Location: Tuscaloosa, 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 | $1,020 |
| 1 Bedroom | $1,030 |
| 2 Bedrooms | $1,230 |
| 3 Bedrooms | $1,550 |
| 4 Bedrooms | $1,620 |
| 5 Bedrooms | $1,879 |
| 6 Bedrooms | $2,104 |
| 7 Bedrooms | $2,272 |
| 8 Bedrooms | $2,386 |
Zillow median home prices vs Section 8 FMR rates (Data: 2026-08-31)
| Bedrooms | Monthly FMR | Median Price | 1% Rule | Grade |
|---|---|---|---|---|
| 3BR | $1,550 | $206,900 | 0.75% | D |
U.S. Census Bureau data (2024)
The analysis of the Section 8 cap-rate scenario for ZIP code 35456 reveals important insights for landlords and small-portfolio investors. The Federal Market Rent (FMR) for a two-bedroom unit in this area for fiscal year 2024 is set at $1,100 per month. This translates into an annual rental income of $13,200. Given the median home value of $166,725, the implied gross yield from the FMR is approximately 7.9%. To calculate this, divide the annual rental income ($13,200) by the median home value ($166,725).
In contrast, the market rent for a two-bedroom unit in ZIP 35456, according to Census ACS data, is $1,157 per month. This amounts to an annual rental income of $13,884. Using the same median home value, the implied gross yield from the market rent is about 8.3%. This calculation is derived by dividing the annual market rent ($13,884) by the median home value ($166,725).
The gross yield comparison between the FMR and market rent suggests that the market rent scenario offers a slightly higher return. However, the reality of the situation must be considered through the lens of the local rental market dynamics. With a renter density of 26.4%, it's crucial to understand how many potential tenants might be eligible for Section 8 housing assistance.
The Day on Market (DOM) data being listed as N/A implies that there is limited information available regarding the typical time it takes to find a tenant in this area. Despite this gap, the higher gross yield from the market rent scenario is more likely to reflect the actual financial performance of properties in ZIP 35456. This is because the market rent aligns more closely with what landlords can expect to charge non-assistance recipients, who constitute a significant portion of the rental market.
Investors should recognize that while Section 8 provides stability and guaranteed income, the slightly lower gross yield from the FMR compared to the market rent indicates a trade-off. The decision to participate in Section 8 should be based on factors beyond just the gross yield, such as the stability of cash flow and the risk profile of the investment.
In summary, the Section 8 cap-rate picture for ZIP 35456 shows an implied gross yield of 7.9% based on the FMR, versus 8.3% using the market rent. The latter is more realistic given the local rental market conditions, even if it doesn't fully capture the complexities of finding and retaining tenants under Section 8.
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.