Rental Property in Tennessee: What the Numbers Actually Look Like

Tennessee has no state income tax, and unlike Texas it did not replace it with a high property tax. The statewide effective property tax rate is 0.52%, among the lowest in the country. Tennessee funds itself largely through sales tax instead — among the highest combined state and local rates in the nation, which matters to a landlord buying appliances, materials, and contractor labor, and which is invisible in every rental spreadsheet.

Two other Tennessee facts belong at the top, because neither shows up in a premium comparison and both change what "shop around" means here.

Tennessee has real tornado and severe-convective-storm exposure, heaviest in West Tennessee and the Nashville corridor, and a separate percentage wind and hail deductible has become common as a result. Unlike a coastal named-storm deductible, this one triggers on an ordinary severe thunderstorm.

And Tennessee has no insurer of last resort at all. No FAIR Plan. No windstorm pool. It is one of roughly 17 states that never established a residual property insurance market, and having no coast it has no beach plan either. A Tennessee landlord who cannot get coverage from an admitted carrier — typically because of roof age, prior hail or wind claims, or a rural protection-class rating — has nowhere state-backed to go, and must buy from the excess and surplus lines market, which is not rate- or form-regulated and generally costs more for narrower coverage.

That changes the honest advice. In most states "shop around" is real advice. In Tennessee it is real advice only while an admitted carrier will still quote you, because there is no backstop behind the private market.

A note before you start: this is general educational information about how rental property arithmetic works in Tennessee. It is not investment, tax, insurance, or legal advice, and it is not a recommendation about any property. Property tax is administered county by county with assessment ratios and reappraisal cycles that vary; insurance is priced per structure. Talk to a Tennessee CPA about tax treatment, a licensed Tennessee insurance agent about a real quote, and a Tennessee real estate attorney about anything contractual.

1. What a rental costs to buy here

The statewide median sale price is $383,600 (Redfin, May 2026, up 1.0% year over year). County figures diverge more sharply than in any other state in this series:

• Shelby County (Memphis): $297,000, effective property tax rate 0.98%, average insurance $2,875
• Davidson County (Nashville): $491,000, effective property tax rate 0.57%, average insurance $3,029

Note the conforming loan limit difference too: Davidson County's is $1,029,250 against Shelby's $832,750, reflecting Nashville's designation as a higher-cost area.

Price growth is +2.23% year over year — the fourth-best figure in this eight-state series, behind Indiana (+3.57%), Ohio (+3.24%), and Alabama (+2.40%), and well ahead of Florida (-0.5%) and Texas (-1.63%).

The cash you actually need

Tennessee is one of the few states where the buyer customarily pays on both the deed and the note:

• Deed transfer (recordation) tax: 0.37% — $0.37 per $100 of value or consideration under Tenn. Code Ann. 67-4-409. Customarily the buyer's in most Tennessee transactions, though this is genuinely mixed across sources, is legally payable by either party, and is negotiable by contract. Some sources describe seller-paid as also common.
• Mortgage recordation tax: $0.115 per $100 of indebtedness, with the first $2,000 of indebtedness exempt, on the recording of mortgages and deeds of trust. This is separate from the deed tax above.
• Closing costs: 2% to 5%. Rocket Mortgage puts Tennessee buyer closing costs at about 3.63% (roughly $14,750 average); the broader commonly cited buyer range is 2% to 5%. This article takes the 3.5% midpoint.

On the $297,000 Shelby County example at 25% down:

• Down payment: $297,000 x 0.25 = $74,250
• Loan amount: $222,750
• Closing costs: $297,000 x 3.5% = $10,395
• Deed transfer tax: $297,000 x 0.37% = $1,098.90
• Mortgage recordation tax: ($222,750 - $2,000) / 100 x $0.115 = $253.86
• Total cash in: $85,997.76

The two recordation taxes together add $1,352.76, or about 0.46% of the purchase price. Not enormous, but it is real money that Indiana and Texas buyers simply do not pay at all, and some closing-cost estimates already fold it in, so watch for double counting.

2. The two expenses that decide whether it works

Property tax: very low statewide, very uneven by county

The Tax Foundation puts Tennessee's effective property tax rate on owner-occupied housing at 0.52% (a separate Tax Foundation page cites 0.49%), cross-checked against propertytaxrates.org at 0.55%. Sources cluster 0.49% to 0.55%, with 0.52% used as a representative midpoint.

The county figures tell a much more interesting story:

• Shelby County: 0.98% — nearly double the state average
• Davidson County: 0.57%

On the Shelby example: $297,000 x 0.98% = $2,910.60 a year, or $242.55 a month.

Two Tennessee mechanics matter here.

Tennessee assesses residential property at 25% of appraised value, and then applies the county and municipal tax rates to that assessed value. That is why a headline rate quoted as dollars per $100 of assessed value looks small — it is applied to a quarter of the appraisal. The effective rates above already normalize for this, so use them rather than trying to reconstruct the bill from a millage rate.

Reappraisal cycles vary by county (commonly four, five, or six years), and Tennessee's certified tax rate law is meant to keep a reappraisal revenue-neutral in aggregate — but that does not make it neutral for your parcel. If your property appreciated faster than the county average, your bill rises even in a revenue-neutral reappraisal. Find out where the county sits in its cycle.

Tennessee's property tax relief programs — for low-income elderly and disabled homeowners, disabled veterans, and their surviving spouses — all require owner occupancy. A rental gets none of them, but they are narrow enough that the homesteaded-versus-rental gap here is much smaller than in Georgia or Florida.

Insurance: middling, and the market behind it is thin

The reference figure is $3,207 a year at $300,000 of dwelling coverage with a $1,000 deductible. (The site's separate state file carries $4,220 from a different source; the insurance-specific file's coverage-normalized $3,207 is used here.) County averages: Shelby $2,875, Davidson $3,029.

At the same coverage level, Tennessee sits in the middle of this series — above Georgia's $2,453 and Ohio's $1,943, below North Carolina's $3,634, Texas's $4,643, and Florida's $8,471. The trend is +3% year over year, which is one of the calmer figures in this set.

On the worked example, property tax and insurance together are $5,785.60 — 26.06% of gross rent and 28.33% of rent actually collected. That is a workable burden, better than Ohio and Indiana and dramatically better than Texas and Florida.

What is not workable is what sits behind the premium.

No residual market, and what that actually means

This is Tennessee's genuine structural gap, and it is worth being precise about it.

Tennessee has no FAIR Plan and no windstorm pool. It is one of roughly 17 states that never established a residual property insurance market. Having no coast, it has no beach or wind plan either. There is no state-backed insurer of last resort of any kind.

Compare that to the states around it. Georgia's Underwriting Association writes to roughly $2 million of dwelling coverage. Ohio's FAIR Plan writes a true open-peril homeowners form to $2 million per location. North Carolina runs two entities. Texas runs two. Alabama runs a coastal wind pool. Tennessee runs none.

If an admitted carrier declines or non-renews you — and roof age, prior hail or wind claims, and rural protection-class ratings are the usual reasons — your only option is the excess and surplus lines market. E&S carriers are not subject to the same rate and form regulation as admitted carriers, which means the policy language can be narrower in ways a standard-form comparison will not surface, and the price is whatever the market bears. There is also no state guaranty fund protection of the same kind if an E&S carrier fails.

The practical instruction for a Tennessee landlord: treat insurability as a purchase condition, not a formality. Get a bindable quote from an admitted carrier before you commit. If the only quotes you can get are E&S, that is information about the property — and about your exit, because your buyer will face the same problem.

The percentage deductible, and why it is a landlord's problem specifically

Tennessee has no coastline and no hurricane or named-storm deductible — confirmed, not assumed; it is not on the Insurance Information Institute's list of 19 states plus DC with hurricane deductibles.

What it has is real tornado and hail exposure, heaviest in West Tennessee and the Nashville corridor, and a separate percentage wind/hail deductible has become common as a result. Carriers structure it two ways: a flat wind/hail amount of $1,000 to $5,000, or a percentage of the dwelling limit, most often 1% or 2%.

Insurify's May 2026 study measures Tennessee's statewide average wind/hail deductible at 1.30% of dwelling coverage — 11th-highest in the country.

Crucially, unlike a named-storm deductible, this one triggers on ordinary severe-thunderstorm wind and hail, not just a named event. In Tennessee it is therefore the deductible that applies to the most common claim by far.

Tennessee construction runs about $210 per square foot to rebuild, so a 1,500 square foot house has a replacement cost near $315,000. Against a $300,000 dwelling limit:

• 1% = $3,000
• 1.30% (the state average) = $3,900
• 2% = $6,000

Now put those against the property. Section 3 works out that this rental produces $10,376 of net operating income in a good year:

• $3,000 is 28.9% of a full year's NOI
• $3,900 is 37.6%
• $6,000 is 57.8%
• 2% of a $315,000 replacement cost ($6,300) is 60.7%

You cannot pass any of that to a tenant. It is not a lease obligation, it is not billable, and it does not wait for rent to accumulate. The difference between a flat $1,000 deductible and a 2% deductible, as the site's data puts it, is the difference between a routine roof claim and one that is effectively uninsured.

Roof settlement compounds it. Roof age, not state law, decides the settlement basis. Tennessee carriers increasingly attach roof payment schedules or actual-cash-value endorsements that depreciate roofs past roughly 10 to 15 years — the same underwriting response to hail losses seen across the hail-exposed states. Because Tennessee's most likely large claim is a wind or hail roof loss, the roof settlement clause and the wind/hail deductible together determine most of the real-world value of a Tennessee policy, and neither appears in a premium comparison.

Stack that with the previous section and the picture is clear: an older roof in Tennessee means a bigger deductible bite, a depreciated payout, a higher chance of non-renewal, and no residual market to catch you. Roof age is the single most consequential physical fact about a Tennessee rental.

3. A full worked example

The property. A single-family house in Shelby County at the county median of $297,000.

The rent — read this carefully. This site does not carry rent data. The $1,850 a month used below is an assumption chosen to be plausible for a house at that price in that county. It is not a market observation. Pull three to five real comparable listings for the specific neighborhood and substitute the actual number.

The other assumptions:

• Vacancy: 8% of gross rent (roughly one month of turnover a year)
• Property management: 10% of collected rent
• Repairs and maintenance: 5% of gross scheduled rent
• Capital reserve: 5% of gross scheduled rent
• Financing: 25% down, 30-year fixed at 7.00% — the rate is an assumption, not a quote
• No HOA

Step 1 — income

• Gross scheduled rent: $1,850 x 12 = $22,200
• Vacancy loss: $22,200 x 8% = $1,776
• Effective gross income: $22,200 - $1,776 = $20,424

Step 2 — operating expenses

Management is charged on rent actually collected, not scheduled rent:

• Management: $20,424 x 10% = $2,042.40
• Property tax: $297,000 x 0.98% = $2,910.60
• Insurance: $2,875 (Shelby County average)
• Maintenance: $22,200 x 5% = $1,110
• Capital reserve: $22,200 x 5% = $1,110
• Total operating expenses: $10,048

Expense ratio: $10,048 / $20,424 = 49.20% of collected rent — inside the 35% to 55% band most rentals land in.

Step 3 — net operating income and cap rate

• NOI = $20,424 - $10,048 = $10,376
• Cap rate = $10,376 / $297,000 = 3.49%

The mortgage is deliberately absent from that figure. Cap rate exists to compare properties independently of how they are financed; including debt service in it makes two identical houses look like different investments because one buyer put more down, and it is the most common error in this whole exercise.

Step 4 — debt service and cash flow

Loan: $297,000 x 75% = $222,750. At 7.00% over 30 years, principal and interest is $1,481.96 a month, or $17,783.52 a year.

• Annual cash flow = $10,376 - $17,783.52 = -$7,407.52
• Monthly cash flow = -$617.29
• Debt service coverage ratio = $10,376 / $17,783.52 = 0.58

Step 5 — cash-on-cash return

• Cash invested: $85,997.76 (Section 1)
• Cash-on-cash = -$7,407.52 / $85,997.76 = -8.61%

Rate sensitivity, since 7.00% was an assumption

• At 6.50%: P&I $1,407.93/mo, annual cash flow -$6,519.16
• At 7.00%: P&I $1,481.96/mo, annual cash flow -$7,407.52
• At 7.50%: P&I $1,557.50/mo, annual cash flow -$8,314.00

The simplest version of the same finding

Add up the four bills a lender escrows:

• Principal and interest: $1,481.96
• Property tax: $2,910.60 / 12 = $242.55
• Insurance: $2,875 / 12 = $239.58
• Total: $1,964.09 a month

Against $1,850 of assumed rent, that is -$114.09 a month before vacancy, management, or a single repair.

4. The expenses people leave out

Vacancy, management, and capital reserves do not arrive as invoices. Nobody bills you for the month between tenants, or for the roof you will need in nine years, or — if you self-manage — for your own weekends. So they fall out of the mental model, and the property looks better than it is.

Here is the same Shelby County house with those three removed and everything else identical:

The three omissions are worth $4,928.40 a year — $1,776 of vacancy, $2,042.40 of management, $1,110 of reserve. They flatter the cap rate by 1.66 percentage points and hide 67% of the annual loss.

The 31.06% expense ratio in the left column is the tell. Any analysis producing an expense ratio below about 35% of collected rent is telling you something is missing, not that you found an unusually efficient property.

Vacancy is not optional. Eight percent is roughly one month a year — what a single clean turnover costs between move-out and the next tenant's first full month, assuming nothing goes wrong. Setting it to zero assumes the house is never empty, including between tenants.

Management is a real cost even if you do it yourself. Zeroing it means the return is paying you for your labor, not for the property. Self-managing this house saves $2,042.40 a year, lifting NOI to $12,418.40 and the cap rate to 4.18%, with cash flow improving to -$447.09 a month. Real saving, does not fix the deal, and it stops being free the moment you move, get busy, or buy a second house. It also matters more in Tennessee than in most places if you are an out-of-state buyer — Memphis is one of the largest out-of-state-investor markets in the country, and self-managing from another state is not a realistic plan.

Capital reserves are certain, not unlikely. Section 2 makes the Tennessee-specific case: carriers depreciate roofs past roughly 10 to 15 years, wind and hail is the most likely large claim, and there is no residual market if you become uninsurable. In Tennessee, replacing a roof before it fails is not just maintenance — it is how you stay insurable.

The 5%-of-rent convention used above is one option. A harsher and equally common convention is 1% of purchase price a year for maintenance and 1% for capital, which here is $2,970 each. Run that way: total operating expenses $13,768, expense ratio 67.41%, NOI $6,656, cap rate 2.24%, cash flow -$927.29 a month, cash-on-cash -12.94%.

The honest cap-rate range for this property is 2.24% to 3.49%. Memphis has a large stock of older housing, which argues for the percentage-of-price convention.

What would actually have to be true

The rent this property needs. For cash flow to reach zero at this price and this financing, gross scheduled rent must reach about $32,375 a year, or $2,697.93 a month — 0.91% of purchase price per month. The assumed $1,850 is 0.62%. The gap is roughly $848 a month.

The price this rent supports. Hold rent at $1,850 and solve for the price at which cash flow reaches zero with 25% down: about $190,688, which is 64% of the Shelby County median.

The down payment this price needs. Keep the $297,000 price and the $1,850 rent and solve for the loan the NOI can service: about $129,966 — roughly $167,034 down, or 56% of the price.

A middle option. At 40% down ($118,800), the loan falls to $178,200, principal and interest to $1,185.57 a month, and cash flow to -$320.90 a month with a DSCR of 0.73. Combine 40% down with self-management and this property is close to breakeven — but self-management is exactly what an out-of-state Memphis investor cannot easily do.

5. What actually varies by county here

Tennessee has the widest county property tax spread of the eight states in this series among counties the site carries data for: Shelby at 0.98% against Davidson at 0.57% — Shelby's rate is 72% higher.

Take the identical $297,000 house at the identical $1,850 rent and change only the county's effective tax rate and average insurance:

$1,063.70 a year of net operating income and 0.36 points of cap rate, on the same house at the same rent, almost entirely from the tax line. Davidson's slightly higher insurance offsets a small part of it.

But Davidson County's real median is $491,000, not $297,000 — 65% higher than Shelby's. Run a Davidson property at its own median with a $2,600 assumed rent, 0.57% tax, and $3,029 insurance: NOI $16,885.90, cap rate 3.44%, cash flow -$1,042.82 a month, DSCR 0.57.

Nashville's much lower tax rate produces a slightly worse cap rate than Memphis, because the price difference swamps it. That is the central Tennessee lesson, and it is the same one Ohio and Indiana teach: the tax rate matters, and the purchase price relative to rent matters more.

Two more county-level facts to check on a specific parcel:

Municipal rates stack on county rates. A property inside Memphis city limits carries both the Shelby County rate and the City of Memphis rate; a property in unincorporated Shelby County does not. The same is true across Tennessee, and the effective rates above are county-level aggregates that blur that distinction. Pull the parcel's actual bill.

West Tennessee carries the heaviest severe-weather exposure. The site's insurance data records tornado and hail exposure as heaviest in West Tennessee and the Nashville corridor. Shelby County is in West Tennessee. That is consistent with the wind/hail deductible discussion in Section 2 being especially relevant to a Memphis rental — and it is a reason to read the deductible on the quote rather than assuming the statewide 1.30% average applies to your policy.

6. Financing a rental is not financing a home

These are standard mechanisms across the mortgage market. Any specific rate or overlay is your lender's, not this article's.

Down payment. Conventional financing on a non-owner-occupied one-unit property generally requires more equity than an owner-occupied purchase — 20% is usually the floor and 25% the common expectation, which is why this article models 25%. FHA and VA are not available for a property you do not occupy. The real exception is house hacking: a two-to-four-unit property you live in one unit of qualifies for owner-occupied programs.

Rate. Investment-property loans price above owner-occupied loans. Fannie Mae and Freddie Mac apply loan-level price adjustments for investment occupancy that scale with loan-to-value and credit score, and lenders pass those through as a higher rate or points.

Loan limits differ by county here. Davidson County's conforming loan limit is $1,029,250 against $832,750 in Shelby — one of the few places in this series where the county-level limit is materially different, and it matters at the top of the Nashville market.

Reserves. Lenders typically require post-closing reserves — months of principal, interest, taxes, and insurance held in liquid assets — scaling with the number of financed properties you own. Given Section 2's wind/hail deductible and the absence of any residual insurance market, you want those reserves regardless of what the lender demands.

Rental income counting. Lenders credit a portion of market or lease rent toward qualifying, not all of it. Ask what percentage yours uses and whether they need an appraiser's rent schedule.

DSCR loans. A debt service coverage ratio loan qualifies the property rather than the borrower, comparing property income to debt service and largely skipping personal income documentation. The trade is a higher rate, a larger down payment, frequent prepayment penalties, and a minimum DSCR the property must clear — commonly stated at or above 1.0 and often above 1.2. Memphis in particular sees heavy DSCR and out-of-state investor activity, so these products are widely marketed there; the marketing does not change the arithmetic.

Section 3's example has a DSCR of 0.58. Even stripped of vacancy, management, and reserves it is 0.86. It does not qualify at 75% loan-to-value, and the underwriting is telling you what the cash flow line already said.

Insurance is a closing condition, and in Tennessee it is a real risk. Because there is no FAIR Plan, an uninsurable property is genuinely uninsurable at any reasonable price. Get a bindable admitted-carrier quote for the specific address before your inspection period ends.

7. What to check before you buy in this state

Insurance first, because Tennessee has no backstop.

1. Get a bindable landlord policy quote from an admitted carrier for the specific address, with loss of rents coverage, and check how many months it pays. If only excess and surplus lines carriers will quote, treat that as material information about the property.
2. Find the wind/hail deductible on the quote. If it is a percentage, multiply it into dollars against the dwelling limit and write the number down. If it is flat, confirm in writing that no percentage applies.
3. Get the roof age in writing and ask how the policy settles a roof claim. Ten to fifteen years is where depreciation schedules and ACV endorsements typically take over, and it is also where non-renewal risk begins.
4. Ask about cosmetic damage exclusions for hail. They matter on metal and architectural-shingle roofs.
5. Price flood separately. No property policy anywhere covers flood, and a large share of national flood claims come from outside mapped high-risk zones — a point with teeth in West Tennessee.

The tax bill, on the parcel, from the county trustee or assessor.

1. Pull the actual bill and confirm whether the property sits inside a municipality, which stacks a city rate on the county rate.
2. Check where the county is in its reappraisal cycle.
3. Strip any owner-occupancy relief off the current bill. A rental gets none of it.

The rent, from the market.

1. Pull three to five genuine comparable rentals for the specific neighborhood and note how long they sat.
2. Divide monthly rent by purchase price. Section 4's breakeven for this example was 0.91%. Memphis in particular is marketed heavily to out-of-state investors on the strength of its rent-to-price ratio; check the actual ratio on the actual property rather than the pitch.

The law, from the statute rather than from an article.

1. Do not take eviction timelines, notice periods, security-deposit rules, or late-fee limits from a blog — including this one. Tennessee's Uniform Residential Landlord and Tenant Act is at Tennessee Code Annotated Title 66, Chapter 28 — and here is the Tennessee-specific wrinkle that matters most: the Act applies only in counties above a population threshold set in the statute. In counties below it, a different and older body of law governs. Confirm whether the county your property is in is covered before you assume anything about notice or deposit handling. Read the statute through the Tennessee General Assembly's site, https://www.capitol.tn.gov/, or have a Tennessee real estate attorney walk you through it.
2. Check the city as well as the state: rental registration, inspection programs, and short-term rental rules are municipal, and Nashville in particular regulates short-term rentals actively.

The building.

1. Get the age of the roof, HVAC, water heater, and electrical panel in writing. In Tennessee the roof is the item that determines insurability, not just maintenance cost.

The money and the tax treatment.

1. Size cash reserves against the wind/hail deductible in dollars, not against a month of mortgage payments.
2. Ask a Tennessee CPA about depreciation, passive activity loss rules, and what happens on sale. Tennessee has no state income tax on wages or rental income, which changes that conversation but does not remove it — the federal treatment is where most of the answer lives, and Tennessee's franchise and excise tax can reach certain entity structures holding rental property. Ask about the entity, not just the property.
3. Remember the sales tax. Tennessee's combined state and local sales tax rates are among the highest in the country, and every appliance, fixture, and material purchase on a rehab pays it. It does not appear in any of the arithmetic above and it is real money on a renovation.

What to do next

Every figure above came from a data file or was computed in front of you. Re-run all of it with your own numbers.

The Tennessee rental analysis calculator does exactly the work in Sections 3 and 4 — enter your price, your real local rent, and your own vacancy, management, and reserve assumptions, and it produces NOI, cap rate, cash flow, cash-on-cash, and DSCR. It also flags the omissions Section 4 is about rather than letting a flattered number pass silently.

The Tennessee insurance premium estimator gets you closer to a real figure for a specific dwelling limit than the $3,207 statewide average, and converts the wind/hail deductible percentage into actual dollars — which matters more in a state with no insurer of last resort behind it.

The Tennessee mortgage payment calculator gives you the principal and interest figure for the rate you are actually quoted.

This article is general educational information about rental property arithmetic in Tennessee, based on figures current as of August 2026. It is not investment, tax, insurance, or legal advice. The rent figures in the worked examples are stated assumptions, not market data. Who customarily pays Tennessee's transfer tax is genuinely mixed across sources and is negotiable by contract. Property tax rates, insurance premiums, and mortgage rates change and vary by property. Consult a Tennessee CPA, a licensed Tennessee insurance agent, and a Tennessee real estate attorney before buying.