Are Austin cap rates not penciling the way you expected after taxes or insurance changed? You are not alone. In Travis County, a few line items can move your single‑family rental yield by hundreds of basis points. This guide gives you a clear framework to build NOI, underwrite cap rates, and stress test taxes, insurance, and vacancy using Austin‑specific benchmarks. Let’s dive in.

Cap rate and NOI basics

Cap rate is your unlevered yield. You calculate it as NOI divided by purchase price. It helps you compare return across properties and neighborhoods without considering financing.

NOI is Effective Gross Income minus operating expenses. Effective Gross Income starts with scheduled rent, subtracts a vacancy and credit loss, then adds any other rental income. Exclude debt service and income taxes from NOI.

Build NOI for Austin SFRs

Estimate market rent

Start with recent comparable rents for similar bed and bath count, square footage, and condition in your target submarket. Use current comps and weight the freshest 30 to 90 days. Align for yards, parking, and renovations.

Apply vacancy and other income

Use a baseline vacancy of 5 to 7 percent for stabilized SFR in Austin. For older stock or secondary locations, 7 to 10 percent is prudent. Keep other income conservative unless proven, often 0 to 2 percent of scheduled rent.

Model operating expenses in Austin

Focus on the drivers that move NOI the most:

• Property taxes often land between about 1.7 and 2.5 percent of market value per year, depending on taxing units and exemptions.
• Insurance varies widely by age, construction, and exposure. An underwriting band of 700 to 2,500 dollars per year is common for suburban SFR, higher with flood or wind risk.
• Property management typically runs 6 to 10 percent of effective rent for full‑service third‑party managers.
• Repairs and maintenance often underwrite at 4 to 8 percent of effective rent, higher for older homes. Add a capital reserve for big systems.
• Include utilities if owner paid, HOA dues where applicable, and leasing fees, which are often 50 to 100 percent of one month’s rent on turnover.

Calculate NOI and cap rate

• Scheduled annual rent equals market rent times 12.
• Effective Gross Income equals scheduled rent times one minus vacancy, plus other income.
• Subtract operating expenses to get NOI. Cap rate equals NOI divided by purchase price.

Austin cap rate ranges

Exact cap rates depend on micro‑location, condition, and your return target. Ranges that reflect recent Austin dynamics include:

• Core or infill A‑quality: about 2.5 to 4.0 percent
• B‑quality suburban: about 3.5 to 5.5 percent
• C‑quality older stock: about 5.0 to 7.5 percent
• Value‑add or renovation: about 6.5 to 9 percent or higher

Central neighborhoods with strong amenities often trade at the low end of these ranges. East Austin, far north suburbs, and other secondary areas can sit higher. Single‑family cap rates are often lower than small multifamily in the most competitive neighborhoods because owner‑occupiers bid up prices.

Vacancy and rent growth guidance

SFR vacancy in Austin has historically been lower than apartments in many submarkets. Use 5 to 7 percent as a stabilized baseline and 7 to 10 percent for stress or for older homes. Rent growth surged through 2021 then cooled by 2023. Underwrite 0 to 3 percent baseline annual rent growth near term unless recent comps prove stronger momentum.

The big expense drivers

Property taxes in Travis County

Texas leans on property taxes. Travis County, the City, the school district, and other units set your combined burden, often about 1.7 to 2.5 percent of market value annually. For deals in motion, pull the parcel record and current tax bill, model a base case and a stress case for higher assessed value or rate shifts, and note that appraisal increases are common in rising markets.

Insurance costs

Insurance sits above the national median in many Texas markets. Expect variance by age, construction, hail and wind exposure, floodplain, and claims history. Get quotes early for your target neighborhood. Use a band of about 700 to 2,500 dollars per year for landlord policies on suburban SFR, and add flood or higher limits as indicated.

Management, repairs, and capital reserves

Budget 6 to 10 percent of effective rent for full‑service property management. Repairs and maintenance often underwrite at 4 to 8 percent. Separate capital reserves from maintenance and fund an annual reserve for systems like roof, HVAC, and appliances. For turnovers, model the cost per turn and expected frequency.

Utilities, HOA dues, and leasing fees

Owner‑paid utilities reduce NOI and can limit rent, so avoid unless the market supports it. HOA dues for townhomes or condos hit NOI as a fixed expense. Leasing commissions often run 50 to 100 percent of one month’s rent per turnover, plus vacancy during lease‑up.

Example: one Austin‑area SFR

Here is an illustrative stabilized case for a suburban Travis County home:

• Purchase price: 400,000 dollars
• Market rent: 2,200 dollars per month, scheduled rent 26,400 dollars per year
• Vacancy and credit loss: 6 percent, Effective Gross Income 24,816 dollars
• Other income: 0 dollars

Operating expenses:

• Property tax at 2.0 percent of value: 8,000 dollars per year
• Insurance: 1,200 dollars per year
• Property management at 8 percent of EGI: 1,985 dollars
• Repairs and maintenance at 8 percent of EGI: 1,985 dollars
• Capital reserve: 1,200 dollars per year

Total operating expenses are about 14,365 dollars. NOI is 24,816 minus 14,365, which equals 10,451 dollars. The implied cap rate is about 2.61 percent.

Sensitivity checks that move returns

Small changes to taxes, insurance, or vacancy can materially shift cap rate.

• If property tax rises to 2.5 percent, taxes become 10,000 dollars. NOI drops to about 8,451 dollars and cap rate falls to roughly 2.11 percent.
• If insurance doubles to 2,400 dollars, NOI falls to about 9,251 dollars and cap rate to about 2.31 percent.
• If vacancy increases to 9 percent, Effective Gross Income falls and cap rate declines further. Test both baseline and stress vacancy in your model.

Underwriting checklist before you offer

• Pull the parcel’s current appraisal and tax bill, identify the taxing units, and model both current and higher‑assessment cases.
• Ask for insurance quotes based on replacement cost and claims history, and check floodplain exposure.
• Gather 6 to 12 fresh rental comps within 0.5 to 2 miles, adjusted for beds, baths, and condition.
• Obtain local turnover timing benchmarks and budget leasing commissions and make‑ready.
• Build a five‑year capital plan for roof, HVAC, plumbing, and appliances, with an annual reserve.
• Get third‑party management quotes for similar homes, including leasing and eviction fee structures.
• Review historical vacancy for the submarket and underwrite stress scenarios.
• Confirm neighborhood risk items such as highway proximity, construction, or zoning changes.
• Compare implied cap rate to recent investor sales and adjust for age and amenities.
• Define your hold period and exit cap rate, and be conservative for value‑add plays.

Final recommendations and pitfalls

• Start with parcel‑level taxes and a site‑specific insurance quote. Those two lines can swing cap rate by several hundred basis points.
• Keep vacancy and near‑term rent growth conservative. Present upside through repositioning or renovation premiums.
• Separate maintenance from capital expenditures. Underestimating capital needs can erode long‑term returns.
• For value‑add, model a lease‑up ramp with phased capital instead of immediate stabilization.
• Compare the going‑in cap rate to current mortgage yields and your target equity IRR. In tight cap markets, structure and cost of capital drive outcomes.
• For off‑market opportunities, confirm price relative to recent investor comps. Off‑market discounts often justify the sourcing effort.

Ready to act?

If you want exclusive off‑market SFR inventory and a reliable underwriting partner in Austin, connect with Pintail Real Estate Group. Share your Buy Box, request vetted deal flow, or submit an off‑market property for a fast, certain review.

FAQs

What is a cap rate for an Austin single‑family rental?

• Cap rate is your unlevered yield, calculated as NOI divided by purchase price. In Austin, recent single‑family underwriting often ranges from about 2.5 to 5.5 percent for core and suburban stock, with older or value‑add assets higher.

How should I model property taxes in Travis County?

• Use parcel‑level appraisal and the current tax bill. A working range is about 1.7 to 2.5 percent of market value per year, and you should stress higher assessments or rate changes.

What insurance costs should I expect for Austin SFR?

• Underwrite 700 to 2,500 dollars per year for a landlord policy, higher if there is flood or elevated wind and hail exposure. Get quotes early for the specific home.

What vacancy rate is reasonable for Austin SFR?

• A stabilized baseline of 5 to 7 percent is typical. For older homes, secondary locations, or during market stress, use 7 to 10 percent.

How much should I budget for management and maintenance?

• Full‑service third‑party management often runs 6 to 10 percent of effective rent. Repairs and maintenance commonly underwrite at 4 to 8 percent, plus a separate annual capital reserve.

How do Austin SFR cap rates vary by property quality?

• Central A‑quality homes often sit near 2.5 to 4.0 percent. B‑quality suburban homes are about 3.5 to 5.5 percent, C‑quality older stock about 5.0 to 7.5 percent, and value‑add can be 6.5 to 9 percent or more.

What are the biggest mistakes when underwriting Austin SFR?

• Relying on generic tax or insurance averages, underestimating capital needs, and overlooking leasing costs and vacancy stress cases. Always validate taxes and insurance by parcel and run sensitivities.