Memphis is one of the most-recommended cash-flow markets in US real estate forums, and the 4.27% cap rate at a $240,000 median home price explains why. Rents of $1,420/mo produce a 0.59% rent-to-price ratio — comfortably above the 1% rule and structurally durable because Memphis hasn't seen the price appreciation that compressed cap rates in Sun Belt peers like Nashville or Atlanta. The 1.48% property tax rate is moderate but the 7.8% metro vacancy is elevated, which is the first signal that the headline numbers come with operating-side complications.
Logistics is the structural anchor — FedEx's global hub, the Port of Memphis, and several auto-industry distribution centers create steady working-class tenant demand that doesn't evaporate in tech-cycle downturns. Submarket spread is wide: East Memphis, Germantown, and Cordova have suburban-quality tenant pools and rents at the upper end of the metro range. Frayser, Whitehaven, and parts of North Memphis are deeper-value plays with higher cap rate on paper and meaningfully higher turnover, eviction, and code-enforcement costs in practice. The "Memphis cap rate" depends almost entirely on which zip you're actually buying in.
For out-of-state investors, Memphis is one of the largest turnkey markets in the country — multiple operators have built businesses selling rehabbed-and-tenanted properties to remote buyers. That ecosystem is the operational advantage; it's also where the spread shows up. A turnkey Memphis property often closes at a 1–2 percentage point cap rate premium over what a local investor would pay for the same asset. Whether that premium is worth the management package is the trade-off to model. Property tax appeals are routine in Shelby County and worth budgeting into the first 12 months of ownership.
Market data powered by Zillow Home Value Index (ZHVI) and Zillow Observed Rent Index (ZORI) · Updated Feb 2026
Memphis's 0.6% rent-to-price ratio is well below the 1% rule. At median prices of $240,000, the $1,420/mo rent produces only $853/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 ($48K at 7%) would result in approximately $-424/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 21% of gross rent here — one of the highest ratios in our dataset. This significantly compresses margins and makes Memphis a market where tax-conscious underwriting is essential. Every deal should be stress-tested with potential assessment increases.
All figures below are computed from Memphis's real market medians. Use them as a baseline; override with property-specific numbers in the calculators.
At 1.48% effective rate on the $240,000 median price, the annual tax bill is $3,552 — that's above national average (+40% 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 Memphis continues appreciating at 2.2%/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 | $240K | $1,420 | 4.3% |
| Year 1 | $245K | $1,463 | 4.3% |
| Year 2 | $251K | $1,506 | 4.3% |
| Year 3 | $256K | $1,552 | 4.4% |
| Year 4 | $262K | $1,598 | 4.4% |
| Year 5 | $268K | $1,646 | 4.4% |
Same median-priced Memphis 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 | $240K | $853 | $10,239 | 4.3% |
| 20% down conventional @ 7% | $55K | $-424 | $-5,083 | -9.2% |
| 25% down DSCR @ 8.5% | $70K | $-531 | $-6,372 | -9.2% |
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) | $180K | $1,207 | $7,653 | 4.3% | $638 |
| At median | $240K | $1,420 | $8,472 | 3.5% | $706 |
| Above median (~125% price) | $300K | $1,633 | $9,292 | 3.1% | $774 |
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 Memphis's historical appreciation rate of 2.2%:
On a $48K down payment, that's a 34.5% 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 Memphis, not generic boilerplate:
Pre-filled with Memphis medians. Adjust to match a specific property.
Factor in financing to see your actual return on invested capital in Memphis.
Memphis, TN has a population of 633,104 and has been growing at 0.3% annually — roughly in line with national trends, meaning demand is stable but not exceptional. The median home price of $240,000 paired with median rents of $1,420/mo produces an estimated cap rate of 4.27%.
Property taxes at 1.48% fall within the national average range and shouldn't present unusual challenges. The vacancy rate of 7.8% runs above average, which increases cash flow volatility and warrants conservative underwriting.
At a price-to-income ratio of 5.6x, homes cost about 5.6 times the local median income of $43,200. This moderate ratio indicates a balanced rent-vs-buy market. Home values have appreciated at roughly 2.2% annually. Steady appreciation means total returns will be primarily cash flow-driven — the more sustainable model for long-term wealth building.
Bottom line: Memphis presents moderate opportunities. Cap rates near 4.27% mean deals need careful sourcing — look for value-add rehabs or emerging neighborhoods where rents are climbing.