Last updated: September 24, 2026 · Originally published: September 4, 2026 · By Alex Petrov
Tennessee cap rate data splits into two worlds: Memphis delivers 5.5–8.0% with $155K median entry, while Nashville sits at 3.0–4.5% with $380K prices. The gap is driven by Tennessee’s unique market structure — one metro optimized for cash flow, another for appreciation, and three mid-tier cities in between. Tennessee’s 0.56% property tax (lowest among investment states) and zero state income tax boost NOI across all metros. Here is what cap rates actually look like across five Tennessee cities in 2026, with worked examples and the expenses that compress or expand returns.
Tennessee Cap Rate by City: 2026 Data
| Metro | Median Price | Median Rent (3BR) | Cap Rate Range | Property Tax | Insurance |
|---|---|---|---|---|---|
| Memphis | $155,000 | $1,200 | 5.5–8.0% | 0.71% | $2,400 |
| Clarksville | $230,000 | $1,400 | 4.5–6.0% | 0.55% | $1,900 |
| Chattanooga | $250,000 | $1,500 | 4.0–5.5% | 0.48% | $2,000 |
| Knoxville | $270,000 | $1,600 | 4.0–5.5% | 0.50% | $2,100 |
| Nashville | $380,000 | $2,100 | 3.0–4.5% | 0.52% | $2,200 |
Cap rates modeled with 6.5% vacancy, 9% management, 8% maintenance, property-specific tax and insurance. Data from Zillow Research (ZHVI/ZORI) and county assessor records. Calculate your specific deal in the Tennessee cap rate calculator.
What Drives Tennessee Cap Rates
Property Tax: 0.56% Average — Lowest Among Investment States
Tennessee’s effective property tax rate is 0.56% — lower than any other state we cover. Per Tax Foundation, only Hawaii has a lower effective rate among all 50 states. On a $200K property: $1,120/year. Ohio charges $2,720 on the same property. That $1,600 difference goes straight to NOI.
County variation: Shelby County (Memphis) 0.71%, Montgomery County (Clarksville) 0.55%, Davidson County (Nashville) 0.52%, Hamilton County (Chattanooga) 0.48%, Knox County (Knoxville) 0.50%.
Insurance: $2,200/Year — Above Average
Tennessee insurance averages $2,200/year — 18% above the national average. Middle Tennessee (Nashville corridor) sits in tornado alley. Memphis faces Mississippi River flooding risk. The March 2020 Nashville tornado ($2.2B damage) pushed premiums higher. Shelby County (Memphis) runs $2,400 due to combined storm and flood risk. Hamilton County (Chattanooga) is lower at $2,000.
Zero State Income Tax
Cap rate is a pre-tax metric — income tax does not affect the number. But Tennessee’s zero income tax means your after-tax cash flow is 3–5% higher than investing in Ohio (2.75%), Indiana (3.05%), or Georgia (4.99%). This makes Tennessee cap rates more valuable per dollar of NOI than the same cap rate in a taxed state.
Vacancy: 5.5–7.2%
Per FRED data, Tennessee rental vacancy averaged 6.5% statewide. Nashville runs tightest at 5.5% (population growth drives demand). Memphis runs highest at 7.2% (higher turnover, tenant quality variance). Chattanooga and Knoxville sit at 5.5–5.8%.
Worked Example: Memphis Duplex ($180K)
Property: Duplex, Midtown Memphis
Purchase Price: $180,000
Monthly Rent: $950/unit × 2 = $1,900
Annual Income:
Gross Rent: $22,800
Vacancy (7.2%): −$1,642
Effective Gross: $21,158
Annual Expenses:
Property Tax (0.71%): −$1,278
Insurance: −$2,600
Management (10%): −$2,116
Maintenance (8%): −$1,693
CapEx (5%): −$1,058
Total Expenses: −$8,745
NOI: $12,413
Cap Rate: $12,413 / $180,000 = 6.90%6.90% cap rate — strong for a duplex at market price. Memphis duplexes consistently outperform SFR on cap rate because two rent streams cover one set of fixed expenses (tax, insurance). The 10% management fee reflects Memphis reality — this is not a self-manage market for out-of-state investors.
Worked Example: Nashville SFR ($380K)
Property: 3BR/2BA SFR, East Nashville
Purchase Price: $380,000
Monthly Rent: $2,100
Annual Income:
Gross Rent: $25,200
Vacancy (5.5%): −$1,386
Effective Gross: $23,814
Annual Expenses:
Property Tax (0.52%): −$1,976
Insurance: −$2,200
Management (9%): −$2,143
Maintenance (8%): −$1,905
CapEx (5%): −$1,191
Total Expenses: −$9,415
NOI: $14,399
Cap Rate: $14,399 / $380,000 = 3.79%3.79% cap rate — typical Nashville. The property generates $14,399 NOI but costs $380K. At a 7% mortgage with 25% down, annual debt service is $22,764 — NOI doesn’t cover it. Cash flow is deeply negative (-$697/month). Nashville is a pure appreciation play. Investors accept thin cap rates because Nashville appreciation has averaged 5–7% annually since 2020.
Run both scenarios in the Tennessee cap rate calculator. For cash flow analysis with financing, use the Tennessee rental property calculator.
Tennessee Cap Rate vs Other States
| State | Typical SFR Cap Rate | Median Price | Key Advantage |
|---|---|---|---|
| Tennessee (Memphis) | 5.5–8.0% | $155K | Lowest property tax + no income tax |
| Indiana | 4.5–6.5% | $185K | Low tax, stable markets |
| Ohio | 4.0–6.0% | $190K | Low entry, diversified economy |
| Georgia | 4.0–5.5% | $280K | Population growth (Atlanta) |
| Texas | 3.0–4.5% | $290K | No income tax, but high property tax |
| Florida | 2.5–4.0% | $380K | No income tax, but extreme insurance |
| Tennessee (Nashville) | 3.0–4.5% | $380K | Strong appreciation, population growth |
Memphis produces the highest cap rates among all states we cover — driven by the combination of lowest property tax (0.56%) and zero income tax. Nashville cap rates are comparable to Texas and Florida but with lower operating expenses. For state-specific comparisons: Indiana, Ohio, Georgia, Texas, Florida, North Carolina calculators.
How to Improve Cap Rate on Tennessee Properties
1. Target Memphis Multifamily Over SFR
Memphis duplexes produce 1.5-2.5% higher cap rates than SFR at similar price points. A $180K duplex earning $1,900/month (6.90% cap rate) outperforms a $155K SFR earning $1,200/month (4.38% cap rate). Two rent streams against one tax bill and one insurance policy is the simplest cap rate lever in Tennessee.
2. Shop Insurance Aggressively
Tennessee insurance varies 30-40% between carriers. A Memphis property quoted at $2,400/year by one insurer may cost $1,800 from a landlord-specific carrier (Steadily, Obie, NREIG). Saving $600/year adds $600 to NOI. On a $155K property, that is 0.39% more cap rate. Get 4-5 quotes.
3. Protest Property Tax Assessments
Tennessee allows annual assessment protests through the county Board of Equalization. Reducing assessed value by $20,000 saves ~$112/year in tax (at 0.56% effective). Over 10 years that is $1,120 in preserved NOI. Property is reassessed every 4-6 years.
4. Buy Below Market
A $155K Memphis property purchased at 15% below market ($132K) improves cap rate from 4.38% to 5.14%. Same NOI, lower denominator. Foreclosures, estate sales, and tired landlord deals in Memphis regularly trade 10-20% below Zillow estimates.
5. Consider Clarksville for Military Demand
Clarksville (Fort Campbell) has the most predictable tenant base in Tennessee. Military tenants with guaranteed BAH payments. While cap rates (4.5-6.0%) are lower than Memphis, vacancy runs only 6.0% vs Memphis 7.2%, and tenant turnover is lower. The risk-adjusted cap rate in Clarksville often beats Memphis once you factor in turnover costs ($2,000-$3,000 per turnover).
Chattanooga and Knoxville: The Middle Ground
Chattanooga has emerged as Tennessee s tech darling. EPB s 10-gigabit fiber network attracted remote workers and startups, driving population growth above the state average. At $250K median and $1,500 rent, the 4.0-5.5% cap rate range reflects this demand. The advantage: Chattanooga combines moderate cash flow with 3-4% annual appreciation. Hamilton County s 0.48% property tax is the lowest among major Tennessee metros. Insurance runs $2,000/year, also below the state average. For investors who want both income and growth without Nashville prices, Chattanooga is the sweet spot.
Knoxville benefits from University of Tennessee creating year-round rental demand. At $270K and $1,600 rent, cap rates run 4.0-5.5%, similar to Chattanooga but with university-driven tenant stability. Student housing near campus commands premium rents ($600-$800/room) but requires more management. The Knoxville advantage: steady occupancy regardless of economic cycles, because university enrollment is not correlated with housing market fluctuations. Knox County property tax at 0.50% and insurance at $2,100 keep expenses moderate.
5 Cap Rate Mistakes in Tennessee
1. Comparing Memphis and Nashville Cap Rates
Memphis at 6.9% and Nashville at 3.8% are not comparable — they serve completely different strategies. Comparing them is like comparing a savings account yield to stock market returns. Memphis is income. Nashville is growth. Choose your strategy first, then evaluate cap rate within that category.
2. Using Statewide Average Tax Rate
0.56% statewide vs 0.71% Shelby County (Memphis) = 0.15% difference. On $200K: $300/year in NOI. Always use county-specific rates from the Tennessee Comptroller.
3. Underestimating Memphis Insurance
Memphis insurance runs $2,400–$3,000/year — 30% above the Tennessee average. Flood zones along the Mississippi add $500–$1,500/year. Budget $200–$250/month for Memphis insurance, not $150.
4. Ignoring Memphis Vacancy
Memphis vacancy at 7.2% is the highest among Tennessee metros. At $1,200/month rent: 7.2% = $1,037/year lost. Using 5% vacancy (Nashville’s rate) in a Memphis analysis overstates NOI by $264/year. Small on one property, significant across a portfolio.
5. Forgetting Transfer Tax in Flip Cap Rate
Tennessee charges $0.37 per $100 on property transfers. On a $200K purchase: $740. On sale at $250K: $925. Total $1,665 in transfer taxes that reduce flip returns. Does not affect hold-period cap rate, but affects acquisition cost and exit proceeds. Calculate in the Tennessee closing costs calculator.
Frequently Asked Questions
What is a good cap rate in Tennessee for 2026?
Depends on the metro. Memphis: 5.5–8.0% for SFR, 6.5–9%+ for multifamily — the best cap rates in the state. Chattanooga/Knoxville: 4.0–5.5%. Clarksville: 4.5–6.0%. Nashville: 3.0–4.5% (appreciation market). A “good” cap rate depends on your strategy — cash flow investors target Memphis 6%+, appreciation investors accept Nashville 3.5%. Use the Tennessee cap rate calculator with your specific numbers.
Why does Memphis have higher cap rates than Nashville?
How does Tennessee’s low property tax affect cap rate?
Is Memphis or Chattanooga better for cap rate?
Should I use cap rate or cash-on-cash return for Tennessee deals?
Related Calculators and Guides
- Tennessee Cap Rate Calculator — Calculate with TN defaults
- Tennessee Rental Property Calculator — Full cash flow analysis
- Tennessee DSCR Calculator — Loan qualification
- Tennessee Closing Costs — Buyer cost estimate
- Tennessee BRRRR Calculator — BRRRR cycle analysis
- All Tennessee Calculators
Other state cap rate guides:
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