Location: Sioux Falls, SD | Metro: Sioux Falls, SD 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 | $900 |
| 1 Bedroom | $990 |
| 2 Bedrooms | $1,170 |
| 3 Bedrooms | $1,610 |
| 4 Bedrooms | $1,960 |
| 5 Bedrooms | $2,274 |
| 6 Bedrooms | $2,547 |
| 7 Bedrooms | $2,751 |
| 8 Bedrooms | $2,889 |
Zillow median home prices vs Section 8 FMR rates (Data: 2026-08-31)
| Bedrooms | Monthly FMR | Median Price | 1% Rule | Grade |
|---|---|---|---|---|
| 1BR | $990 | $152,864 | 0.65% | D |
| 2BR | $1,170 | $226,743 | 0.52% | F |
| 3BR | $1,610 | $281,056 | 0.57% | F |
| 4BR | $1,960 | $345,046 | 0.57% | F |
| 5BR | $2,274 | $458,267 | 0.5% | F |
U.S. Census Bureau data (2024)
The Section 8 cap-rate analysis for ZIP code 57105 in Sioux Falls, SD, reveals two distinct scenarios based on the Fair Market Rent (FMR) and the market rent. For a two-bedroom unit, the FMR set by HUD for fiscal year 2024 is $1030 per month, while the Zillow Observed Rent Index (ZORI) indicates a market rent of $1,308 monthly. These figures can be annualized to compare against the median home value of $286,532.
Annualizing the FMR at $1030 per month yields an annual rental income of $12,360. When this is divided by the median home value of $286,532, it implies a gross yield of approximately 4.32%. On the other hand, using the market rent of $1,308 per month, the annual rental income is $15,696. This results in a gross yield of about 5.48% when compared to the median home value.
The higher gross yield based on market rent suggests that properties in ZIP 57105 could potentially generate better returns if rented at market rates rather than through the Section 8 program. However, the decision should also consider the 35.2% renter density in the area, indicating that over a third of households are already renters. This figure supports the likelihood of finding tenants willing to pay market rent.
The N/A-day DOM (Days on Market) for the area means there's insufficient data to determine how quickly properties are typically leased, which is crucial for understanding vacancy rates. Without this information, it's challenging to predict how long it might take to fill vacancies at either the FMR or market rent levels. Nevertheless, the gross yield comparison clearly shows that renting at market rates provides a more substantial return on investment.
In conclusion, while the Section 8 program offers a guaranteed tenant base, the financial metrics indicate that market rents provide a significantly higher gross yield. Investors should weigh the benefits of steady income from Section 8 against the potential for higher returns from market rents, considering the local renter density and the specifics of their property management situation.
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.