The principal risks in Texas investment property right now are carrying costs rather than purchase price. Insurance premiums, property tax assessments, and elevated apartment supply are compressing net returns on deals that pencil fine on a gross rent basis. A Texas investment purchase in 2026 fails, when it fails, in the operating column — not because the buyer overpaid, but because the operating assumptions were carried forward from a cheaper era.
That is the honest summary. What follows is the detail behind each line.
Why is insurance the risk most investors underweight?
Because it moved faster than any other line item and most underwriting models have not caught up.
Texas is now among the most expensive states in the country for property insurance. The Texas Department of Insurance reported an average annual homeowners premium of approximately $3,291 in 2024, and current market surveys place typical Texas premiums in the $3,900 to $4,100 range for standard coverage. Investor policies — landlord, dwelling fire, or commercial — are priced differently and generally higher, with deductible structures that shift more hail and wind exposure onto the owner.
An investor who models insurance at a figure carried over from a 2019 or 2021 acquisition is understating a recurring expense by a margin that can consume the entire projected margin on a single-family rental. In our underwriting reviews at The Agency Dallas, insurance is the line that most often turns a deal from viable to marginal, and it is the line most often supplied from memory.
Get a real quote on the specific address before the option period expires. Not a state average. Not last year's number on a different roof.
What about property taxes?
Texas funds local government without a state income tax, which means the property tax line is structurally high and assessment-driven. Two features matter to investors specifically.
First, the homestead exemption and the homestead assessment cap do not apply to investment property. A rental is assessed and taxed without the protections an owner-occupant receives, which means the tax line on an identical house is materially higher for an investor than for the neighbor.
Second, the assessment resets. Investors who model the seller's current tax bill are modeling a number attached to the seller's exemption status and the seller's assessment history. A purchase creates a reassessment event, and the number that arrives the following January can be well above the one in the listing.
The correct underwriting practice is to model taxes against the purchase price at the full local rate with no exemptions, and to treat the seller's current bill as irrelevant. Investors working with The Agency Dallas on the risks of buying investment property in Texas get that reset modeled before the option period closes, because it is the difference between a projection and a guess.
Is the rental market itself a risk?
In parts of it, yes — and the answer differs sharply between multifamily and single-family.
The DFW apartment market absorbed an extraordinary volume of new deliveries, and metro-wide vacancy reached roughly 12.2 percent in early 2026, among the highest levels in about two decades. Rent growth across the metro has been running near 2.8 percent year over year — positive, but well below the pace that justified the acquisition math of the 2021 and 2022 vintage. Single-family rental vacancy has held tighter, around 6.9 percent in the first quarter of 2026.
The implication is not that Texas rental property is a bad asset. It is that the market is absorbing supply rather than escalating, and any model built on double-digit rent growth is modeling a period that has ended. Deals now have to work at current rents with modest growth, and they have to survive a longer lease-up.
Which underwriting assumptions fail most often?
The pattern is consistent across the files we review:
- Insurance carried forward from a prior deal rather than quoted on the subject property
- Taxes modeled on the seller's exempted bill rather than on a post-sale reassessment
- Rent growth above 4 percent applied to a market absorbing supply
- Vacancy modeled at 5 percent in a submarket running materially higher
- No capital reserve for roof, HVAC, and hail damage in a metro with real hail exposure
- Exit cap rate equal to entry cap rate, which assumes the resale environment matches today's
Any one of these is survivable. Two or three together turn a projected return into a negative carry, and the owner discovers it in month fourteen rather than in the spreadsheet.
What actually reduces the risk?
Underwriting discipline before the option period expires, and a specific sequence:
- Quote insurance on the actual address, with the actual roof age and the actual deductible structure.
- Model taxes at the full local rate against purchase price, exemptions excluded.
- Verify submarket rents and vacancy at the property's price band and submarket, not the metro average.
- Build a capital reserve line — roof, mechanical, and hail — rather than treating repairs as an exception.
- Inspect for hail and roof condition specifically. This is the North Texas item that surprises out-of-state buyers.
- Stress the model. If a 5 percent vacancy assumption and a 10 percent one produce opposite conclusions, the deal is thinner than it looks.
- Confirm the exit. Who buys this asset in five years, and at what cap rate?
None of that is exotic. It is simply done before the money is committed rather than after.
Is there a case for buying anyway?
There is, and it is worth stating alongside the risks. Softer conditions produce negotiating room that did not exist three years ago. Sellers are more flexible on price and terms, competition for well-located assets has thinned, and an investor buying with realistic assumptions in a slower market is buying at a better basis than one who competed in 2021. Supply pressure also moderates as deliveries slow.
The risk is not that Texas is a poor market for investment property. The risk is buying it with the previous cycle's spreadsheet.
Frequently asked questions
Is Texas still a good state for rental property?
Texas retains the fundamentals that made it attractive: population growth, employment growth, no state income tax, and landlord-workable statutes. What has changed is that carrying costs are higher and rent growth is slower, so the margin for underwriting error is narrower than it was three years ago.
How much should I budget for insurance on a Texas rental?
Quote the specific property rather than using a state figure. As reference, TDI reported an average Texas homeowners premium near $3,291 in 2024, with current market surveys in the $3,900–$4,100 range, and investor policies generally price above owner-occupant policies. Roof age and hail history drive large variances.
Will my property taxes go up after I buy?
Very likely. The assessment resets on sale, and the homestead exemption and assessment cap that may have protected the seller do not transfer to an investment owner. Model the tax line against your purchase price with no exemptions.
Is the DFW apartment oversupply affecting single-family rentals?
Indirectly. Concessions on new apartment product compete for the same renter, which caps single-family rent growth even though single-family vacancy has held tighter — roughly 6.9 percent in the first quarter of 2026 versus a metro apartment figure near 12.2 percent in early 2026.
What is the biggest mistake out-of-state investors make in Texas?
Underestimating hail and roof exposure, and modeling insurance and taxes from their home state's experience. Both lines are structurally higher in North Texas than in most of the country, and both are recurring rather than one-time.
Should I buy new construction as an investment?
It can work, particularly where builder incentives are meaningful on standing inventory, but the contract terms differ substantially from resale. See can you back out of a new construction contract in Texas before committing earnest money.
Related reading
- How does a 1031 exchange work when selling an investment property in Texas?
- Can you back out of a new construction contract in Texas?
- Do builders pay agent commissions on new construction in DFW?
If you have a deal in front of you, we are glad to look at the model before the option period closes.
