax rates won't be that high.
Surely, with no State income tax on intangibles (stocks, bonds, interest), living in Texas could be a benefit--particularly for those of us with no pension monies coming in. That surely is better than paying a 3% intangibles tax to Illinois or a 8% to Delaware, for example, on the State income tax.
If I had a pension to live on when I retired, I think I would go to Delaware; but, for those of us who don't and would get stuck paying a percentage of our monies to intangibles taxes, I think you are so much better off in a no tax State.
Nevada really has the best tax deal if you cannot hack Wyoming (even better), but Nevada is not built up enough citywise and Las Vegas has expensive housing, in general, plus water problems now. Well, there is always Florida to consider too....
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Re: Retiring in Texas?
Old 03-28-2007, 06:53 PM   #11
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Re: Retiring in Texas?

The main purpose of my post was to bring an awareness of property increases have on early retirees. For the most part, Texas is retiree friendly. When you reach 65, your school tax is frozen and in some cases your county taxes. If that is not good enough, you can defer your taxes at 8% simple interest. Over time that is about equal to a little over 5% compounded. (I think).

The problem the neighbor has is he purchased in an area that was ‘real estate depressed’ yet highly desirable. As I said 1 acre on a large lake, with underground utilities, water and sewer, was less than $35,000. A similar site on Lake Conroe, just north of Houston, would be $150,000 +. When he purchased, his property tax was about $2,000 a year. Today they are over $9,000. As lake front property is used up around Houston, Lake Livingston, is the next in line, and he can expect further increase in his home’s value.

As far as properties not appreciating in Texas, we purchased an 1,800 sqft home in Houston in 1998 for $96,000. We sold it for $150,000 in 2006. Maybe not as hot as other markets, but where in say… San Francisco, can you get 1,800 sqft for $150,000, 20 min from downtown? Well one you could live in without a gun.

Now as ReWahoo says, there is that Ebola thing. I think it is only in his and my neighborhood, so, anywhere else in Texas you would like to go might work out.

Oh, our tax rate is a little over $3 per $1,000 of value.
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Re: Retiring in Texas?
Old 03-28-2007, 07:29 PM   #12
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Re: Retiring in Texas?

I think the secret to retiring in Texas is to "live" in a PO box at a local UPS store. You then have "vacation homes" in other states so you can make extended visits without triggering that state's income tax. You get to move to nicer areas during the year plus avoid Texas' property tax and the other state's income tax.

The Ebola has wiped out most of my neighborhood. I'm paying about 3.8 cents per hundred.
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Re: Retiring in Texas?
Old 03-28-2007, 07:39 PM   #13
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Re: Retiring in Texas?

Here's my 2 cents. I have lived in Texas for 35 years, As I approached retiring, I considered lots of places. If you look at the overall cost of living, it's very hard to beat Texas (no income tax, reasonable real estate -- outside of Austin, energy costs, etc.). I'm retiring to Fort Collins, Colorado but not to save money. I just happen to miss four seasons and have lived in Colorado before and miss it.
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Re: Retiring in Texas?
Old 03-28-2007, 07:44 PM   #14
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Re: Retiring in Texas?

It's pretty easy to avoid tornadoes in Texas: just don't live within 3 miles of a mobile manufactured home.
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Re: Retiring in Texas?
Old 03-28-2007, 08:29 PM   #15
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Re: Retiring in Texas?

Quote:
Originally Posted by LOL!
It's pretty easy to avoid tornadoes in Texas: just don't live within 3 miles of a mobile manufactured home.
That's about 2 1/2 miles outside of Texas.
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Re: Retiring in Texas?
Old 03-28-2007, 09:03 PM   #16
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Re: Retiring in Texas?

Only if you're not on the OK side of the state. We have enough trailer magnets here to make texas weather look dull.
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Re: Retiring in Texas?
Old 03-29-2007, 12:46 AM   #17
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Re: Retiring in Texas?

That issue of taxes, along with maintenance, and HOA fees, and general Fix-Ups, is one of the main drivers for us to sell our house at Retirement (about 60), and rent a very nice but downsized place for almost exactly the same amount of monthly outlay. Thus the idea of a paid off mortagage doesn't gain as much, especially as someone already mentioned about the relatively slow rate of appreciation, although I think that was due to long memories of the housing bubble/crash in Texas in the 80s.
Plus the added advantage of taking the equity and reinvesting provides even more income and adds to the total net worth. After 65, that might change, but for now, a clear winner.
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Re: Retiring in Texas?
Old 03-29-2007, 08:34 AM   #18
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Re: Retiring in Texas?

Good Scott Burns column today on retiring in Texas after living in San Diego.

http://assetbuilder.com/
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Re: Retiring in Texas?
Old 03-29-2007, 08:55 AM   #19
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Re: Retiring in Texas?

Quote:
Originally Posted by BarbaraAnne
Another reason (in addition to the Ebola outbreak) you don't want to move to Texas:

"...it currently costs $2,669 to rent a 24-foot Budget truck to move from San Diego to Dallas but only $299 to rent the same truck to move from Dallas to San Diego..."


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Re: Retiring in Texas?
Old 03-29-2007, 11:18 AM   #20
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Re: Retiring in Texas?

My home is appraised for tax purposes at around $132k, including land. My taxes are around $2900. HOI is around $800. 1650sf in the burbs...
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