Location: Louisville, KY | Metro: Louisville, KY-IN 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 | $1,460 |
| 1 Bedroom | $1,580 |
| 2 Bedrooms | $1,910 |
| 3 Bedrooms | $2,440 |
| 4 Bedrooms | $2,810 |
| 5 Bedrooms | $3,260 |
| 6 Bedrooms | $3,651 |
| 7 Bedrooms | $3,943 |
| 8 Bedrooms | $4,140 |
Zillow median home prices vs Section 8 FMR rates (Data: 2026-08-31)
| Bedrooms | Monthly FMR | Median Price | 1% Rule | Grade |
|---|---|---|---|---|
| 1BR | $1,580 | $234,160 | 0.67% | D |
| 2BR | $1,910 | $401,833 | 0.48% | F |
| 3BR | $2,440 | $550,453 | 0.44% | F |
| 4BR | $2,810 | $711,308 | 0.4% | F |
| 5BR | $3,260 | $939,555 | 0.35% | F |
U.S. Census Bureau data (2024)
The Section 8 cap-rate analysis for ZIP 40059 in Prospect, KY, reveals an interesting dynamic between government-subsidized rental income and market rents. Using the Fair Market Rent (FMR) for a 2-bedroom unit set at $1950 annually, the implied gross yield for a property valued at $616,082 would be approximately 0.61%. This calculation is derived by dividing the annual rental income ($1950) by the median home value ($616,082).
In contrast, if we consider the market rent as represented by the Zillow Observed Rental Index (ZORI) at $2,249 per month, the annual rental income increases to $26,988. This results in a significantly higher implied gross yield of about 4.37%, calculated by dividing the annual market rent by the median home value.
The disparity between these two yields highlights the financial realities faced by landlords participating in the Section 8 program versus those renting at market rates. With a 12.6% renter density in the area, it's important to note that the pool of potential tenants who qualify for Section 8 is smaller compared to the overall rental market. Additionally, the Days on Market (DOM) figure of 27 days suggests that properties are relatively quick to rent, which could indicate a competitive rental market where landlords might prefer to charge closer to market rates rather than accept lower Section 8 rents.
Given these factors, the gross yield based on market rents appears more realistic for most landlords and small-portfolio investors. While the Section 8 program provides stability and guaranteed income, the significantly lower gross yield of 0.61% does not offer the same level of financial return as the 4.37% gross yield from market rents. The quicker turnover rate indicated by the DOM also supports the idea that landlords can expect to fill vacancies faster at market rates, reducing the risk of extended vacancy periods.
Ultimately, the decision to participate in Section 8 or aim for market rents depends on individual investment goals and risk tolerance. However, for those seeking a higher return on investment, the data clearly points towards market rents as the more profitable option.
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.