Section 8 Fair Market Rent (FMR) for ZIP 40509 - 2027

Investment Score for ZIP 40509

Based on 1% Rule: A+ (≥1.5%) | A (≥1.2%) | B (≥1.0%) | C (≥0.8%) | D (≥0.6%) | F (<0.6%)

FY 2027 Fair Market Rent Rates

Unit Size	Monthly FMR
Studio	$1,230
1 Bedroom	$1,500
2 Bedrooms	$1,760
3 Bedrooms	$2,420
4 Bedrooms	$2,620
5 Bedrooms	$3,039
6 Bedrooms	$3,404
7 Bedrooms	$3,676
8 Bedrooms	$3,860

Investment Analysis by Bedroom Size

Zillow median home prices vs Section 8 FMR rates (Data: 2026-08-31)

Bedrooms	Monthly FMR	Median Price	1% Rule	Grade
2BR	$1,760	$221,527	0.79%	D
3BR	$2,420	$338,232	0.72%	D
4BR	$2,620	$504,266	0.52%	F
5BR	$3,039	$646,598	0.47%	F

Demographics & Housing Statistics

U.S. Census Bureau data (2024)

### Market Analysis for ZIP Code 40509 (Lexington, KY) #### Section 8 Voucher Dynamics In ZIP code 40509, the Fair Market Rent (FMR) for a two-bedroom apartment is set at $1,610 per month. This figure represents 20.4% of the median household income of $94,804, which suggests that it is relatively affordable for households earning close to the median income. However, when comparing FMR to actual rental prices, there is a significant gap. The Zillow median price for a two-bedroom home in this area is $218,631, which translates to a monthly mortgage payment of approximately $1,040 assuming a 30-year fixed-rate mortgage at a 4% interest rate. Despite this lower mortgage payment, landlords often charge higher rents to cover additional costs such as property taxes, insurance, maintenance, and desired profit margins. The price-to-FMR ratio of 11.3x indicates that the median home value is significantly higher than the rent levels. For instance, the Zillow median price of $218,631 is about 11.3 times the FMR for a two-bedroom unit ($1,610). This ratio implies that the rental market is considerably less expensive compared to the purchase market, which could be advantageous for voucher holders but also presents challenges for landlords who must balance costs against the FMR cap. #### Affordability & Renter Profile ZIP code 40509 has a population of 47,036, with 39.3% of residents being renters. Given the occupancy rate of 96.1%, the market appears to be quite tight, indicating strong demand for rental properties. The median household income of $94,804 suggests that the area is relatively affluent, but with nearly 40% of residents renting, affordability remains a key concern. For households relying on Section 8 vouchers, the FMR serves as a crucial benchmark. A two-bedroom apartment at $1,610 per month would consume a substantial portion of their budget, especially if they are earning below the median income. This high percentage of income dedicated to housing can create financial strain, limiting their ability to afford other necessities. Additionally, the tight market means that voucher holders might face competition from non-voucher tenants willing to pay more, potentially making it difficult to find suitable housing. #### Investor Angle From an investor perspective, the ZIP code 40509 offers mixed opportunities. The FMR for a two-bedroom unit is $1,610, which is the maximum amount a landlord can charge for a Section 8 tenant. Given the median home value of $218,631, the potential monthly mortgage payment would be around $1,040. This leaves a margin of roughly $570 per month for expenses like property taxes, insurance, maintenance, and desired profit. To determine if this ZIP code is cash-flow positive at FMR, we need to consider these additional costs. Property taxes in Lexington, KY, typically range from 1.2% to 1.5% of the home value, which would equate to about $2,623 to $3,279 annually, or $218 to $273 monthly. Insurance costs vary widely but can average around $100 to $150 per month. Maintenance and other operational costs might add another $100 to $200 per month. If we assume a conservative estimate of $500 in total additional costs, the net cash flow would be approximately $70 to $120 per month, which is marginal but still positive. The investment grade for this ZIP code would be considered moderate. While there is a positive cash flow, the tight market and the high proportion of income required for housing suggest that there might be some risk involved. Investors should carefully evaluate the local economic conditions and the stability of the housing market before committing to investments in this area. #### Specific Actionable Insights 1. **Focus on Multi-Family Properties**: Given the high occupancy rate and the significant number of renters, multi-family properties might offer better returns. These properties can help spread the fixed costs over multiple units, improving overall cash flow. For example, a four-unit apartment building could generate a combined rental income of $6,440 per month (assuming all units are two-bedroom and rented at FMR), which is much higher than the single-family home scenario. 2. **Consider Renovation Projects**: With the median home value being significantly higher than the FMR, there might be opportunities to acquire older homes at a discount and renovate them to meet the needs of Section 8 tenants. By doing so, investors can potentially increase the rental income while keeping it within the FMR limits. For instance, a home purchased for $150,000 could have a monthly mortgage payment of about $700, leaving a larger margin for expenses and profit. 3. **Engage with Local Real Estate Agents**: To navigate the tight rental market effectively, investors should work closely with local real estate agents who understand the nuances of the Lexington housing market. They can provide valuable insights into areas where rents are slightly lower or where there is a higher concentration of Section 8 tenants, helping to optimize the investment strategy. #### Bottom Line For Section 8-focused investors, ZIP code 40509 presents a moderately attractive opportunity. The positive cash flow at FMR, combined with the strong demand for rental properties, makes it a viable option. However, the tight market and the high proportion of income needed for housing suggest that there are risks involved. Therefore, the recommendation is to **hold** this ZIP code, considering it for investment with caution and thorough due diligence. Investors should focus on multi-family properties or consider renovation projects to maximize returns while staying within the FMR guidelines. Engaging with local real estate professionals will be key to navigating the complexities of this market successfully.

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.