Location: Montgomery, AL | Metro: Montgomery, AL MSA
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 | $790 |
| 1 Bedroom | $800 |
| 2 Bedrooms | $920 |
| 3 Bedrooms | $1,180 |
| 4 Bedrooms | $1,370 |
| 5 Bedrooms | $1,589 |
| 6 Bedrooms | $1,780 |
| 7 Bedrooms | $1,922 |
| 8 Bedrooms | $2,018 |
Zillow median home prices vs Section 8 FMR rates (Data: 2026-08-31)
| Bedrooms | Monthly FMR | Median Price | 1% Rule | Grade |
|---|---|---|---|---|
| 2BR | $920 | $75,090 | 1.23% | A |
| 3BR | $1,180 | $103,447 | 1.14% | B |
| 4BR | $1,370 | $193,752 | 0.71% | D |
U.S. Census Bureau data (2024)
The Section 8 cap rate analysis for ZIP code 36104 in Montgomery, Alabama, reveals a stark contrast between the federally mandated Fair Market Rent (FMR) and the actual market rents. For a two-bedroom property, the annualized FMR for FY 2024 is set at $880 per month, while the Zillow Observed Rent Index (ZORI) indicates that the market rent stands at $1,473 per month. Given a median home value of $61,028 in the area, these figures translate into significant differences in gross yield.
Using the FMR, the annual rental income would be $10,560, resulting in a gross yield of approximately 17.3%. This calculation is derived by dividing the annual rental income by the median home value: $10,560 / $61,028 = 0.173, or 17.3%. On the other hand, applying the market rent of $1,473 per month yields an annual rental income of $17,676, leading to a gross yield of about 29.0%. The formula here is the same: $17,676 / $61,028 = 0.290, or 29.0%.
Considering the 75.4% renter density in the area, it becomes evident that the market rent scenario is more realistic. High renter density suggests strong demand for rental properties, making it likely that landlords can achieve higher rental rates. The N/A-day DOM (days on market) indicates that the data for days a property remains unsold before the offer is accepted is not available, which could mean that properties are rented out quickly, further supporting the likelihood of achieving the higher market rent.
While the FMR provides a benchmark for affordable housing, it often falls short of capturing the true market dynamics. In ZIP 36104, the disparity between the FMR and the ZORI highlights the potential for higher returns when renting outside of the Section 8 program. However, landlords must weigh the benefits of higher gross yields against the administrative burdens and income stability provided by 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.