Cap rates can feel slippery in Killeen. Prices sit in the mid 200s, rents are modest, and taxes and turnover can move your numbers more than you expect. If you want a clear, local way to underwrite rental deals near Fort Cavazos, you’re in the right place. In this guide, you’ll learn a simple, step-by-step method, what inputs to use for Bell County, and how to avoid common mistakes so you can make confident offers. Let’s dive in.
What a cap rate really measures
Cap rate is your property’s annual Net Operating Income divided by its purchase price or value. It is a snapshot of unlevered yield and does not include your mortgage. To get it right, you must subtract realistic operating costs, not just look at gross rent. For a refresher on expense ratios and NOI basics, see this plain‑English overview of the operating expense ratio.
Killeen market context that shapes returns
Steady demand near Fort Cavazos
Fort Cavazos anchors local housing demand. In 2023, the base supported about 38,600 active‑duty personnel and nearly 59,700 direct jobs, which creates consistent rental demand and seasonal turnover tied to PCS cycles. You can review the base’s regional impact in the Texas Comptroller’s Fort Cavazos analysis.
Home prices and rents
Recent indices place typical Killeen home values in the low to mid $200,000s. Citywide rent trackers show average apartment rents roughly in the $800 to $1,000 range, with three‑bedroom homes commonly higher. For underwriting a 3‑bedroom SFR, pull neighborhood‑level comps, not city averages. You can scan local trends on Apartments.com’s Killeen rent report.
Vacancy expectations
Killeen and Bell County generally run a balanced rental market. A practical underwriting range for vacancy is about 5 to 8 percent, adjusting up for older properties or softer submarkets. County‑level context is available via Bell County rental market data.
Taxes and insurance matter
Property tax is one of your biggest line items in Texas. Bell County’s effective burden often falls around 1.4 to 1.6 percent depending on the exact taxing units. Always verify the parcel’s combined rate with the Bell County Appraisal District. Insurance costs can also run higher than national averages, so get quotes early.
The right way to estimate a cap rate
Step 1: Gather local inputs
- Market rent: Pull recent 3‑bedroom comps near the base and in your target neighborhood. Use current actives and signed leases from trusted sources, and sanity‑check with Apartments.com trends.
- Vacancy: Start with 5 to 8 percent for Killeen, then adjust for property quality and PCS seasonality. See county context on Bell County vacancy.
- Operating expenses: Parcel‑level tax rates from Bell CAD, an insurance quote, and realistic allowances for management and maintenance. Industry norms often use property management at 7 to 10 percent of collected rent and maintenance/reserves at 5 to 15 percent. Here’s a helpful overview of typical expense ranges from Stessa.
Step 2: Run the math
- Potential Gross Income (PGI) = Monthly rent × 12 (plus any other income)
- Effective Gross Income (EGI) = PGI × (1 − vacancy)
- Operating Expenses = taxes + insurance + utilities you pay + maintenance + management + HOA + reserves
- Net Operating Income (NOI) = EGI − Operating Expenses
- Cap Rate = NOI ÷ Purchase Price (or market value)
Tip: Do not substitute gross rent yield for cap rate. You need NOI in the numerator.
Example: Single‑family near Fort Cavazos
Example A: Conservative SFR scenario
- Purchase price: $230,000 (near recent neighborhood medians)
- Monthly rent: $1,200 → PGI = $14,400 (local 3‑bedroom range)
- Vacancy: 8% → EGI = $14,400 × 0.92 = $13,248
- Property tax: 1.5% ≈ $3,450/year (verify at Bell CAD)
- Insurance: $1,200/year (estimate)
- Maintenance/reserves: 10% of rent ≈ $1,440/year
- Property management: 8% of collected rent ≈ $1,152/year
- Total operating expenses ≈ $7,242
- NOI ≈ $13,248 − $7,242 = $6,006
- Cap rate ≈ $6,006 ÷ $230,000 = 2.61%
What this shows: with mid‑$200k prices and modest rents, Texas taxes and turns can compress your yield on a standard SFR. You would need a lower basis, higher rents via improvements, or tighter expenses to reach a higher cap.
Example B: Better basis, same property
- Purchase price: $180,000 (distressed or investor sale)
- Property tax at 1.5% ≈ $2,700; other items unchanged, total expenses ≈ $6,492
- NOI ≈ $13,248 − $6,492 = $6,756
- Cap rate ≈ $6,756 ÷ $180,000 = 3.75%
What this shows: purchase basis often moves the cap rate more than small rent changes in Killeen. Price discipline matters.
What cap rates to expect
Institutional surveys put stabilized Class A/B multifamily in the mid‑5 percent range in 2025, which is useful context, but not a target for SFRs or small buildings. See CBRE’s latest U.S. Cap Rate Survey. National commentary often cites SFR cap rates around 6 to 8 percent, depending on market and price‑to‑rent dynamics, though local outcomes vary. For a quick overview of SFR performance, see this sector summary.
In Killeen, your actual cap rate will hinge on four things: purchase price relative to rent, parcel‑specific taxes, insurance, and how well you manage vacancy and turns tied to PCS seasonality.
Ways to improve your cap rate
- Reposition to lift rent: modest interior updates, clean landscaping, and clear marketing can widen your pool of applicants and reduce time on market.
- Control big line items: shop insurance annually and confirm you have accurate coverage levels and deductibles.
- Tune operations: negotiate management fees for multiple doors, set preventive maintenance, and standardize turnover checklists.
- Reduce owner‑paid costs where allowed: consider separate metering or pass‑throughs for utilities if legal and practical.
Quick checklist before you buy
- Verify parcel tax rates and taxing entities with Bell CAD.
- Pull neighborhood‑level rent comps and confirm lease terms with local managers. Cross‑check with Apartments.com trends.
- Underwrite vacancy at 5 to 8 percent and plan for PCS‑season turnover.
- Get insurance quotes before you offer; compare deductibles and wind/hail coverage.
- Build realistic reserves for turns, appliances, and systems.
Ready to run the numbers together?
If you want a clean pro forma for a specific address near Fort Cavazos, I’ll help you source real comps, confirm parcel taxes, and pressure‑test the assumptions. Reach out to Christie Minalga to start a focused cap‑rate review on your next Killeen investment.
FAQs
How do you calculate a cap rate on a Killeen rental?
- Divide annual Net Operating Income by the purchase price after you subtract taxes, insurance, maintenance, management, utilities you pay, HOA, and vacancy from gross rent.
What vacancy rate should you use near Fort Cavazos?
- A 5 to 8 percent range is a practical local starting point, with higher assumptions for older homes or softer submarkets based on county context.
Are Killeen SFR cap rates higher than apartments?
- Institutional Class A/B apartments often run mid‑5 percent caps, while SFRs can vary widely by purchase basis and expenses, sometimes higher or lower depending on the deal.
How do Bell County taxes affect cap rate?
- Taxes are a major expense; a 1.4 to 1.6 percent effective rate on value can meaningfully reduce NOI, so always verify the exact parcel rate with Bell CAD.
How does PCS seasonality impact underwriting?
- Seasonal moves can increase turnover and short‑term vacancy; plan for turns, set vacancy at a realistic level, and price competitively during peak changeover windows.
