Section 8 Fair Market Rent (FMR) for ZIP 55016 - 2027

Investment Score for ZIP 55016

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	$1,520
1 Bedroom	$1,710
2 Bedrooms	$2,080
3 Bedrooms	$2,720
4 Bedrooms	$3,040
5 Bedrooms	$3,526
6 Bedrooms	$3,949
7 Bedrooms	$4,265
8 Bedrooms	$4,478

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	$2,080	$289,857	0.72%	D
3BR	$2,720	$361,442	0.75%	D
4BR	$3,040	$443,393	0.69%	D
5BR	$3,526	$521,216	0.68%	D

Demographics & Housing Statistics

U.S. Census Bureau data (2024)

### Market Analysis for ZIP Code 55016 (Cottage Grove, MN) #### Section 8 Voucher Dynamics In ZIP code 55016, the Fair Market Rent (FMR) for a two-bedroom apartment is set at $2100 per month for the year 2026. This amount represents approximately 20.9% of the median household income in the area, which stands at $120,715. However, the price-to-FMR ratio of 11.4x indicates that the median home value on Zillow for a two-bedroom property is $287,586, suggesting that rental properties are significantly undervalued relative to their comparable home values. Given the high price-to-FMR ratio, it is likely that actual rents in the area exceed the FMR. For instance, if the median home value for a two-bedroom property is $287,586, then the monthly rent could be much higher than the FMR. The constraints for voucher holders include finding landlords who accept vouchers, which can be challenging due to the limited number of renters in the area (only 11.8% of the population). Additionally, voucher holders must ensure that the rent they pay does not exceed the FMR, which can be difficult if actual rents are higher. #### Affordability & Renter Profile The median household income in Cottage Grove is quite high at $120,715, indicating that most residents have a strong financial standing. With only 11.8% of the population being renters, the market is relatively tight for those seeking rental properties. The occupancy rate of 99.4% suggests that there is little vacancy, making it a competitive environment for both tenants and landlords. Given the high income levels and low percentage of renters, it is reasonable to assume that those renting in this area are likely young professionals, recent graduates, or individuals who prefer renting over owning. They might also be families who are transitioning between homes or who are looking for short-term housing solutions. The affordability of rental units at the FMR level is generally good, but the challenge lies in finding units that do not exceed the FMR, especially given the high actual rents. #### Investor Angle From an investor perspective, the ZIP code 55016 offers a potentially lucrative opportunity, particularly for those focusing on Section 8 vouchers. The FMR for a two-bedroom unit is $2100, which is a significant portion of the median income. However, the high price-to-FMR ratio of 11.4x implies that rental properties are undervalued compared to their potential resale value. To determine whether this ZIP code is cash-flow positive at the FMR, we need to consider the typical expenses associated with rental properties, such as mortgage payments, maintenance, insurance, and property taxes. Assuming a conservative estimate of 30% of the median home value ($287,586) as the mortgage payment, the monthly mortgage would be around $7189. Adding other typical expenses such as maintenance ($200), insurance ($100), and property taxes ($200), the total monthly expense would be approximately $7689. Since the FMR for a two-bedroom unit is $2100, it is clear that relying solely on FMR would result in negative cash flow. However, the actual rents are likely higher, which could make the investment profitable. If actual rents are closer to the median home value, then the cash flow could be positive. The investment grade for this ZIP code is moderate to high, considering the strong demand and high income levels of the residents. However, the challenge lies in finding properties that can be rented out at or below the FMR while still generating positive cash flow. #### Specific Actionable Insights 1. **Focus on Properties Below FMR**: Investors should seek properties where the actual rent is below or close to the FMR. For example, a two-bedroom unit renting for $2100 or less would be ideal for Section 8 voucher holders. This strategy ensures compliance with the voucher program and maximizes the chances of attracting eligible tenants. 2. **Consider Multi-Family Units**: Given the high FMR for larger units (e.g., three-bedroom units at $2780 and four-bedroom units at $3110), multi-family units could provide a better return on investment. These units often have lower individual rent rates per bedroom, making them more affordable for voucher holders. Additionally, multi-family units can offer economies of scale, reducing overall expenses per unit. 3. **Engage with Local Landlords**: Since only 11.8% of the population are renters, engaging with local landlords who are already accepting Section 8 vouchers can provide valuable insights into the market. Understanding their experiences and challenges can help new investors navigate the complexities of the rental market in Cottage Grove. #### Bottom Line For Section 8-focused investors, the recommendation for ZIP code 55016 is to **Hold**. While the market has strong demand and high income levels, the tight rental market and the challenge of finding properties that can be rented out at or below the FMR without negative cash flow make it a cautious investment. Investors should focus on properties that are already priced below the FMR and engage with local landlords to understand the nuances of the rental market. The high price-to-FMR ratio suggests that rental properties are undervalued, which could present opportunities for long-term appreciation, but immediate cash flow will likely be a concern unless actual rents are managed effectively.

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.