How to Analyze a Rental Property in Texas Before You Buy

A low price doesn't make a good rental. What matters is whether the rent covers every cost and leaves something over. Here's the simple way I run the numbers with investors before they make an offer.

Start with realistic rent

Use what similar homes nearby actually leased for in the last few months, not the highest asking price you can find. Compare homes with the same bedrooms, size, age and school zone. I pull leased comparables from the MLS so you're working with real numbers.

Add up every monthly cost

• Mortgage payment: principal and interest
• Property taxes: use the full rate for that address, including any MUD or PID. Rentals don't get a homestead exemption, so the current owner's tax bill may be much lower than yours will be.
• Insurance: a landlord policy, not a homeowner policy. Get a real quote.
• HOA dues, if any
• Property management: often a percentage of the rent, plus a leasing fee
• Repairs and maintenance: set money aside every month, more for older homes
• Vacancy: plan for some empty weeks between tenants
• Capital expenses: roof, HVAC, water heater and flooring all wear out eventually

Three numbers to know

• Monthly cash flow: rent minus all of the costs above. Positive is the goal.
• Cap rate: yearly net operating income (rent minus operating costs, before the mortgage) divided by the price. It lets you compare properties regardless of how you finance them.
• Cash-on-cash return: yearly cash flow divided by the cash you put in (down payment, closing costs and repairs).

A quick example

Say a home rents for $2,200 a month. The mortgage is $1,250, taxes are $500, insurance is $150, management is $180, and you set aside $220 for repairs, vacancy and big-ticket items. That's $2,300 in costs, so the home loses about $100 a month. A slightly lower price, a lower tax rate or a bigger down payment could change that. These numbers are only an illustration; yours will depend on the property and your loan.

Texas things to check

• The property tax rate and whether the home is in a MUD or PID
• HOA rules on leasing, including minimum lease terms
• Flood zone and insurance costs
• Age of the roof, HVAC and foundation

Let's run your numbers

Have a property in mind? I'll pull rent comparables and help you build a realistic cash-flow estimate before you make an offer. Call or text me at (512) 629-9050.

Trina Heinmiller
Team Lead | Southern Luxe Group | eXp Realty

Investor Guide 3 of 10: Analyze a rental property
← Guide 2: DSCR loans · Investor guide home · Next: 1031 exchanges (coming Nov 5)

This post is general information, not financial, tax or legal advice.