Location: Memphis, TN | Metro: Memphis, TN-MS-AR 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 | $1,040 |
| 1 Bedroom | $1,130 |
| 2 Bedrooms | $1,240 |
| 3 Bedrooms | $1,640 |
| 4 Bedrooms | $1,890 |
| 5 Bedrooms | $2,192 |
| 6 Bedrooms | $2,455 |
| 7 Bedrooms | $2,651 |
| 8 Bedrooms | $2,784 |
Zillow median home prices vs Section 8 FMR rates (Data: 2026-08-31)
| Bedrooms | Monthly FMR | Median Price | 1% Rule | Grade |
|---|---|---|---|---|
| 2BR | $1,240 | $105,190 | 1.18% | B |
| 3BR | $1,640 | $134,597 | 1.22% | A |
| 4BR | $1,890 | $158,348 | 1.19% | B |
U.S. Census Bureau data (2024)
The Section 8 cap-rate analysis for ZIP code 38122 in Memphis, TN, reveals some interesting insights into the potential returns for landlords and small-portfolio investors. To start, we must consider the Fair Market Rent (FMR) for a two-bedroom unit, which is set at $1270 annually according to the Federal Fiscal Year 2024 data. When annualizing this figure against the median home value of $125,871, the implied gross yield for a Section 8 rental property in this area is approximately 1.01%. This calculation is derived from dividing the annualized FMR ($1270) by the median home value ($125,871).
In contrast, the Zillow Observed Rental Index (ZORI) indicates that the market rent for a similar two-bedroom property is $1,138 per month, translating to an annual rent of $13,656. Using this figure, the implied gross yield for a market-rate rental property in ZIP 38122 would be about 10.85%, calculated by dividing the annual market rent ($13,656) by the median home value ($125,871).
The stark difference between these yields highlights the trade-offs involved in participating in the Section 8 program versus renting at market rates. Given the 47.3% renter density in the area, it's clear that there is a substantial demand for rental housing. However, the 51-day Days on Market (DOM) suggests that finding tenants willing to pay market rates can take slightly longer compared to average areas, which could influence the decision-making process for investors.
The choice between Section 8 and market-rate rentals depends largely on individual investor goals. For those seeking guaranteed income with less risk, the Section 8 scenario offers a stable source of revenue, albeit at a significantly lower gross yield. On the other hand, investors who are comfortable with higher risk and are looking for potentially higher returns might find the market-rate option more appealing, despite the slightly longer time to secure tenants.
In conclusion, while the Section 8 program provides a steady, government-backed income stream with an annual gross yield of 1.01%, market-rate rentals offer a much higher gross yield of 10.85%. The decision should factor in the local rental market dynamics, including the renter density and the time it takes to fill vacancies, to determine which path aligns best with investment objectives.
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.