Factors of a great real estate market in Texas

Before we dive into specific Texas investment markets, it’s worth noting a few things that optimize an area for investment in general.

Orr says it’s important to evaluate the city as a whole first. “Look at how the schools are doing in that market. How is the health of that city? How are they growing? What are they doing [for jobs]? And then also, are there any restrictions?”

As you’re looking into investment locations, keep the following factors in mind.

A desirable area

A great property at a great price is nothing if it’s not in a great area. Savvy investors spend time researching the location of the property, paying special attention to features that would make it desirable to renters or buyers.

Many know that Texas is one of the hottest vacation spots in the country. With 3,359 miles of coastline, varied cultural experiences, and plenty of natural parks, Texas logged record-breaking travel economy data in 2022. That’s great news for the short-term rental market.

In addition, the influx of people choosing to call Texas “home” continues to rise. Nationwide moving data shows that Texas is the number two destination for folks relocating from other states. That’s great news for the long-term rental and fix-and-flip markets.

As you’re researching a local market within the state, consider what makes that area particularly attractive. Is there something –– such as a university, industry, or natural feature –– that will continue to draw tourists, renters, or buyers to that area?

A growing economy or job market

According to Forbes, Texas is one of the top states for economic growth in recent years. “Texas ranks fourth for current economic climate and first for its growth prospects, thanks to strong employment and income growth forecasts for the next five years. In addition, there are over 100 of the 1,000 largest public and private companies in the U.S. based in Texas.”

A growing economy usually indicates a stable, appreciating real estate market. At a local level, investors should take note of large businesses with a solid track record in the area, as well as any new businesses intending to move into the location. Both are great indicators of consistent residential needs.

Consistent population growth

Population growth is good for investors because it means the area will continue to demonstrate a strong demand for housing. Currently, Texas is the second most populated state, with over 29 million residents. The state of Texas is expected to continue to grow, with analysts projecting over 40 million residents by 2040.

Of course, investors will want to dial that number in closer to their intended city or county. To research historical and projected population growth in any given area, consider searching U.S. Census data as well as this county-by-county data.

Nice average rental rates

Since cash flow is directly related to rental income, investors should always look into an area’s average rental rates. Investors can expect the following rental rates, on average in Texas:

• Studio apartments: $634
• 1-bedroom units: $699
• 2-bedroom units: $865
• 3-bedroom units: $1,147
• 4-bedroom units: $1,334

However, within the state, rental rates vary significantly by location. The average rent for a 1-bedroom residence in Red River County is $557, while in Williamson County, it’s $1,212. Even within the same county, factors such as waterfront access and community amenities create variable rent prices that investors will need to look into by neighborhood, specifically.

Aligns with personal portfolio goals

In addition to data, investors should also choose an area for how it can generally help advance their personal goals. For example, some investors have no interest in management and maintenance; they may therefore want to choose an area based more on long-term appreciation than on cash flow. Other investors prefer a hands-on approach to real estate; they would thus want to choose property that’s within driving distance of their permanent residence.

Orr recommends that investors consider an area with strong multi-family prospects. “Multi-family is a great way to get started, and here’s why: If you purchase a duplex, you can live in one side, rent the other, and qualify for an FHA loan.” Since not all locations are zoned for multi-family, that goal would need to be considered among other priorities.

Best cities in Texas to invest in real estate

With those factors in mind, let’s check out some of Texas’s top individual markets. We’ll take a look at some desirable local factors, as well as median home prices with data from Realtor.com, average 2-bedroom rental rates from RentData.org, and population size data from Texas Demographics.