Location: Waseca County, MN | Metro: Freeborn County, MN
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 | $720 |
| 1 Bedroom | $800 |
| 2 Bedrooms | $1,040 |
| 3 Bedrooms | $1,410 |
| 4 Bedrooms | $1,640 |
| 5 Bedrooms | $1,902 |
| 6 Bedrooms | $2,130 |
| 7 Bedrooms | $2,300 |
| 8 Bedrooms | $2,415 |
Zillow median home prices vs Section 8 FMR rates (Data: 2026-07-31)
| Bedrooms | Monthly FMR | Median Price | 1% Rule | Grade |
|---|---|---|---|---|
| 2BR | $1,040 | $236,911 | 0.44% | F |
| 3BR | $1,410 | $289,161 | 0.49% | F |
| 4BR | $1,640 | $355,574 | 0.46% | F |
U.S. Census Bureau data (2024)
The Section 8 cap rate analysis for ZIP code 56026, Ellendale, MN, reveals a stark contrast between the federal market rent (FMR) and the actual market rent. The annualized FMR for a two-bedroom property is set at $1,020, whereas the Census ACS reports a market rent of $818. To derive the cap rate, we must first calculate the gross yield for each scenario.
Starting with the FMR, at $1,020 per month, the annual rental income would be $12,240. Dividing this by the median home value of $302,874 yields an implied gross yield of approximately 4.04%. This calculation assumes that the property can be rented out at the full FMR, which is often not the case due to various factors such as location, property condition, and tenant preferences.
Moving on to the market rent scenario, at $818 per month, the annual rental income drops to $9,816. When this figure is divided by the median home value, it results in an implied gross yield of about 3.24%. This lower gross yield reflects the reality of rental rates in the area and is likely more accurate for investors considering the local market conditions.
The gross yield comparison clearly shows that renting at the FMR provides a higher return on investment, but this must be weighed against the actual rental market dynamics. With only a 9.4% renter density, landlords might face challenges in finding tenants willing to pay the FMR. Moreover, the lack of data on days on market (DOM) suggests that there could be inefficiencies or delays in securing tenants, further impacting the viability of achieving the higher FMR-based gross yield.
In conclusion, while the FMR-based gross yield of 4.04% appears attractive, the more realistic market rent scenario of 3.24% should be considered by investors. Given the low renter density and potential difficulties in tenant acquisition, the market rent is a safer benchmark for estimating returns on investment in ZIP 56026.
Data Sources: FMR data from HUD (2027). Median home prices from Zillow (2026-07-31). 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.