Real estate investing in Texas: tax, law, and the metros that matter

Why Texas keeps drawing investor money

Three structural advantages, in order of impact:

No state income tax. Rental income flows through to your federal return at your marginal bracket. No state-level take on top of that. A landlord in Austin pays substantially less on the same NOI than a landlord in Los Angeles or New York City.
Landlord-friendly statute. Eviction can be initiated immediately after a late notice (typically 3 days), the process moves through justice court in 2-4 weeks for uncontested cases, and judgments are routinely enforceable. Compare that to 6-9 months in tenant-friendly jurisdictions.
Population + job growth. Texas added more residents than any other state every year since 2010. That sustained net migration is the underwriting tailwind that lets investors absorb minor mistakes — a market that's growing forgives a lot.

The catch: property taxes

Texas funds its no-income-tax model with property taxes that are roughly 2x the national average. Median effective rate runs 1.7-2.5% of assessed value depending on the county and any MUD (Municipal Utility District) or PID (Public Improvement District) overlays. Compare that to ~1.1% national median, ~0.7% in California.

On a $300k rental this is $5,100-7,500/year vs ~$3,300 nationally. That's a real chunk of NOI you need to underwrite in. The good news: rents are correspondingly higher to absorb it, and the property tax bill is fully deductible against rental income on Schedule E.

Always run your specific deal through the Rental Property Calculator with the actual county tax rate, not the national average. The DSCR Loan Calculator is also useful here — the higher tax burden compresses DSCR, so lenders' qualifying thresholds bite harder.

Landlord-tenant law: the short version

Security deposits: no statutory cap. Common practice is one month's rent for unfurnished, two for furnished. Must be returned within 30 days of move-out with an itemized list of any deductions.
Notice to vacate (late rent): minimum 3 days unless the lease specifies otherwise.
Eviction process: file in justice court (cheap, ~$120 filing fee). Trial typically 10-21 days after service. Writ of possession issued ~5 days after judgment if uncontested. Total timeline 4-6 weeks typical for non-paying tenants.
Rent control: prohibited statewide (Texas Property Code §214.902). No municipality can impose rent control.
Required disclosures: lead paint (federal, pre-1978 properties), known flooding (Texas-specific), and the parties' agent vs landlord relationships.

This is one of the most landlord-friendly jurisdictions in the US. Don't take that for granted in your underwriting.

The Texas metros, ranked by investor utility

Dallas-Fort Worth (DFW)

The most diverse Texas market — finance, tech, logistics, healthcare, manufacturing. Strong rental demand across price points. SFR investors usually target $200-450k in mid-suburb cities (Mesquite, Arlington, Garland, Fort Worth proper). Class B multifamily trades 6-7% cap; class C in lower-income neighborhoods 8-10% but with the management headaches you'd expect.

Houston

Energy-driven historically; increasingly diversified into healthcare and aerospace. Most affordable major metro on a price-to-rent basis — 12-15 ratios common in mid-tier suburbs. Hurricane and flood insurance can run 3-5x national averages for properties in 100-year flood plains; pull the FEMA flood map for any deal you're considering and quote insurance BEFORE writing the offer.

Austin

The high-flier of the 2018-2022 cycle. Prices outpaced rents by a wide margin; 1% rule deals are essentially extinct inside city limits. BRRRR is hard — refi math doesn't pencil at current rates. Most active investors are pushing 20-40 minutes outside the metro (Hutto, Buda, Kyle, Bastrop) for cashflow.

San Antonio

The forgotten Texas major metro. Steady growth, strong rental demand from Lackland AFB and Fort Sam Houston military populations. Less appreciation than DFW/Austin but better cashflow ratios — 1% deals still possible in 78207, 78225, 78228 zip codes if you screen aggressively.

The 1031 exchange angle

Texas's lack of state income tax means there's no state-level capital gains tax to defer. The federal §1031 benefit applies the same way it does anywhere else. Where Texas investors get an edge: rolling sale proceeds from a California or New York rental INTO a Texas property eliminates that state-level recurring tax burden going forward. Run the comparison in the 1031 Exchange Calculator — for a high-income investor migrating from a tax-heavy state, the cumulative state tax savings can dwarf the federal deferral.

What to underwrite carefully

Property tax: get the actual current assessed value AND the current rate from the county appraisal district website (HCAD for Harris/Houston, DCAD for Dallas, BCAD for Bexar/San Antonio). Don't extrapolate from a national average.
Insurance: Texas insurance has been the fastest-growing operating expense for landlords nationally since 2022, driven by hurricane and hail losses. Get a real quote, not "1.5x national average."
HOA / MUD / PID fees: Texas master-planned communities often layer MUD bonds (paid via your property tax bill) and PID assessments. These can add $1-3k/year on top of property tax. Read the title commitment carefully.
Foundation work: clay soil in DFW and Houston cracks foundations. A pre-purchase structural inspection is non-negotiable; budget $5-15k for typical pier-and-beam repair on older houses.

The investor's bottom line

Texas is a market where the underwriting boxes are large and forgiving, the legal environment is fast and predictable, and the tax structure rewards cashflow over appreciation. The price-to-rent compression of 2020-2024 ate the easy returns; today's investor needs to be more selective on price and geographic submarket than they were 5 years ago, but the structural advantages remain real.

For a specific Texas deal, run it through the Rental Calculator, the DSCR Loan Calculator, and — if you're flipping or BRRRR'ing — the BRRRR Calculator. Texas's high tax burden makes the DSCR check especially important; deals that pencil on cash flow can still flunk DSCR if you didn't plug in the real tax rate.