Rental Property in Texas: What the Numbers Actually Look Like

Texas is the state people name first when they say they want to buy a rental. No state income tax, a growing population, landlord-friendly reputation, and houses that still cost less than the coasts. All of that is true.

What is also true is that Texas replaces the income tax with a property tax, and it carries the highest or near-highest homeowners insurance in the country. Those two bills arrive every year whether the house is rented or not, and on a typical Texas rental they consume roughly four out of every ten dollars of rent you actually collect. Nothing else in the analysis matters as much.

This article works one property all the way through the arithmetic, using the same figures the site's calculators use. Where a number is an assumption rather than data, it says so in plain language.

A note before you start: this is general educational information about how rental property arithmetic works in Texas. It is not investment, tax, or legal advice, it is not a recommendation to buy or not buy anything, and it does not account for your income, your other holdings, your tax position, or your risk tolerance. Property tax rates are set by hundreds of individual taxing units and change every year; insurance is priced per property. Talk to a Texas CPA about the tax treatment, a licensed Texas insurance agent about the premium, and a Texas real estate attorney about anything contractual.

1. What a rental costs to buy here

The statewide median sale price is $345,000 (Texas Real Estate Research Center at Texas A&M, June 2026, corroborated by Redfin at $347,911). County figures are more useful for an investor, because Texas is enormous and internally very different:

• Harris County (Houston): $329,000, effective property tax rate 1.46%
• Travis County (Austin): $520,000, effective property tax rate 1.34%

The conforming loan limit in both counties is $832,750, which matters less for a rental than you might think — see Section 6.

The cash you actually need

Texas is unusually clean on the transaction-cost side, and this is a real advantage:

• No transfer tax. The Texas Constitution, Article 8, Section 29 constitutionally prohibits state or local real estate transfer taxes. Texas is one of 13 states with none. Counties charge small per-page deed recording fees — Harris County is $25 for the first page plus $4 per additional page under Local Government Code Chapter 118 — which is a recording fee, not a percentage of the sale.
• No mortgage recording tax. Texas levies no intangible or mortgage tax on the loan itself, unlike Florida, Georgia, Alabama, or Tennessee.
• Closing costs of roughly 1% to 3%. Bankrate/ClosingCorp put the Texas average at $3,713, or 0.93% of the average sale price, on a narrow definition covering lender and title fees and recording only. Broader guides cite 2% to 5% buyer-side. The site uses 1% to 3% as a defensible Texas-specific range, and the absence of a transfer tax is exactly why Texas sits below the national average.

On the $329,000 Harris County example at 25% down and a 2% closing-cost midpoint:

• Down payment: $329,000 x 0.25 = $82,250
• Closing costs: $329,000 x 0.02 = $6,580
• Transfer tax: $0
• Mortgage tax: $0
• Total cash in: $88,830

At 20% down the down payment falls to $65,800 and cash-in to about $72,380 — but see Section 6 on why 20% is rarely on the table for a non-owner-occupied purchase.

One more figure worth knowing before you model appreciation into the return: FHFA's purchase-only House Price Index for the four quarters ended 2026 Q1 shows Texas at -1.63%, ranked 50th of 51 states and DC, and Austin-Round Rock-San Marcos at -6.88%, the largest metro decline in the country. Texas is currently one of only nine states plus DC with a year-over-year decline. An analysis that needs price growth to work is, right now, betting against the most recent published data.

2. The two expenses that decide whether it works

Property tax: 1.40% statewide, and it does not care that you are a landlord

The Tax Foundation puts the Texas effective property tax rate on owner-occupied housing at 1.40%. Other sources spread roughly 1.3% to 1.8% (WalletHub 1.49%, SmartAsset 1.31%). Harris County's own effective rate is 1.46%; Travis County's is 1.34%.

On the $329,000 example at Harris County's rate:

$329,000 x 1.46% = $4,803.40 a year, or $400.28 a month.

There is a specifically Texan trap here. Texas offers a mandatory general residence homestead exemption of $140,000 of assessed value for school district taxes under Tax Code 11.13(b), and once a property qualifies as a homestead, annual increases in appraised value are capped at 10%.

A rental gets none of that. The homestead exemption requires the owner to occupy the property as a principal residence. The 10% appraisal cap travels with it. So a Texas rental is taxed on full appraised value with no exemption and no cap on how fast that appraised value can rise. If you are converting a home you lived in into a rental, your tax bill does not stay where it was — it steps up when the exemption comes off, and then it is uncapped.

That is the single most commonly missed number in a Texas rental analysis. Budget the un-exempted, uncapped figure.

Insurance: the highest in the country, and rising

The reference figure is $4,643 a year at $300,000 of dwelling coverage with a $1,000 deductible — the midpoint of Insurance.com's $4,582 and Insurify's $4,704, which agree within 3%. NerdWallet reads $4,915 at a higher $400,000 coverage level. The Texas Department of Insurance reported an actual written-premium average of $3,291 for 2024, which sits below the quote-panel figures because it averages every Texas policy at whatever coverage it carries rather than normalizing to $300,000.

Harris County's own average is $5,391. Travis County's is $2,698. That is a 2x spread inside one state, and it is the second-largest lever on a Texas deal after property tax.

The trend is deceleration, not relief. Insurify projects +3% for 2026; TDI found growth slowing from 18.7% in 2024 to 4.3% in 2025, off a base that has climbed more than 50% since 2020.

Note also that a rental is not insured on a homeowners form. A landlord policy (a dwelling fire form, DP-3 or equivalent) is priced differently and covers different things — notably it does not cover a tenant's possessions, and it should carry loss-of-rents coverage. The figures above are the honest anchor for the level of cost in this state; get a real landlord quote for the specific address.

The percentage deductible, and why it is a landlord's problem specifically

This is the number most Texas property owners do not know they have. Texas carriers moved off flat wind/hail deductibles roughly fifteen years ago, first to 1% of the dwelling limit and now, by 2026, to 2% as the dominant standard — with 1%, 2%, and 5% the usual options. Insurify's May 2026 study measures the Texas statewide average wind/hail deductible at 2.24% of dwelling coverage, about $7,761 — the highest percentage of any state in the country.

On a $300,000 dwelling limit:

• 1% = $3,000
• 2% = $6,000
• 5% = $15,000

And the Texas trigger is broader than a coastal named-storm deductible. As the Insurance Information Institute puts it, the Texas windstorm deductible applies to wind and hail damage from any type of windstorm, not only named storms or hurricanes. An ordinary spring hailstorm in Plano invokes it exactly as a hurricane in Corpus Christi would.

Here is what that means for a landlord rather than a homeowner. Section 3 works out that this property produces $9,461.60 of net operating income in a good year. A 2% deductible on a $300,000 limit is $6,000 — 63.4% of a full year's NOI, payable in a single week, on a claim that is nominally covered.

You cannot pass that to a tenant. It is not a repair the lease makes them responsible for, it is not an operating cost you can bill through, and it does not wait for the rent to accumulate. A percentage deductible on a rental is a liquidity event, and it is the reason a rental needs cash reserves that a paid-off primary residence does not.

Two further Texas-specific mechanics stack on top:

Roof settlement. Many Texas policies now convert automatically to actual cash value once the roof reaches 15 years, and some carriers apply that schedule as early as year 10, usually via a Roof Systems Payment Schedule endorsement. The dollar consequence in a hail state is large: the same roof loss that pays roughly $14,000 under replacement cost can pay about $3,000 under an ACV schedule. Combine a 2% deductible with an ACV roof and a hail claim can produce essentially no net recovery. Roofs past 20 years frequently cannot be written at all.

The coast is a different market. In the 14 first-tier coastal counties — Aransas, Brazoria, Calhoun, Cameron, Chambers, Galveston, Jefferson, Kenedy, Kleberg, Matagorda, Nueces, Refugio, San Patricio, and Willacy — plus parts of Harris County east of Highway 146 (the city limits of La Porte, Morgan's Point, Pasadena, Seabrook, and Shore Acres), wind and hail is frequently excluded from the homeowners policy entirely and bought separately from the Texas Windstorm Insurance Association. TWIA had about 286,251 policies in force and $127.1 billion of exposure as of Q1 2026, and filed for no rate change on 2026 policies after finding rates adequate by 9% residential. If you are buying on the Texas coast, price the TWIA policy as a separate line item before you make an offer, not after.

Away from the coast, the Texas FAIR Plan Association is the general backstop for owners declined by at least two insurers. It pays actual cash value by default, caps dwelling coverage at $1 million, and excludes wind and hail in TWIA's territory. It is protection against having nothing, not an equivalent policy.

3. A full worked example

The property. A single-family house in Harris County at the county median of $329,000.

The rent — read this carefully. This site does not carry rent data. The $2,250 a month used below is an assumption chosen to be plausible for a house at that price in that county. It is not a market observation and you must not treat it as one. Pull three to five actual comparable listings for the specific neighborhood, and if you cannot find comparables, that is itself information about the property.

The other assumptions, all stated so you can change them:

• Vacancy: 8% of gross rent (roughly one month of turnover a year)
• Property management: 10% of collected rent
• Repairs and maintenance: 5% of gross scheduled rent
• Capital reserve: 5% of gross scheduled rent
• Financing: 25% down, 30-year fixed at 7.00%. The rate is an assumption, not a quote — see Section 6 and get a real one
• No HOA

Step 1 — income

• Gross scheduled rent: $2,250 x 12 = $27,000
• Vacancy loss: $27,000 x 8% = $2,160
• Effective gross income: $27,000 - $2,160 = $24,840

Step 2 — operating expenses

Management is charged on rent actually collected, not scheduled rent:

• Management: $24,840 x 10% = $2,484
• Property tax: $329,000 x 1.46% = $4,803.40
• Insurance: $5,391 (Harris County average)
• Maintenance: $27,000 x 5% = $1,350
• Capital reserve: $27,000 x 5% = $1,350
• Total operating expenses: $15,378.40

Expense ratio: $15,378.40 / $24,840 = 61.91% of collected rent. That is above the 35% to 55% band most rentals land in, and it is not because the assumptions are harsh. It is because tax and insurance alone are $10,194.40.

Step 3 — net operating income and cap rate

• NOI = $24,840 - $15,378.40 = $9,461.60
• Cap rate = $9,461.60 / $329,000 = 2.88%

Note what is not in that number: the mortgage. Cap rate deliberately excludes debt service so that two identical houses do not look like different investments because one buyer put more down. Putting the mortgage into the cap rate is the most common error in this whole exercise.

Step 4 — debt service and cash flow

Loan amount: $329,000 x 75% = $246,750. At 7.00% over 30 years, principal and interest is $1,641.63 a month, or $19,699.56 a year.

• Annual cash flow = $9,461.60 - $19,699.56 = -$10,237.96
• Monthly cash flow = -$853.16
• Debt service coverage ratio = $9,461.60 / $19,699.56 = 0.48

A DSCR of 0.48 means the property generates less than half the income needed to service its own loan.

Step 5 — cash-on-cash return

• Cash invested: $88,830 (Section 1)
• Cash-on-cash = -$10,237.96 / $88,830 = -11.53%

The rate sensitivity, since 7.00% was an assumption

Holding everything else constant and changing only the rate:

• At 6.50%: P&I $1,559.63/mo, annual cash flow -$9,253.96
• At 7.00%: P&I $1,641.63/mo, annual cash flow -$10,237.96
• At 7.50%: P&I $1,725.31/mo, annual cash flow -$11,242.12

A full point of rate is roughly $2,000 a year here. It moves the answer, but it does not change it.

The simplest version of the same finding

Forget the whole model for a second and just add up the four bills a lender escrows:

• Principal and interest: $1,641.63
• Property tax: $4,803.40 / 12 = $400.28
• Insurance: $5,391 / 12 = $449.25
• Total: $2,491.16 a month

Against $2,250 of assumed rent, that is -$241.16 a month before a single vacancy, repair, or management fee. In Texas, the property tax and insurance lines are large enough that the naive "does the rent cover the mortgage" check already fails.

4. The expenses people leave out

This is the section that matters most, because the three expenses below do not arrive as monthly invoices. Nobody bills you for vacancy. Nobody bills you for the roof you will need in eleven years. If you self-manage, nobody bills you for management. So they fall out of the mental model, and the property looks better than it is.

Here is the same Harris County house with those three removed — vacancy set to zero, no management fee, no capital reserve — and everything else identical:

The three omissions are worth $5,994 a year — $2,160 of vacancy, $2,484 of management, $1,350 of reserve. They cut the cap rate from 4.70% to 2.88% and more than double the monthly loss.

Take each one seriously:

Vacancy is not optional. Eight percent is roughly one month a year, which is what a single turnover costs you between move-out and the new tenant's first full month — and that assumes the turn goes smoothly. Zero vacancy assumes the house is never empty, including between tenants, which has never been true of any rental.

Management is a real cost even if you do it yourself. Set it to zero and the return is paying you for your labor, not for the property. On this house, self-managing saves $2,484 a year and improves NOI to $11,945.60 and the cap rate to 3.63% — cash flow improves to -$646.16 a month. It is a real saving and it does not fix the deal. It also stops being free the moment you move, get busy, or buy a second house.

Capital reserves are certain, not unlikely. Roofs, HVAC systems, water heaters, and flooring have known lives, and in a hail state the roof is on a shorter clock than the manufacturer's warranty suggests. The 5%-of-rent figure used above is a convention, not a measurement. A harsher and equally common convention is 1% of purchase price a year for maintenance and 1% for capital, which on this house is $3,290 each. Run that way, total operating expenses rise to $19,258.40, the expense ratio to 77.53%, NOI falls to $5,581.60, the cap rate to 1.70%, and cash flow to -$1,176.50 a month.

The honest range for this property, then, is a cap rate somewhere between 1.70% and 2.88% depending on which reserve convention you use. Pick one deliberately, apply it consistently, and know which one you chose. Old housing stock argues for the percentage-of-price convention; a recently built house argues for the percentage-of-rent one.

What would actually have to be true

Rather than end on a negative number, here is the arithmetic run backwards.

The rent this property needs. For cash flow to reach zero at this price and this financing, gross scheduled rent has to reach about $41,063 a year, or $3,421.93 a month — 1.04% of purchase price per month. That is the real reason the old "1% rule" survives: at 2026 financing costs, roughly 1% monthly rent-to-price is approximately where a leveraged single-family rental stops bleeding. The assumed $2,250 rent is 0.68% of price.

The price this rent supports. Hold rent at $2,250 and solve for the purchase price at which cash flow reaches zero with 25% down: roughly $191,500, about 58% of the Harris County median. That is a statement about what kind of property cash flows in Texas right now, and it is not the median house.

The down payment this price needs. Keep the $329,000 price and the $2,250 rent and solve for the loan the NOI can actually service: about $118,500, which means roughly $210,500 down, or 64% of the price. At that point you are mostly buying a 2.88% cap rate with cash.

None of these three answers is encouraging, and all three are useful. They tell you exactly which dial has to move.

5. What actually varies by county here

Texas property tax is not set by the state. It is set by hundreds of individual taxing units — school districts, counties, cities, hospital districts, community college districts, municipal utility districts — that stack on the same parcel. Two houses at the same price a few miles apart can carry materially different bills, and a new MUD in a fresh subdivision can add a great deal on top of the county rate.

Take the identical $329,000 house at the identical $2,250 rent and change only the county's effective tax rate and average insurance:

That is a $3,087.80 a year difference in NOI and nearly a full point of cap rate, on the same house at the same rent. Almost all of it is insurance — Harris County's Gulf-adjacent exposure against Austin's inland position.

But Travis County's actual median price is $520,000, not $329,000, and that is where the Austin story turns. Run a Travis County property at its own median with a $2,900 assumed rent and the 1.34% rate and $2,698 premium: NOI $15,668.40, cap rate 3.01%, and cash flow of -$1,288.98 a month, because the loan is that much larger. The cheaper insurance does not survive the higher price.

The practical instruction: never use a statewide property tax rate to underwrite a specific Texas property. Pull the actual tax bill for the parcel from the county appraisal district, look at every taxing unit on it, and then remember that the bill you are looking at may include a homestead exemption that will disappear the moment you buy it as a rental.

6. Financing a rental is not financing a home

The mechanisms below are standard across the mortgage market. The specific numbers a lender quotes you are theirs, not ours, and this article does not invent them.

Down payment. Conventional financing for a non-owner-occupied one-unit property generally requires more equity than an owner-occupied purchase — 20% is usually the floor and 25% is the common expectation, which is why this article models 25%. There is no FHA or VA option for a property you do not occupy. The one real exception is house hacking: buy a two-to-four-unit property, live in one unit, and owner-occupied programs become available to you.

Rate. Investment-property loans price above owner-occupied loans. Fannie Mae and Freddie Mac apply loan-level price adjustments for investment occupancy that scale with loan-to-value and credit score, and lenders pass those through as a higher rate or points. The 7.00% used in Section 3 is a modeling assumption; get a real quote and re-run the numbers, because Section 3 shows a full point of rate is worth about $2,000 a year on this property.

Reserves. Lenders typically require post-closing reserves — months of principal, interest, taxes, and insurance held in liquid assets — and the requirement grows with the number of financed properties you own. This is on top of your down payment and closing costs, and it is the requirement most first-time investors do not budget for. Given Section 2's point about the percentage wind/hail deductible, you want those reserves regardless of what the lender demands.

Rental income counting. Lenders will generally credit a portion of market or lease rent toward qualifying, not all of it, with the haircut reflecting vacancy and expenses. Ask your lender what percentage they use and whether they need an appraiser's rent schedule.

DSCR loans. A debt service coverage ratio loan qualifies the property rather than the borrower: the lender compares the property's income to its debt service and largely skips personal income documentation. The trade is a higher rate, a larger down payment, prepayment penalties in many cases, and a minimum DSCR the property has to clear — commonly stated at or above 1.0, and often above 1.2.

Look back at Section 3. The worked example's DSCR is 0.48. Even at zero vacancy, no management, and no reserves it is 0.78. A property like that does not qualify for a DSCR loan at 75% loan-to-value, and the lender's underwriting is telling you the same thing the cash flow line is telling you.

Insurance is a closing condition. Given Texas premiums and roof-age underwriting, get a bindable landlord quote for the specific address before your option period expires. A roof past 15 years can turn a financeable house into an unfinanceable one, and finding that out three days before closing is expensive.

7. What to check before you buy in this state

The tax bill, on the parcel, from the appraisal district.

1. Pull the actual bill from the county appraisal district and list every taxing unit on it. MUD and special-district levies are real and are not in any statewide average.
2. Check whether the current bill reflects a homestead exemption and a 10% appraisal cap that you will lose. Recalculate at full appraised value with no exemption.
3. Find out when the property last changed hands. A long-held property can be appraised well below market, and a sale is the event that resets it.

Insurance, before the option period ends.

1. Get a bindable landlord policy quote for the address, not a homeowners quote and not a statewide average.
2. Find the wind/hail deductible percentage on the quote and multiply it out in dollars against the dwelling limit. Write the number down.
3. Ask specifically how the policy settles a roof claim, and get the roof's age in writing. Fifteen years is the threshold that matters.
4. If the property is in one of the 14 first-tier coastal counties or the covered part of Harris County, price the separate TWIA wind policy as its own line.
5. Price flood separately. No property policy covers flood anywhere in the United States, and a large share of national flood claims come from outside mapped high-risk zones.

The rent, from the market rather than from a spreadsheet.

1. Get three to five genuine comparable rentals for the specific neighborhood, and note how long they sat.
2. Divide monthly rent by purchase price. Section 4 shows the breakeven for this example was 1.04%. Knowing where your property sits against that tells you immediately whether you are buying cash flow or betting on appreciation.

The law, from the statute rather than from an article.

1. Do not take eviction timelines, notice periods, security-deposit rules, or late-fee limits from a blog — including this one. Texas residential tenancies are governed by the Texas Property Code, Chapter 92, and eviction procedure by Chapter 24 (forcible entry and detainer). Read them at the Texas Legislature's own statutes site, https://statutes.capitol.texas.gov/, or have a Texas real estate attorney walk you through them. These rules are genuinely state-specific and they change.
2. Check the city as well as the state: registration or inspection requirements, occupancy limits, and short-term rental rules are municipal and vary within Texas.

The money.

1. Budget cash reserves separately from the down payment, sized against the wind/hail deductible in dollars, not against a month of mortgage payments.
2. Ask a Texas CPA how the property will be taxed, including depreciation, passive activity loss rules, and what happens on sale. That treatment is a material part of the return and none of it appears in the cash-flow arithmetic above.

What to do next

Every figure in this article came from a data file or was computed in front of you, and you can re-run all of it with your own numbers.

The Texas rental analysis calculator is the one that does the work above — enter your price, your real local rent, and your own vacancy, management, and reserve assumptions, and it produces the NOI, cap rate, cash flow, cash-on-cash, and DSCR figures directly. It also flags the omissions from Section 4 rather than letting them pass silently.

Because insurance is the expense with the widest spread in Texas, the Texas insurance premium estimator will get you closer to a real number for a specific dwelling limit than the $4,643 statewide average, and it shows the wind/hail deductible in dollars rather than as a percentage.

And the Texas mortgage payment calculator gives you the principal and interest figure for whatever rate you are actually quoted, which Section 3 shows is worth about $2,000 a year per point.

This article is general educational information about rental property arithmetic in Texas, based on figures current as of August 2026. It is not investment, tax, insurance, or legal advice. Rent figures used in the worked example are stated assumptions, not market data. Property tax rates, insurance premiums, and mortgage rates change and vary by property. Consult a Texas CPA, a licensed Texas insurance agent, and a Texas real estate attorney before buying.