A family that recently moved to El Paso provides a good reference point as they decided to purchase a three-bedroom home to rent out. They calculated annual income based solely on rental prices, but it later became clear that it took nearly two months to find tenants, which did not account for vacancy periods. This was the reason for the lower-than-expected yield.

Looking at the rental market in El Paso, the average rent as of the end of July 2026 is around $1,550 (Zillow Rental Manager). During the same period, the average home value is $211,055, which has increased by 8.0% over the past year (Zillow Home Value Index). Property taxes in El Paso County have an effective tax rate of around 2.09%, which is relatively high even within Texas.

Calculating the total yield with these numbers, the annual rental income of $18,600 divided by the purchase price gives a yield of 8.81%, which is favorable for this property alone. However, this figure does not account for vacancy periods, property taxes, or insurance costs, which negatively impacts the overall picture.

Using the 50% rule to estimate operating expenses, the net operating income comes to $9,300 annually, and the cap rate drops to 4.41%. Compared to other major cities in Texas, this cap rate is not bad, but when factoring in actual vacancy losses, the net operating income decreases further. If a tenant is vacant for just one month, about 8% of rental income is lost, so it seems realistic to assume a vacancy rate of 5 to 10% in calculations from the start.

It's also worth considering cases with financing. Assuming a 25% down payment and including closing costs, the actual investment amount is around $59,000. If the remainder is borrowed at an interest rate in the 7% range, the annual repayment exceeds the net operating income, resulting in a negative cash-on-cash return. While this is a disadvantage, the low purchase price in El Paso means that even a slight increase in the down payment can significantly improve cash flow compared to other major cities.

According to the 1% rule, a monthly rent of $1,550 is about 0.73% of the purchase price, which falls short of the guideline, but in terms of cap rate, it remains a noteworthy figure. Families moving from other states may overlook the higher property tax rate compared to their previous residence, so it's advisable to check the actual assigned school and property tax bill before purchasing. While school districts can be referenced through GreatSchools or Niche ratings, boundaries often change, so it's best to verify the specific address directly.

When factoring in two months of vacancy, the actual yield for this property significantly decreases compared to the initial calculation. However, a cap rate of 4.41% is not a bad number. Compared to other major cities in Texas, the low purchase price allows for relatively comfortable total yields and cap rates, and even if cash-on-cash returns are negative, the impact is less severe than in high-cost markets like Dallas or Plano.

From the perspective of total returns, including loan principal repayment and appreciation, the picture changes again. While there's no guarantee that the 8.0% increase in El Paso home values over the past year will continue, even if monthly cash flow is somewhat disappointing, the combination of principal repayment and asset value appreciation could improve the profit structure in the long run. For families starting to rent, I recommend first conservatively calculating vacancy rates, property taxes, and insurance, and then reassessing from the perspective of total returns.

After this consultation, the family set a generous 60-day period for finding tenants and recalculated to include the management company's fees. Although the numbers were lower than before, they were actually closer to reality. Approaching the situation conservatively from the start, rather than optimistically calculating based solely on rental prices, makes for a more comfortable mindset and a longer-lasting plan.

Property taxes and rental laws can vary by county, and this article does not constitute investment or legal advice. It is recommended to consult with real estate and accounting professionals before finalizing any contracts.