Our Guide on How to Become a Landlord in Texas
Residential real estate makes up a significant part of the overall economy in Texas. Due to its affordable housing stock and positive economic outlook, the state's cities have been thriving as attractive places to live, with a considerable increase in population in the past few years.
Because of the cost of living and many investment opportunities, Texas could be considered one of the best states in which you can start a career in real estate, with multiple enticing aspects that make it seem like the ideal destination for landlords.
We will give you tips on how to become a landlord in Texas by providing you a birds-eye view of the process.
An Overview on Rental Income in Texas
Texas is one of the biggest states in the US, with over 29 million people living there and estimated annual population growth of 1,5% — which is nothing but great news for the housing market.
Interesting Fact: Texas' DOM (the average days on the market) fell to a record-breaking 34 days - the average home in Austin sold in 18 days, while the average home in North Texas sold after just 25 days in Fort Worth and 26 days in Dallas.
What makes this state an attractive spot for investors? The state's appeal comes from its scenic beauty, natural resources, quality of life, and low crime rates - but the main reason for anyone looking to invest here is affordability.
A single-family home in Texas costs $247,210 in July 2021, while in other states, prices can reach double value ($550,000 for Los Angeles) or triple ($779,000 for New York City).
While it can be challenging, becoming a landlord in Texas is a profitable journey and can provide you with the lifestyle you're looking for. The Fair Market Rent in Texas ranges from $734 for a 2-bedroom apartment in Zavala County, TX, to $1,434 for a 2-bedroom unit in Austin-Round Rock, TX MSA.
Therefore, Texas is a good place for investment as long as you can buy property at a fair price. There are not many instances of inflated prices, so the risk is low.
Apartments in Texas always have increased demand, and the rates of return are high. This could be because the state has a huge population of people with disposable income. Some other reasons might be the low state income tax rate or the lack of regulations on residential rentals. This guide offers more information on how much a landlord can increase rent in Texas.
What Makes Texas Rental Law Different
While other states have strict laws and regulations to protect potential homeowners, some fewer laws and regulations govern the housing market in Texas. Texas is a landlord-friendly state.
Therefore, rental law in Texas differs from other states because of its unique features and regulations around residential leases, evictions, security deposits, and penalties for late payment.
The lack of housing regulations may be caused by the massive population growth over the last decade and its current economic boom due to state oil production. This has led to a lot more demand for rental units and homes for people to buy.
With this in mind, if you are thinking of becoming a landlord in Texas, you must first understand the laws of this state and see if you meet the criteria to become a landlord there.
Take Action: To get protection for your rental property in case of burglary, fire, natural disasters, or other catastrophes, you should obtain landlord insurance.
Here are some of the features of Texas rental laws:
Landlords must disclose specific information to their tenants (typically in the lease or rental agreement). For example, the identity of anyone authorized to work on behalf of the landlord and the tenant's rights in the event the landlord fails to make any necessary repairs.
Tenants Right to Deduct Rent
Tenants may be able to withhold rent and exercise their right to "repair and deduct" in the event their landlord fails to manage important repairs, such as a broken heater.
There’s no legal limit to the amount a landlord may request as a security deposit from a tenant in Texas.
Late rent payment penalties
These are a rule of law that landlords can enforce in Texas to give tenants a fair chance to pay their rent on time and avoid negative consequences for late payments.
Moreover, Texas law requires that a landlord return a tenant's security deposit within 30 days of receiving it if they comply with their obligations under the lease agreement and allow the tenant to move out without penalty.
In case of eviction, landlords can only evict a tenant if the lease agreement is broken. The timeline for eviction in Texas looks like this:
- Step 1: Notice to Vacate. Unless the lease agreement says differently, the landlord must give the tenant a 3-day notice to move out. If the tenant has not moved out then they can file an eviction suit. The federal CARES Act necessitates a 30-day notice if the property is in certain federal programs. Also, this is true if the property owner has a federally-backed mortgage.
- Step 2: Eviction Suit Filing. The eviction hearing must not take place for at least 10 days after the petition was originally filed.
- Step 3: Court Decision. After a judgment has been issued, no further action can take place for 5 days in order to give the parties an opportunity to appeal.
- Step 4: Appeal. If the tenant does file an appeal, then the hearing cannot happen for at least 8 days.
- Step 5: Writ of Possession. Once there is a final court decision, the landlord may ask the judge for a writ of possession. Then the constable must post a 24-hour notice before removing the tenant's property from the rental property.
Landlord Tip: Landlords may use the tenant security deposit to cover the costs of any cleaning or repairs needed to restore the rental unit to its condition at the beginning of the tenancy, but they may not use a deposit to cover the costs of ordinary wear and tear on the rental unit.
How to Become a Landlord in Texas Step-by-Step
In Texas, becoming a landlord requires knowledge of the Texas Property Code and local zoning laws and having the funds to cover all the associated costs. There are also many red tapes involved to make sure that landlords meet the standards for their state.
This section will provide an overview of the process and tips on what to do when deciding to take the plunge.
1. Check Local Requirements for Landlord License
In the state of Texas, getting a landlord license is not required. However, many of the local jurisdictions may require a license, so it is best to check first.
In short, a landlord’s license is an important document that can protect landlords from any potential liability when leasing their properties and reduce legal risks such as the possibility of eviction.
To obtain this license, you must first complete an application and submit your qualifications. This includes submitting personal information, paying a fee, and having your fingerprints taken for background checks. You’ll also need to provide proof of insurance and liability insurance coverage if anything happens on your property while it is vacant. If you don’t have proof then your insurance company can issue an insurance binder.
After completing all of this, the Texas Rental Licensing Division will send a letter confirming your application has been received. Once this letter arrives, you’re ready to start looking for properties.
2. Find the Right Property
Next, you should look for a property that you would like to rent out and make sure it meets all the standards set forth by law for rental housing. If your property qualifies, then you can go further in setting a price, start preparing and advertising it online or on local bulletin boards for people looking for housing options in your area.
The type of property you want to rent out depends on your needs and goals. You can either go for a single-family house, a duplex, an apartment, triplex, or a vacation home – and use Airbnb to rent it out on your own terms with flexible tenants who may be traveling through town or on a business trip looking for temporary rent.
3. Prepare Your Property
Any landlord wants their property to be seen as the most desirable place to rent, and to do that, they must make sure that it is in top shape before starting renting it out.
The first point to consider in preparing your property is to ensure that it meets all the legal requirements. This includes having up-to-date fire and safety regulations and checking if your home has any poisonous items or chemicals that could cause harm to those who live there.
Related fact: In most cases, the landlord must repair or remedy any conditions affecting a tenant’s physical health or safety.
After that, you should do a general cleaning to put everything in place for future tenants. Remember that any extra renovations and improvements could increase the rental price of your property.
4. Set a Price
You should have a good idea of what the market will bear and decide on a realistic price. There are many variables that factor into pricing your rental property, including the size of the property, its location, the property’s amenities and condition, the rent’s comparable market value, and competition in the area.
5. Advertise Your Property
This step will increase the likelihood of rent inquiries. Your advertisement should be catchy and show off multiple features of the property that make it attractive to potential tenants, which include its location, price range, its size, and amenities.
You can do this with the help of digital advertising, posting on rental sites, or by working with a real estate agent who will know how to handle the advertising of your property from square one.
6. Screen Potential Tenants
Tenant screening is one of the most important steps a landlord should take when renting out a property to someone and applies to both short-term rentals and long-term leases, no matter the state. It has to be done before a tenant moves in, and it can help avoid many unnecessary conflicts and headaches for both sides.
The screening process should focus on credit scores, criminal records, income level, employment history, and past evictions.
7. Sign the Lease Agreement
This document is the final step of the renting process, and its purpose is to set the terms and conditions of the rental of a property. Like any other kind of contract, they must be properly drafted in order to be legally binding.
However, if the lease agreement seems too complicated to understand, it is helpful to have an expert on your side. An experienced real estate attorney may be able to help you understand what the terms of your lease agreement mean, as well as advise you on how best to draft one so that you can avoid common pitfalls.
The Best Time to Rent Out Your House in Texas
Now that you are aware of the steps you need to follow to become a landlord in Texas, it is also important to know when is the best time to rent your property if you want to maximize your profits and increase your return on investment.
In Texas, the best time to do it is during the spring and summer months. The vacancy rate is around 11% throughout these seasons, and rent can be up to $20-30 more a month than the rest of the year.
The rental rates also go up because of the influx of tourists visiting Texas in that period. People are more likely to go on vacation throughout these months, and they'll be less likely to think about finding a permanent residence.
However, the best time to rent out your property will depend on a few other factors, such as demand, supply, and prices.
Each year, the rental market goes through different stages and fluctuations in demand.
Regardless of the state, the best time to rent out a property is when the market is low. This will ensure that you get the highest amount of money for your property with minimal risk from potential losses.
If it isn't as profitable as expected, you can always resell it later on when the market rises again.
Wrapping Up on How to Become a Landlord in Texas
Texas is one of the fastest-growing states in the US, with a lot to offer for the real estate industry.
If you are thinking of becoming a landlord in this state, it's important to keep in mind that your obligations are different than they would be in other states.
You should also consider the legal requirements of what you need to provide for your tenant. It is your job to provide a habitable place for tenants.
Being a successful landlord is by providing your tenants a good place to rent and a place that they can call home. Do unto others as you would want to be done unto you is a good motto to follow. At the end of the day, being the best landlord you can be will help you tremendously.
All these things together should help you decide if your investment is worthwhile in this state and if you are fully prepared to adapt to local laws.