Lexington, KY Cap Rate: 3.65% — Rental Property Analysis
Lexington is a mid-range market in the South with a mid-sized city of 325,000. At a 3.65% estimated cap rate, this is a appreciation-focused market where rents of $1,480/mo lag behind home prices. With a median home price of $320,000 and steady population growth supports long-term rental demand, Lexington is primarily an appreciation play that requires creative strategies to generate positive cash flow.
Market data powered by Zillow Home Value Index (ZHVI) and Zillow Observed Rent Index (ZORI) · Updated Feb 2026
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Challenging for pure cash flow
Based on $320,000 median price and $1,480/mo median rent
Est. Cap Rate
3.65%
1% Rule
0.46%
Fails
GRM
18.0x
Price / Income
5.5x
Market Data
Median Home Price$320,000
Median Monthly Rent$1,480
Property Tax Rate0.81%
Population325,000
Population Growth0.9% / yr
Median Household Income$58,400
Vacancy Rate5.2%
Annual Appreciation3.1%
2026 Market Update: Lexington
Lexington's 0.5% rent-to-price ratio is well below the 1% rule. At median prices of $320,000, the $1,480/mo rent produces only $974/mo in NOI. Investors here need to target below-median properties or pursue value-add strategies to make the numbers work.
At current rates, a 20% down conventional loan ($64K at 7%) would result in approximately $-728/mo cash flow — negative at median prices. Larger down payments, seller financing, or buying 15–25% below median are strategies to turn the numbers positive.
The 18.0x gross rent multiplier and 5.2% vacancy rate position Lexington as a growth-dependent market. With annual appreciation at 3.1%, total returns (cash flow + equity growth) run approximately 6.8% before financing leverage.
Cap Rate Calculator — Lexington
Pre-filled with Lexington medians. Adjust to match a specific property.
Property Details
$
$
3–8% typical
%
Monthly Expenses
0.81% rate
$
$
8–10% of rent
$
8–12% of rent
$
Cap Rate
3.05%Low
Net Operating Income ÷ Purchase Price
NOI / Year
$9,768
net operating income
Gross Rent Multiplier
18.0x
High (>15)
1% Rule
0.46%
✗ Fails
Monthly Cash Flow
$814
before debt service
Annual Breakdown
Gross Rental Income$17,760
Less Vacancy−$924
Effective Income$16,836
Less Operating Expenses−$7,068
Net Operating Income$9,768
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Factor in financing to see your actual return on invested capital in Lexington.
$
$80,000
%
%
years
$
taxes + ins + maint + mgmt
$
$
Cash-on-Cash Return
-9.46%Weak
Annual Cash Flow ÷ Total Cash Invested
Total Cash Invested
$89,600
$80,000 down + $9,600 closing
Monthly Mortgage
$1,565
on $240K loan
Monthly Cash Flow
$-707
after all expenses
Annual Cash Flow
$-8,479
before taxes
Cash Flow Breakdown
Monthly Rent$1,480
Less Expenses−$622
Less Mortgage−$1,565
Monthly Cash Flow$-707
Is Lexington a Good Place to Invest in Rental Property?
Lexington, KY has a population of 325,000 and has been growing at 0.9% annually — roughly in line with national trends, meaning demand is stable but not exceptional. The median home price of $320,000 paired with median rents of $1,480/mo produces an estimated cap rate of 3.65%.
Property taxes at 0.81% fall within the national average range and shouldn't present unusual challenges. The vacancy rate of 5.2% is moderate and within normal parameters for a healthy rental market.
At a price-to-income ratio of 5.5x, homes cost about 5.5 times the local median income of $58,400. This moderate ratio indicates a balanced rent-vs-buy market. Home values have appreciated at roughly 3.1% annually. Steady appreciation means total returns will be primarily cash flow-driven — the more sustainable model for long-term wealth building.
Bottom line: At current median prices, Lexington is challenging for pure cash flow investing. Consider BRRRR strategies with below-market purchases, or look at neighboring metros with stronger price-to-rent ratios.
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