Location: Birmingham-Hoover, AL | Metro: Birmingham-Hoover, AL HUD Metro FMR Area
Based on 1% Rule: A+ (≥1.5%) | A (≥1.2%) | B (≥1.0%) | C (≥0.8%) | D (≥0.6%) | F (<0.6%)
| Unit Size | Monthly FMR |
|---|---|
| Studio | $1,220 |
| 1 Bedroom | $1,300 |
| 2 Bedrooms | $1,420 |
| 3 Bedrooms | $1,780 |
| 4 Bedrooms | $2,000 |
| 5 Bedrooms | $2,320 |
| 6 Bedrooms | $2,598 |
| 7 Bedrooms | $2,806 |
| 8 Bedrooms | $2,946 |
Zillow median home prices vs Section 8 FMR rates (Data: 2026-08-31)
| Bedrooms | Monthly FMR | Median Price | 1% Rule | Grade |
|---|---|---|---|---|
| 2BR | $1,420 | $105,058 | 1.35% | A |
| 3BR | $1,780 | $174,362 | 1.02% | B |
| 4BR | $2,000 | $254,377 | 0.79% | D |
| 5BR | $2,320 | $300,765 | 0.77% | D |
U.S. Census Bureau data (2024)
The Section 8 cap rate analysis for ZIP code 35023 in Alabama reveals some interesting dynamics when comparing the Fair Market Rent (FMR) to the market rent. For a two-bedroom property, the FMR for fiscal year 2024 is set at $1230 annually, while the market rent, as indicated by ZORI, stands at $1,277 annually. With a median home value of $170,554, these figures translate into distinct gross yields.
First, let's calculate the gross yield based on the FMR. Given that the annualized FMR is $1230, the gross yield would be approximately 0.72%. This is derived by dividing the annual rent ($1230) by the median home value ($170,554). On the other hand, using the market rent figure of $1,277, the gross yield increases slightly to about 0.75%. The calculation here involves the same division of annual market rent by the median home value.
To determine which scenario is more realistic, consider the 15.1% renter density and the 36-day Days on Market (DOM). The lower renter density suggests that the demand for rental properties might be less robust compared to areas with higher densities, which could imply a slower absorption rate for rental units. However, the relatively short DOM of 36 days indicates that properties are being rented out quickly, suggesting a strong local rental market despite the lower overall density.
Given these factors, the market rent scenario appears more realistic. A DOM of 36 days indicates that landlords can likely achieve closer to market rates, even if they participate in Section 8 programs. While the FMR scenario provides a conservative estimate, the actual performance of rental properties in ZIP 35023 is likely to align more closely with the market rent, yielding a gross return of around 0.75%. This is a modest but stable return, especially considering the security of rental income provided by the Section 8 program.
In conclusion, the gross yield based on the FMR is 0.72%, while the gross yield based on the market rent is 0.75%. The latter scenario, reflecting the actual market conditions, is more plausible for ZIP 35023, offering a slightly better return for landlords and small-portfolio investors who are willing to participate in the Section 8 program.
Data Sources: FMR data from HUD (2027). Median home prices from Zillow (2026-08-31). Demographics from U.S. Census (2024).
About FMR: Fair Market Rent (FMR) is used to determine payment standards for the Section 8 Housing Choice Voucher program, initial renewal rents for some expiring project-based Section 8 contracts, and rent ceilings for HOME Investment Partnerships.