As mortgage rates continue to drop and housing prices quickly climb, investors strategically seek out markets that make financial sense, focusing on locations that can reel in a high return on their investment. In their search, they find themselves funneled into the state of Texas, and this brings us to the question at hand:
What makes rental real estate in Texas profitable?Investors generate high profits in Texas due to its robust economy that’s marked by a prosperous job market. Also, the Lone Star State has a skyrocketing population which creates a high demand for rental properties and increased rents. Profits are also elevated because there’s no income tax, it’s a landlord-friendly state, and the low cost of living results in affordable housing prices, which substantially increases ROI.
Unpacking the Profitability of Texas’s Rental Real Estate Market
Many savvy investors know from experience just how profitable the rental real estate market is in Texas. They’ve picked up on the fact that the growing population ensures a high demand for rentals, and the state’s lower housing prices keeps more money in their pocket, among other things.
If you’re seeking out a lucrative market with the goal of yielding high returns, but you’re not sure if Texas is the answer, then dive into the facts I’ve gathered below on what makes rental real estate in Texas profitable – this should be enough to have any smart investor wishing they had bought a property in this state years ago.
1. Lower Cost of Living and Available Land Keeps Building Prices Down
The cost of living in Texas is very affordable, so much so that it’s 8% lower than the national average. However, you may be thinking this doesn’t apply to you if you don’t actually live in Texas. This can’t be further from the truth, though, because a lower cost of living can directly affect your bottom line as an investor. Why is this the case? Well, when you invest in real estate in an affordable city and state, this trickles over to your building costs.
For instance, the cost associated with constructing a new rental property, such as purchasing materials and hiring labor, is influenced by this lower cost of living, which allows you to hold on to more of your money. In addition to all this, there’s also an abundance of land in Texas, which lowers the competition for buildable space and, therefore, keeps land prices down.
We’re currently building in the state of Texas, where the price of labor and materials is lower, and since we buy in bulk, the price is discounted even further. We pass these savings along to the investor, making their purchase more affordable.
2. Keep Profits High by Paying No State Income Tax
When a high ROI is your goal, sending less money to the IRS is a way to achieve it. I try to do everything in my power to lower my tax burden, and in most cases, my efforts enable me to get my tax bill down to zero. Many of the techniques I’ve used were picked up from a book I’ve read more than a few times, it’s called Tax-Free Wealth, and you can easily grab it on Amazon.
When you own a rental in Texas, funneling less money to Uncle Sam becomes even easier because there’s no state income tax, which can save you thousands. You’ll still have to pay federal taxes, and that’s where the book I mentioned comes into play. The bottom line is investing in Texas real estate reduces your tax liability and bulks up your profit margin. This is especially true when you utilize a cost segregation study, which we build in to our rental properties at Morris Invest. Dive into the video below to learn more about this tax saving strategy:
3. What Makes Rental Real Estate in Texas Profitable is its Thriving Economy
Investors who want to grow their portfolio with lucrative rental properties should know that it’s essential to research the location first. It’s important to look at the state and city’s overall economy. Is it thriving and growing or on a steady decline? This will give you an indication as to how your rental property will perform in the years to come.
Texas has a booming economy that has a continuous flow of new businesses pouring in. At this point, it’s well known that many companies are leaving states like California to set up camp in Texas where it’s more affordable, and business conditions are favorable. In fact, from 2022 through 2023, 52% of businesses that relocated to Texas were from California, and this includes companies such as Hewlett-Packard, Tesla, Charles Schwab, Oracle, and Chevron.
Ok, so you’re most likely starting to see just how important it is to invest in the right area, so if you’d like to study up on this subject, then head over to my recent post – Why Location Matters in Real Estate Investing.
Texas Boasts Incredible Job Growth
As you can imagine, with a thriving economy like this, the job growth in Texas is through the roof. How is job growth related to real estate investment profitability? Well, an economy that’s bustling with job growth and wage increases brings about a situation where employees need a place to live. The more jobs in an area, the higher the demand for rentals. In addition to this, when job growth is thriving, money is circulating, crime is low, and the vacancy rate is also low because of it.
See for yourself how well the job growth is doing by reading over the impressive employment data from the Office of the Texas Governor:
- Texas hits a new historic high with the biggest labor force seen in the state’s history at a record 15,192,900.
- Over the past 12 months, Texas has been the leading state in terms of job creation in the United States, adding 407,100 jobs from November 2022 to November 2023 while growing at an annual rate of 3%, which is above the growth rate for America as a whole of 1.8%.
- The Lone Star State reached another historic high for total jobs at 14,094,900 after adding 26,800 non-farm jobs in November.
As you can see, Texas is hitting new employment records and the economy is booming, which makes for a profitable housing market overall.
4. A Growing Population is Driving Up the Demand for Rentals
With the economy doing this great, Texas has become a magnet for people wanting to live in an affordable location that presents big job opportunities. This state has attracted so many people that the population has grown more than any other state in America in the past few years.
Between 2000 and 2022, over 9 million people relocated to Texas, which says a lot when it comes to growth and the need for rental properties. What this also tells us is that an investor won’t have to worry about losing profits to vacancy or low rents. It’s quite the opposite because a high demand for rentals equates to higher rents and quick tenant turnovers.
5. A Landlord-Friendly State Protects Your ROI
Investing in a landlord-friendly state is important to maintaining your profitability. This is the case because when the state favors the tenant over the landlord, it can significantly cut into your ROI. Those of you who have ever owned a rental property in a non-landlord-friendly state know exactly what I’m talking about.
When there’s an issue with a tenant where eviction is needed, if the law isn’t on your side, you may not be able to get the tenant out for months, and imagine how much this will cost you – thousands of dollars in lost rent, major repairs if the property wasn’t cared for, as well as expensive legal fees. All this can turn a profitable rental into a situation that’s actually costing you money.
Texas is a landlord-friendly state, so the law is on your side. If there’s ever an eviction process in the works, know that it’s a speedy process. When the law favors the landlord, you won’t lose months of income or have to fork over thousands of dollars to an attorney, and this will keep your profits in place.
Discover High Returns in the Lubbock Texas Rental Market
If Texas is looking pretty profitable to you right now, then you’re most likely wondering how to locate a promising city. However, there’s no need to spend hundreds of hours trying to figure this out because Morris Invest has already completed all the leg work for you. Our ground team has spent years looking into great locations in Texas, ensuring any potential city meets all the requirements of a lucrative and recession-proof area before we start building.
One such location is Lubbock, Texas, which is a shining example of a market that generates high profits for investors. We’ve been building rentals in Lubbock for enough years to know that this economy is not slowing down, and the job growth will continue to explode. If you remember, these factors push the demand for rentals up, and this is what’s happening for our clients, to the point where there are waiting lists to get into their newly built rentals.
Lubbock’s bustling economy is, in part, due to the Fortune 500 companies, hospitals, and schools in this city that bring in residents and keep them in the area. Texas Tech is one such school that has over 40,000 students, faculty, and staff who need a place to live. There’s also a large healthcare system in Lubbock, with hospitals that employ thousands of people. Are you starting to see the big picture when it comes to how profitable Lubbock, TX, can be? If your interest has been sparked, then be sure to check out my latest article that goes into detail on what Lubbock can offer investors – Lubbock Recognized as Recession-Proof City and Maintained a Strong Rental Market Throughout Pandemic.
Power Resources for Investors
- The Financial FreedomAcademy
- Freedom Number Cheat Sheet
- 90-Day Financial Empowerment Bootcamp
Texas – A Profit-Driven Destination for Real Estate Investors
With the current unstable economy and the turbulent job markets we’ve seen over the past few years, it would be wise for investors to consider purchasing rental properties in areas they know will safeguard their investments and generate consistent profits. With that said, if you’re interested in owning a rental property in Texas, but you’re not sure how to make it happen, feel free to schedule a call with Morris Invest. We look forward to helping you get set up with a cash flowing property in the state of Texas, where all the details are taken care of for you.
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