There's a moment every burned-out landlord remembers: standing in an empty Lewisville rental at 8 p.m., looking at carpet that needs replacing again, doing math on a notepad. This article is that notepad, done properly.
"It rents for eighteen hundred and the payment's eleven — I clear seven hundred a month." That's the cocktail-party version. The honest ledger charges the rental for everything: vacancy between tenants (even one month a year is 8% of gross), repairs and maintenance (the 2 a.m. water heater fund — on an older house, budget 10% of rent), make-ready and leasing costs each turnover (paint, floors, and a leasing fee can eat two months of "profit" in one bite), taxes and insurance creeping up annually, and management — either the 8–10% you pay a company or the truth that you've been doing a part-time job for free.
Run those lines on a typical aging single-family rental and the seven hundred a month collapses to two or three — sometimes less. On a paid-off house the cash flow looks better, but then the real question changes: is this the best thing two or three hundred thousand dollars of your equity could be doing?
Divide your true annual cash flow by what you'd walk away with if you sold today. If the rental nets four thousand a year against two hundred thousand of trapped equity, you're earning 2% for the privilege of being on call — before appreciation, which you can get from assets that never call you. Appreciation and the mortgage paydown are real; count them. But count them next to the weekends, too.
You've got the standard menu — wait out the lease and list, or sell with the tenant in place, which we covered in selling a rental with tenants. And one more consideration your CPA should weigh in on: years of depreciation get recaptured at sale, and if you're rolling into another investment, a 1031 exchange may defer the whole tax question. Do the math with someone licensed before you sign anything. Sometimes the answer really is "keep it" — but make it a decision, not a default.
Charge the rental for everything: vacancy (one month a year is about 8% of gross), repairs and maintenance (budget around 10% of rent on an older house), make-ready and leasing costs at each turnover, rising taxes and insurance, and management at 8–10% — or the value of your own unpaid time.
Divide true annual cash flow by what you would walk away with if you sold today. A rental netting $4,000 a year against $200,000 of equity is earning 2% before appreciation — compare that to what the equity could earn elsewhere, and count the weekends too.
Years of depreciation are recaptured at sale, and if you are rolling into another investment a 1031 exchange may defer the tax. Both have strict rules — run the numbers with your CPA before signing anything.
Tenant in place or vacant, get a written number and do the math with real figures.
This article is general information for Texas property owners, not legal, tax, or investment advice. Depreciation recapture and 1031 exchanges have strict rules — talk to your CPA before selling a rental. Figures are illustrative.
