The Lone Star State is becoming an increasingly popular place to live for many people, and is already the most populous state in the South Central region of the country. With more coming than going, it’s safe to say that there will be more need for housing, making Texas a prime location for real estate investors.
Key Highlights:
- Texas leads in new residents. With over 85,000 newcomers in 2024, Texas ranks first in population growth, fueling strong rental demand.
- Affordable living attracts movers. Lower costs of living and housing compared to states like California and New York make Texas a top choice for relocation.
- Tax benefits boost income. Texas is one of the few states without income tax, allowing residents to keep more of their earnings.
- A thriving job market drives demand. Growth in industries such as tech, aerospace, energy, and engineering is creating well-paying opportunities in Houston and Austin.
- Smart investing requires preparation. Before buying property, investors should assess funding options, market knowledge, legal obligations, and long-term business goals.
More People Are Arriving in Texas
Out of the top five states with the most new residents, Texas is ranked first with about 85,267 new residents in 2024, according to the Census Bureau. People are coming in from all over the US, and most will need a rental to call home. Why exactly is this particular state chosen by many residents out of all the others?
1. Lower Cost of Living
The average cost of living for states like California is $1,550 per month, whereas places like Houston are at $1,122, both excluding rent. While the difference is not significant, keep in mind that rent is usually what drives up an individual’s monthly expenses. In that regard, Texas is a lot more appealing to people looking to reduce their dues.
2. Affordable Housing
The national average for rent in the U.S. is $1,640 per month, which is just above the average rental rates in Houston, Texas for one-bedroom apartments. Rental units outside the city center can range anywhere from $900 to $1,600. For people moving from other major states like New York, the price change is drastic, with rent prices ranging from $2,000 to $4,500 outside the metro area.
3. No Income Tax
Adding to the fact that the cost of living is lower in Texas, another economic upside is that there is no income tax. Say you get out paying a 9.30% tax based on the California income tax brackets, then you’ll save $6,975 from a $75,000 annual income. Texas is one of the few states that has no income tax.
4. Thriving Job Market
Both Houston and Austin are seeing growth in the job market due to industries like tech, aerospace, engineering, and oil. With Fortune 500 companies setting up headquarters in Texas, many residents have the opportunity to get higher-paying jobs.
Before You Invest in Real Estate
While the statistics make it sound enticing to invest in Texas real estate for a rental business, you should also be prepared for what comes with the venture. Knowing what you need to do and what to expect can help you make an informed decision.
1. Are you knowledgeable about the rental market? Many of the investment and business decisions you make will be contingent on the local rental market conditions. If more young professionals are looking for homes, for instance, you’d have better luck with multi-unit properties than single-family homes.
2. Do you have funding? You have many financing options available, but each of them has advantages and disadvantages, as well as requirements that you need to meet. Is your credit score high enough to qualify for traditional bank loans? Can you afford the high interest rates of hard money loans?
3. What is your long-term business goal? Setting your sights far into the future can help you establish a business plan that you can follow. Some investors are satisfied with just one property, while others purchase more real estate to diversify their portfolio. The latter is a good business decision, but it comes with obstacles you need to be prepared for.
4. How involved will you be in the rental business? Property management is essentially a full-time job, and you won’t have much time for anything else if you’re a landlord. Decide whether you could take on the responsibility or need to hire a property manager to oversee your operations.
5. Are you familiar with landlord-tenant laws? Without knowing the basic landlord-tenant laws, you might unknowingly violate some of them, which can land you in hot water. You can learn what you need to know on your own, but consulting a legal professional is always advised.
6. Do you have an exit plan? Even if rental demand in Texas is high, you’ll never know for sure whether your rental business will be profitable or not. You should have an exit strategy prepared to minimize losses when your rental property consistently has negative cash flow.
What Kind of Rental Property Should You Buy?
That depends on many factors, such as the amount of funding you can secure, who your target market is, how much responsibility you want to take on, and what the current market conditions are.
For example, securing a larger amount of funding opens up more opportunities for you. You can opt for apartment buildings that allow you to collect rent from multiple units. It would also be ideal if your target market consisted of young professionals, since they tend to prefer smaller rental units.
It goes without saying that multi-unit properties will come with more responsibilities since you’ll oversee more than one tenant. It’s also just as important to look at the market conditions. If you plan to make a significant purchase, make sure that you can get the best price possible by monitoring increases and decreases in real estate prices.
Preparing for High Rental Demand with Expert Management
While lucrative, a rental business is not easy to manage. Diving into a rental market with high demand will be much harder to handle. Don’t let your entire effort go to waste and get the assistance that will benefit your investment property.
Area Texas Realty & Management can provide you with hands-on property managers, ensuring that your rental is always in great condition. With most of our maintenance being in-house, you can expect faster and more efficient services for you and your tenants.
Call us now, and discover why Houston area investors trust us with their business!
