Rental property investing in Texas: cash flow, taxes, and what to expect

The Texas setup, at a glance

Texas sits at roughly 1.74% effective property tax, which matters more than most new investors realize. On a $240k-$320k Houston property, that's about $4,176/year in taxes alone - call it $348/month before you've paid anything else. Run the rental cash flow calculator with that line item baked in or your projection will look better than reality.

Eviction stance here is landlord. Landlord-friendly. Notice to vacate (3 days), then a JP-court hearing usually within 10-21 days. Total timeline often 30-45 days when paperwork is clean. That timeline directly affects your vacancy assumption: in landlord-friendly states like Texas, you can underwrite 5-7% vacancy on B-class properties; in slower states you'd want 8-10%.

Where the math actually pencils

Houston - $240k-$320k for typical SFR, $1,450-$1,900/mo for 2-3BR rents. blue-collar workforce + huge job growth, cash-flow friendly outer rings.

San Antonio - $220k-$290k for typical SFR, $1,350-$1,750/mo for 2-3BR rents. stable rent growth, big military + medical base.

Dallas-Fort Worth - $310k-$420k for typical SFR, $1,700-$2,200/mo for 2-3BR rents. appreciation play + steady rents, harder to cash-flow new construction.

The 1% rule (monthly rent >= 1% of purchase) is a smoke test only, but it filters fast: a $220k-$290k property in San Antonio renting at the high end (1,750/mo) clears 0.8-0.9% in most cases, so you're already in the "needs the rest of the math to be tight" zone before vacancy + capex + management.

Texas-specific things that bite

No state income tax, but property taxes near 2% kill cash flow projections that assume the national 1% average. Insurance premiums in coastal/hail zones have spiked - run conservative numbers.

A few cash-flow-killer line items that catch out-of-state buyers in Texas:

Property tax escrow. At nearly 2% effective, this is the single biggest expense after debt service in many Texas deals.
Insurance. Coastal + windstorm zones are seeing 30-60% premium hikes year over year. Quote BEFORE close.
PM costs. 8-10% of collected rent is typical. On a $1350/mo property that's $122-135/mo - works out to about a month of vacancy each year.

What "good enough" looks like in Texas

For a stabilized buy-and-hold in Texas, the rule-of-thumb deal targets most investors I see are:

Cap rate: 6%+ on the actual NOI (not the broker's pro forma). Below 5% and you're paying for appreciation, which is fine if that's your thesis.
Cash-on-cash: 8-10% minimum at year 1 with 20-25% down. 12%+ is solid for the work.
DSCR: 1.25+ if you're using a DSCR loan. Lenders increasingly want 1.2 as a floor, 1.25 to clear comfortably.
Reserves: 6 months of PITI. Even with Texas's fast eviction, you'll burn 1-2 months on turnover + repairs in a bad year.

The play that works here

Texas has tilted toward appreciation rather than cash flow in most major metros. Cash-flow seekers usually need to look at secondary cities or accept lower CoC for the appreciation thesis.

Run your specific deal through the rental calculator with the state's effective tax rate (1.74%), realistic Texas insurance quotes, and 8-10% PM. If it still pencils after that, you've got a deal.