The Challenge
Texas has no state income tax, no statewide rent control, and a landlord-tenant framework that is generally considered investor-friendly — but it also has some of the highest property tax rates in the US, which materially affects rental property economics. In this illustrative scenario, a first-time investor in Dallas is evaluating a duplex in the Oak Cliff neighbourhood listed at $385,000. Each unit rents for approximately $1,450/month (total gross rent: $2,900/month). The investor has $80,000 available for a down payment.
The challenge is a common one for first-time US investors: the headline numbers sound appealing — two units, gross rent over $34,000 annually, and a stable Dallas rental market — but without running the actual math on property taxes, insurance, vacancy, and debt service, it's impossible to know whether the property generates real cash flow or a paper loss. The investor also wants to understand what closing costs to expect before making an offer.
The Approach
Using Astrilio's closing cost estimator for Texas, the investor calculated total buyer-side closing costs of approximately $8,400 on a $385,000 purchase — covering lender origination fees, title insurance, escrow, and recording fees. Texas has no state transfer tax on real property, which meaningfully reduces closing costs compared to many northern states. Total cash needed at closing: $77,000 down payment plus $8,400 closing costs = approximately $85,400, slightly over the available capital, so the investor modelled a slightly lower purchase price at $375,000.
The mortgage payment calculator (US 30-year fixed at 7.25%) showed monthly principal and interest of $2,560 on a $300,000 loan. Texas property taxes for this property type in Dallas County run approximately 2.1% of assessed value annually ($8,085/year, or $674/month) — the highest line item after the mortgage. Adding insurance ($150/month), vacancy at 7% ($203/month), and a 10% management fee ($290/month), total monthly outgoings came to $3,877. Against gross rent of $2,900, the property ran a negative cash flow of −$977/month. The cap rate at $375,000 purchase price came to 5.2% — not enough to cover US debt costs at current rates.
Key Takeaways
The Dallas duplex illustrates a pattern common in high-property-tax states: the headline cap rate can look reasonable while the actual cash-on-cash return is negative at any reasonable leverage level. In Texas, the 2.1% annual property tax rate means a $385,000 property costs more than $8,000/year in tax alone — before a single penny of mortgage, insurance, or maintenance. For comparison, a similar property in Calgary would carry property taxes closer to $4,500–$5,000 annually, creating meaningfully different leverage economics on identical cap rates.
This does not mean Texas duplexes are bad investments — but it means the investor's return thesis cannot be cash flow at today's interest rates. The plausible bull case is appreciation: Dallas saw 45%+ price appreciation from 2020–2023, and while that pace has slowed considerably, long-run population growth in the DFW metro supports continued demand for housing. An investor buying at −$977/month negative carry is effectively paying a premium for optionality on capital appreciation — which may or may not materialize on the timeline they need.
The more immediate use of this analysis was practical: the investor knew before making an offer that the purchase required either a meaningfully lower price (the property would need to be below $310,000 for the numbers to reach breakeven cash flow) or a substantially higher rent assumption than the current market supported. Armed with that information, the investor passed on this particular property and continued searching for a deal where the fundamentals worked at purchase, rather than depending on future rent growth to rescue a negative-carry position.