Land is one of the safest assets with decent potential for value improvement. But it can be complicated to own with different states having different rules.
While Texas has a reputation for being a liberty-loving state with plenty of tax benefits, it also has many red flags for property owners. And that can leave many potential owners stranded with a tough choice: Should they buy land in Texas?
The pros of owning land in Texas are that it is an affordable state with no personal income tax, has entrepreneur-friendly laws, offers a wide range of employment opportunities, and has aesthetic outdoors. The cons are the bad weather, high crime rate, and property sales tax.
In this article, you will learn more about owning land in texas pros and cons included. You will also learn more about the utility of texas land for personal use, as well as the opportunities and threats to those who want to buy land as a financial tool.
You need to look at buying land from two angles, starting with the personal use perspective. If land doesn't have much utility in general, the chances are that people will not buy it from you. That makes that land a poor investment choice. Because one never knows how one's plans and circumstances might change, it is best to look at each advantage and disadvantage of specific land from the perspective of an investor as well as a private owner.
Table of Contents
The Pros of Owning Land in Texas
When buying land in any state, you need to look at three things. The first is the cost of living, followed by the potential sources of income in the area. In the presence of both, the final make-or-break advantage is in the tax environment of the state. Here is how Texas land offers perks across each of these dimensions.
Lower Cost of Living
One of the greatest perks of living in Texas is that anything that can be priced low is priced low. From the cost of housing to school fees, many expenses of the average American go down with relocation. This even applies to things otherwise assumed inelastic. While gas prices are rising nationwide, Texas lags behind in hiking the prices.
You might wonder whether low prices are an indication of poverty and low income. That's a reasonable but untrue assumption. Texas prices are low because of lower taxes. Businesses can afford to offer cheaper products because business owners are not taxed as heavily. This also feeds into the next perk, which is related to taxes.
Aside from individual owners looking to build on the land, private investors might be interested in owning land because they can get a larger piece for a lower dollar amount. More importantly, the low cost of living ensures that there are people in the state who can afford to buy the land you hold. This kind of liquidity makes Texas land a purchase that's easy to rationalize.
'Texas' is a coincidental anagram of the word 'taxes.' This is quite on point as Texas has one of the friendliest tax environments in the union. You get to take home all of your income except what you need to pay federally.
As a result, you have higher spending power and can either buy more products or save up and start your own business. Since Texas doesn't have a materialistic social culture, splurging on material items to show off is not rewarding. Again, this gives you an incentive to save up.
So if you own land to build your own home, this can be a good motivator for the purchase. And if you're acquiring land to sell later, you should take this as an indicator of liquidity because state residents have disposable cash.
There are some states that don't tax income yet levy major taxes on business. Such taxation incentivizes the population to seek employment and avoid starting new businesses. Texas isn't one of those states. Its corporate tax rate is just as non-existent as its individual income tax rate. So if you start a business, you shall not pay state taxes on the profits you make.
An entrepreneur-friendly environment is not entirely defined by lax taxes. Ease of registering a business, getting a loan, etc., all play into how easy it is to set up and run a business in a state. Texas not only allows you to register and run a business within a week, but it also has a booming population of people with more money in their pockets.
If building and living on the land, then saving money to start a business isn't relatable to you because you're acquiring the land as an investment, this feature might inspire your business aims. You can buy land zoned for commercial activities and set up a business or sell to a prospective business owner. Remember, there are no taxes on business profits in Texas.
In the absence of corporate tax and individual income tax, you might wonder what pays the Texas government's bills. State sales tax of 6.25% and a local tax rate of no more than 2% seem to do the job. Texas makes money when transactions occur, which is why the state government is oriented toward making the region more attractive to big spenders.
Among the spenders that Texas attracts are tourists drawn to the beautiful outdoors. With Texas' has rugged yet aesthetic outdoors with activities like hiking, marine sailing, and park exploration, among the key attractions. Texas has a very warm spring that borders on summer, and its suburban communities are designed very well to make the most of the state's aesthetic beauty.
You might want to acquire the land to build a ranch or a retirement farmhouse. Texas is iconic when it comes to ranches. But even if the land you own in Texas has no personal use for you, the variety of its possible uses ensures that the investment is not as exposed to risk.
While Texas is an economy-first state, the employment opportunities it offers are not comparable to metropolitan and urbanized states like New York and California. Still, Texas offers an above-average scope of employment.
This is good for landowners who want to also work or retirees looking to raise kids where there are opportunities to earn. For investors, a state having an increase in the number of jobs means more employed people, which equates to more people who can pay rent.
The Cons of Owning Land in Texas
Before the features of any specific land make you excited enough to act, you should think about the drawbacks. The disadvantages of owning land in most states have to do with the taxes on the property, the potential sales tax on the land, and the chance of the land becoming illiquid (not sellable). Unfortunately, all of these risks and drawbacks exist in land plots in Texas. Let's explore these drawbacks in detail.
Real Estate Taxes
Texas has some of the highest property sales taxes in the country, going up to 20%, which is a significant portion of the property’s capital gains. If you buy the land to build a home, this drawback doesn’t apply to your situation.
In case you're a private holder looking to sell in the future, you might not be thrilled to learn that there can be a city-level tax on the sale of real estate. Such taxes pressure you to sell quickly because they remain largely undetectable until they can be added to the cost basis of the final sale.
Texas jumped back on the national radar in recent times after scary power outages because of bad weather. Hurricanes and unbearable weather are flash-in-the-pan occurrences each year. While they don't last long, they still pose a risk. For your own retirement or personal use of the land, this can cause hesitation. But if you want to buy land in Texas, such crises can present an opportunity to buy low. Still, building property on land remains a risk.
A Concerning Crime Rate
Texas has a high crime rate which can be a deterrent for landowners looking to build property for personal use. It is possible for long-term investors to buy an underpriced property after major crime waves, but in general, the buyer interest in any region with a high crime is dependent on media coverage and general preception. While Texas offers too many perks for its land to be considered useless, if the crime rate spikes turn into an upward wave, the state's land might lose its value.
Having explored the pros and cons of owning land in Texas, you're in the position to make an informed decision regarding the investment. Is it worth it to buy land in Texas? Not when there is a general boom, but on average market rates, the land in the fast-emerging state of Texas is pretty valuable. Looking at the price trends, one can make a choice to buy Texas land simply because if it proves to be a bad choice, one can most likely sell it and back out.
About THE AUTHOR
Brittany has been in the land business since 2020 when the world was starting to shut down. Since then, we’ve sold to dozens of people from ATV weekend warriors to camping enthusiasts to retired truck drivers. Our inventory spans mostly in the western United States. We’ve been trained by experience, land acquisition courses, and hundreds of hours meeting with county assessors and clerks, zoning officials, realtors, and land investors. We’ve answered hundreds of questions from people regarding the buying and use of land.Read More About Brittany Melling