Location: Wabasha County, MN | Metro: Rochester, MN HUD Metro FMR Area
| Unit Size | Monthly FMR |
|---|---|
| Studio | $1,060 |
| 1 Bedroom | $1,090 |
| 2 Bedrooms | $1,270 |
| 3 Bedrooms | $1,770 |
| 4 Bedrooms | $2,130 |
| 5 Bedrooms | $2,471 |
| 6 Bedrooms | $2,768 |
| 7 Bedrooms | $2,989 |
| 8 Bedrooms | $3,138 |
U.S. Census Bureau data (2024)
The Section 8 cap-rate analysis for ZIP code 55906 in Rochester, MN, reveals a notable discrepancy between government-subsidized rental income and market rates. For fiscal year 2024, the Fair Market Rent (FMR) for a two-bedroom property is set at $1,110 annually. In contrast, the market rent, represented by the Zillow Observed Rent Index (ZORI), stands at $1,336 per month.
To derive the gross yield, we must first annualize these figures. The annualized FMR for a two-bedroom property is $1,110 multiplied by 12, equating to $13,320. Meanwhile, the annualized market rent is $1,336 multiplied by 12, totaling $16,032. Given the median home value of $392,596, the implied gross yield for a Section 8 tenant would be approximately 3.4%. This calculation is derived from dividing the annualized FMR by the median home value: $13,320 / $392,596 = 0.034 or 3.4%. On the other hand, the implied gross yield for a market-rate tenant is about 4.1%, calculated as $16,032 / $392,596 = 0.041 or 4.1%.
The 25.0% renter density indicates that a quarter of the households in ZIP 55906 are renters, which is a moderate level compared to urban areas. Additionally, the Days on Market (DOM) statistic of 23 days suggests a relatively quick turnover rate for rental properties, indicating a healthy demand for rentals in the area.
Given these factors, the gross yield of 4.1% based on market-rate rents appears more realistic for landlords and small-portfolio investors. The higher yield reflects the actual rental market conditions and the willingness of tenants to pay closer to the market rate. While the Section 8 program offers stability and a guaranteed tenant, the lower gross yield of 3.4% does not fully capture the potential income from market-rate rentals, especially considering the strong rental demand indicated by the DOM figure.
In conclusion, while both yields are important metrics, the 4.1% gross yield from market-rate rentals provides a clearer picture of the potential returns for investors in ZIP 55906. This figure should be used as a benchmark when evaluating investment opportunities in the area.
Data Sources: FMR data from HUD (2027). 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.