Memphis, TN Cap Rate: 4.27% — Rental Property Analysis
Memphis is a budget-friendly market in the South with a major metro of 633,104 residents. At a 4.27% estimated cap rate, this is a moderate market where rents of $1,420/mo lag behind home prices. With a median home price of $240,000 and population is roughly stable, Memphis offers opportunities for investors who source deals carefully.
Market data powered by Zillow Home Value Index (ZHVI) and Zillow Observed Rent Index (ZORI) · Updated Feb 2026
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Moderate — source deals carefully
Based on $240,000 median price and $1,420/mo median rent
Est. Cap Rate
4.27%
1% Rule
0.59%
Fails
GRM
14.1x
Price / Income
5.6x
Market Data
Median Home Price$240,000
Median Monthly Rent$1,420
Property Tax Rate1.48%
Population633,104
Population Growth0.3% / yr
Median Household Income$43,200
Vacancy Rate7.8%
Annual Appreciation2.2%
2026 Market Update: Memphis
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.
Cap Rate Calculator — Memphis
Pre-filled with Memphis medians. Adjust to match a specific property.
Property Details
$
$
3–8% typical
%
Monthly Expenses
1.48% rate
$
$
8–10% of rent
$
8–12% of rent
$
Cap Rate
3.39%Low
Net Operating Income ÷ Purchase Price
NOI / Year
$8,127
net operating income
Gross Rent Multiplier
14.1x
Good (<15)
1% Rule
0.59%
✗ Fails
Monthly Cash Flow
$677
before debt service
Annual Breakdown
Gross Rental Income$17,040
Less Vacancy−$1,329
Effective Income$15,711
Less Operating Expenses−$7,584
Net Operating Income$8,127
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Factor in financing to see your actual return on invested capital in Memphis.
$
$60,000
%
%
years
$
taxes + ins + maint + mgmt
$
$
Cash-on-Cash Return
-6.24%Weak
Annual Cash Flow ÷ Total Cash Invested
Total Cash Invested
$67,200
$60,000 down + $7,200 closing
Monthly Mortgage
$1,173
on $180K loan
Monthly Cash Flow
$-349
after all expenses
Annual Cash Flow
$-4,194
before taxes
Cash Flow Breakdown
Monthly Rent$1,420
Less Expenses−$596
Less Mortgage−$1,173
Monthly Cash Flow$-349
Is Memphis a Good Place to Invest in Rental Property?
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.
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