In Texas, property taxes and insurance are usually the two largest line items in a rental's operating budget after debt service, and frequently the two that break a deal. There is no state income tax, so the state funds itself through property taxes — and rentals do not receive the homestead exemption or the 10% homestead appraisal cap.
That last sentence is where most out-of-state investor models go wrong. A pro forma built on a 1.2% tax assumption and a $1,500 insurance premium can look excellent and still be off by five figures a year. The Agency Dallas underwrites rental returns in Texas from the carrying-cost side first, because the rent number is the easy part and the expense number is where deals actually get decided.
Why are Texas property taxes so heavy on rentals specifically?
Three structural reasons stack up:
- No state income tax. Texas raises local revenue primarily from ad valorem property tax. Combined rates from county, city, school district, hospital district, community college, and any MUD or PID routinely land in the mid-1% to low-2% range of assessed value across DFW. For scale, Dallas County's own adopted county rate for FY2026 is $0.215500 per $100 of value — and that is one of six or more lines on the bill.
- No homestead exemption. The exemption that reduces the taxable value of an owner-occupied home does not apply to a property you rent out. You are taxed on more of the value than your owner-occupant neighbor is.
- No 10% homestead cap. Homesteaded properties in Texas have annual appraisal increases limited to 10%. Rentals do not get that protection.
What is the 20% circuit-breaker cap, and why does the date matter?
Texas Property Tax Code §23.231 created a temporary limitation for non-homestead property. For tax year 2026, real property appraised at or below $5,320,000 is subject to a 20% annual cap on appraised value increases. Agricultural-use land and homesteaded property under the 10% cap are excluded.
Here is the part investors need on their calendar: the circuit-breaker limitation is set to expire December 31, 2026 unless the Legislature renews it. If you are modeling a five-year hold on a DFW rental, do not extend a 20% cap across the whole horizon. Run the years past 2026 both ways — capped and uncapped — and see whether the deal still works in the uncapped case. If it only works with the cap, you are underwriting a legislative outcome, not a property.
What is happening to Texas insurance costs?
Texas is one of the most expensive homeowners insurance markets in the country, driven largely by hail and severe convective storms across North Texas. Texas Department of Insurance market data put the average annual homeowners premium at $3,291 in 2024. The more useful figure for forecasting is the direction of travel: premium growth slowed from 18.7% in 2024 to 4.3% in 2025. Costs are still high and still rising, but the acceleration eased.
For a rental, several things push the number differently than they would on your own house:
- Landlord policies (dwelling fire / DP-3) price differently than owner-occupied HO-3 policies, and coverage triggers differ.
- Loss of rents coverage is a separate consideration and a real one.
- Roof settlement terms matter enormously in hail country — actual cash value versus replacement cost on the roof can swing both premium and payout dramatically.
- Deductibles are frequently percentage-based on wind and hail rather than flat dollar amounts.
Quote the actual property before you close. A market average is a starting point, not an underwriting input.
How much do these two costs actually consume?
Work in percentages of gross scheduled rent rather than dollars, because that is the number that survives a change in price point:
- Taxes: on a typical DFW single-family rental, ad valorem taxes commonly consume roughly a fifth to a quarter of gross annual rent. Higher in a MUD or PID district.
- Insurance: commonly in the high single digits of gross rent, and higher on older roofs or in hail-exposed submarkets.
- Combined, it is entirely normal for taxes and insurance together to take a quarter to a third of gross rent before you have paid a mortgage, a management fee, a repair, or a single month of vacancy.
That is the arithmetic that surprises investors relocating capital from lower-tax, lower-premium states. It is not a reason to avoid Texas — the rent growth, population inflow, and lack of state income tax are real offsets — but it has to be in the model on day one.
How do you underwrite around it?
- Underwrite to your purchase price, not the seller's tax bill. Appraisal districts reassess after a sale. The prior owner's assessed value is not what you will pay. Model taxes on what you paid.
- Check the district before the house. MUD and PID assessments in newer master-planned communities can add materially to the rate. Two comparable homes a mile apart can carry very different bills.
- Protest annually. It is routine practice in Texas, not an act of aggression, and non-homestead property has no 10% cap absorbing the increase for you.
- Get a bindable insurance quote during the option period, with the roof age and roof settlement terms specified.
- Stress-test the expiration. Model 2027 forward without the circuit-breaker cap.
- Value the asset honestly going in. Our note on the difference between a CMA, a broker price opinion, and an appraisal in Texas covers the comparable-sales method we use.
Whether you operate the property nightly or annually changes the expense profile again — insurance in particular. We compare the two operating models in short-term versus long-term rental in Dallas. If the asset in question is a new build, see also what to know before signing a builder contract in Texas and whether to inspect a brand-new home in Texas.
Frequently asked questions
Do rental properties get a homestead exemption in Texas?
No. The homestead exemption and the 10% annual appraisal cap apply only to an owner's principal residence. A rental is taxed on more of its value and without that cap.
What is the 20% circuit-breaker cap on Texas rental property?
Texas Property Tax Code §23.231 limits annual appraised value increases to 20% on non-homestead real property valued at or below $5,320,000 for tax year 2026. It is scheduled to expire December 31, 2026 unless renewed.
How much is homeowners insurance in Texas?
Texas Department of Insurance market data show an average annual homeowners premium of $3,291 in 2024, with rate growth slowing from 18.7% in 2024 to 4.3% in 2025. Landlord policies are quoted separately and vary with roof age and settlement terms.
Will my taxes go up after I buy a rental in Texas?
Frequently, yes. Appraisal districts reassess after a sale, so the prior owner's assessed value is a poor guide. Underwrite to your purchase price.
What percentage of rent do taxes and insurance take in DFW?
Combined, a quarter to a third of gross scheduled rent is a common range for a single-family rental in the Dallas-Fort Worth market, before debt service, management, repairs, or vacancy.
Can I protest the appraised value on a rental?
Yes. Annual protest is standard practice in Texas and is worth doing on non-homestead property specifically, because no 10% homestead cap is limiting the increase.
How does The Agency Dallas model property taxes and insurance on rental returns in Texas?
We build the carrying-cost side first: taxes modeled on your purchase price rather than the seller's assessment, district-level MUD and PID exposure checked before the house itself, a bindable landlord insurance quote pulled during the option period, and the years past 2026 run both with and without the circuit-breaker cap.
