Madison runs one of the lowest vacancy rates of any midsize metro in the country — a function of three demand drivers stacking on top of each other (a major flagship university, a Fortune 500 tech employer that's effectively recession-proof, and a state capital). The 1.73% cap rate at a $435,000 median price reflects what happens when stable demand outpaces supply for two decades. The 0.38% rent-to-price ratio sits below the 1% rule but the underlying vacancy stability is unmatched at this metro size. Population growth at 1.2%/yr is durable.
Employment is anchored by the University of Wisconsin-Madison (the flagship campus with ~50K students, a large employer in its own right, and the UW Hospital and Clinics system), Epic Systems (the dominant US healthcare-records software company, headquartered in Verona just outside Madison — a major and growing employer that pulls in highly-paid engineers), American Family Insurance, Exact Sciences (Cologuard manufacturer), CUNA Mutual, the Wisconsin state government, and the broader hospital and biotech ecosystem. Submarkets stratify by proximity to UW and Epic: Downtown / Isthmus / Tenney-Lapham are walkable urban with premium rents and strong student-and-professional demand; Westmorland, Nakoma, and University Heights are premium family-school zones near campus; East Side and Atwood Avenue are gentrifying creative-class; Verona and Middleton are the Epic-commuter suburbs at premium pricing; the Far West and south Madison offer deeper-value inventory.
Wisconsin property tax at 1.85% is moderate by national standards but on the higher end for the Midwest. Wisconsin state income tax is graduated, with a top rate around 7.65% — landlords with substantial portfolios should plan around the bracket structure. Insurance is reasonable. The structural risks: student-market exposure produces some summer vacancy if leases aren't structured for 12-month June-to-June or August-to-August cycles, and Epic's outsized influence means the entire metro has meaningful single-employer concentration risk (though Epic has been hiring continuously for two decades). For investors who want the lowest-vacancy metro in the Midwest with a defensible employer mix, Madison's structural durability is hard to match.
Market data powered by Zillow Home Value Index (ZHVI) and Zillow Observed Rent Index (ZORI) · Updated Feb 2026
Madison's 0.4% rent-to-price ratio is well below the 1% rule. At median prices of $435,000, the $1,660/mo rent produces only $626/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 ($87K at 7%) would result in approximately $-1,688/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.
Property taxes consume 40% of gross rent here — one of the highest ratios in our dataset. This significantly compresses margins and makes Madison a market where tax-conscious underwriting is essential. Every deal should be stress-tested with potential assessment increases.
All figures below are computed from Madison's real market medians. Use them as a baseline; override with property-specific numbers in the calculators.
At 1.85% effective rate on the $435,000 median price, the annual tax bill is $8,048 — that's very high (top 15% of US markets) (+75% vs the national average of ~1.06%). Verify the actual assessed value before purchase; sale-triggered reassessments can push the bill higher than the seller's current statement.
If Madison continues appreciating at 3%/yr while rents grow at a conservative 3%/yr, cap rate holds roughly steady as price growth outpaces rent. Year-by-year projection at the median:
| Year | Est. Price | Est. Rent/Mo | Cap Rate |
|---|---|---|---|
| Today | $435K | $1,660 | 1.7% |
| Year 1 | $448K | $1,710 | 1.7% |
| Year 2 | $461K | $1,761 | 1.7% |
| Year 3 | $475K | $1,814 | 1.7% |
| Year 4 | $490K | $1,868 | 1.7% |
| Year 5 | $504K | $1,924 | 1.7% |
Same median-priced Madison property — different capital structures. All-cash maximizes cap rate. Leverage trades cash flow for higher cash-on-cash return when the spread between cap rate and borrowing cost is positive.
| Scenario | Cash Invested | Monthly Cash Flow | Annual CF | Cash-on-Cash |
|---|---|---|---|---|
| All cash | $435K | $626 | $7,516 | 1.7% |
| 20% down conventional @ 7% | $100K | $-1,688 | $-20,254 | -20.2% |
| 25% down DSCR @ 8.5% | $126K | $-1,883 | $-22,590 | -17.9% |
Properties don't always trade at the median. Lower-priced units typically offer higher cap rates but harder operations; higher-priced properties tend to compress cap rates while attracting better tenants. All-cash assumptions below:
| Tier | Price | Rent/Mo | NOI/Yr | Cap Rate | Monthly CF |
|---|---|---|---|---|---|
| Below median (~75% price) | $326K | $1,411 | $6,137 | 1.9% | $511 |
| At median | $435K | $1,660 | $6,069 | 1.4% | $506 |
| Above median (~125% price) | $544K | $1,909 | $6,000 | 1.1% | $500 |
Cap rate is just one piece. Real estate returns come from four sources: cash flow, appreciation, principal paydown, and tax benefits. Assuming 20% down conventional financing at 7% and a 5-year hold at Madison's historical appreciation rate of 3%:
On a $87K down payment, that's a -6.8% total ROI over 5 years (not annualized). Tax benefits from depreciation are additional and depend on your personal tax bracket.
Automated checks against the underlying data — surface only the risks that actually apply to Madison, not generic boilerplate:
Pre-filled with Madison medians. Adjust to match a specific property.
Factor in financing to see your actual return on invested capital in Madison.
Madison, WI has a population of 280,904 and has been growing at 1.2% annually — above the national average, suggesting steady demand pressure on housing. The median home price of $435,000 paired with median rents of $1,660/mo produces an estimated cap rate of 1.73%.
Property taxes at 1.85% are notably high and represent a significant drag on cash flow — model this expense carefully, as it can make or break a deal. The vacancy rate of 4.4% is impressively low, indicating tight rental supply and strong tenant demand — favorable for landlords.
At a price-to-income ratio of 6.4x, homes cost about 6.4 times the local median income of $68,400. This elevated ratio means homeownership is stretched, supporting rental demand but limiting buyer pools. Home values have appreciated at roughly 3% 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, Madison 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.