5 Numbers Every Lubbock Rental Investor Should Run Before Buying

I've watched investors lose money on Lubbock rental property because they fell in love with a house instead of running the numbers. Cash on cash return, IRR, cap rate, the one percent rule, and the fifty percent rule. Learn what each one tells you, where each one fails you, and why Lubbock's numbers don't behave like the national averages you'll find in most investing guides.

What is cash on cash return and why does it matter?

Cash on cash return tells you how hard your actual cash is working for you right now. Take your annual pre-tax cash flow and divide it by the total cash you put into the deal. That includes your down payment, closing costs, and any repairs before you rent it out.

Say you put $50,000 into a property and it nets you $5,000 a year after the mortgage and expenses. That's a 10% cash on cash return, which is actually fairly strong for Lubbock.

Here's what people miss. Cash on cash return only tells you about today. It says nothing about year five or year ten. It doesn't account for appreciation or the equity you're building as the loan gets paid down. It's a snapshot, not the whole movie. Use it to answer one question: is this property putting money in my pocket right now?

What is IRR and how is it different from cash on cash return?

Internal rate of return, or IRR, sounds complicated but it just tells the whole story. It bundles cash flow, equity buildup, appreciation, and the time value of money into one annualized percentage. A dollar today is worth more than a dollar in five years, and IRR accounts for that.

This is the number serious investors use when comparing a Lubbock rental against putting that same money somewhere else entirely, whether that's stocks, another market, or another property. IRR lets you compare apples to apples.

The catch is that IRR leans hard on projections. Your rent growth assumption, your appreciation assumption, and your exit timeline all change the number. Be conservative. I'd rather you underestimate and get pleasantly surprised than overestimate and get burned. I always come back to why Lubbock has held up through every downturn since 2008. This market plays by different rules than most of the country, and that history matters when you're projecting forward.

What is cap rate and when should you use it?

Cap rate strips out financing completely. It just asks what the property produces based on what it's worth today. Take the net operating income and divide it by the current market value.

This lets you compare deals side by side without your loan terms muddying the water. Two investors can look at the exact same property and calculate the exact same cap rate, even if one is putting 20% down and the other is putting 50% down.

Here's where it gets tricky. Because cap rate ignores financing, those two investors can walk away with completely different actual returns depending on how they paid for it. Cap rate is great for evaluating the property itself. It won't tell you what your return looks like once your mortgage is factored in.

Does the one percent rule still work in Lubbock?

The one percent rule is a quick filter. Your monthly rent should be at least one percent of the purchase price. Buy a house for $200,000, and you want it renting for $2,000 a month or more.

This is a filter, not a decision maker. You can run through fifteen listings in five minutes and throw out the ones that clearly don't work. That's the whole job of the one percent rule. It says nothing about property taxes, insurance, or what's actually happening in that specific Lubbock neighborhood.

The one percent rule is also getting harder to hit. We just don't see as many deals on the market that meet that criteria anymore, unless you're looking at something like a $75,000 home in a tougher part of town.

What is the fifty percent rule and why doesn't it fit every market?

The fifty percent rule assumes about half of your rental income goes toward operating expenses, things like taxes, insurance, maintenance, property management, and vacancy. It's a solid gut check for building a budget before you dig into real numbers.

But it's an average pulled from national data. Lubbock isn't Dallas. Lubbock isn't Phoenix. Our tax rates and insurance costs are their own animal out here, and that usually works in an investor's favor. Use the fifty percent rule to sanity check your budget, then go get real quotes on insurance and pull actual tax numbers for that specific property. Don't let a national average make a Lubbock decision for you.

How do these five metrics work together?

None of these numbers work in isolation. Cash on cash tells you today. IRR tells you the whole story. Cap rate lets you compare properties apples to apples. The one percent rule filters fast. The fifty percent rule builds your budget. Run them together on every property and you'll know exactly what you're buying instead of hoping it works out after closing.

Have a Lubbock neighborhood you're eyeing for an investment property? Reach out and I'll give you my honest take. Have a blessed week.