Location: Hutchinson County, SD | Metro: Sioux Falls, SD HUD Metro FMR Area
| Unit Size | Monthly FMR |
|---|---|
| Studio | $780 |
| 1 Bedroom | $900 |
| 2 Bedrooms | $1,050 |
| 3 Bedrooms | $1,430 |
| 4 Bedrooms | $1,750 |
| 5 Bedrooms | $2,030 |
| 6 Bedrooms | $2,274 |
| 7 Bedrooms | $2,456 |
| 8 Bedrooms | $2,579 |
U.S. Census Bureau data (2024)
The analysis of Section 8 cap rates for ZIP code 57332 reveals an interesting scenario for potential investments. With the Fair Market Rent (FMR) for a 2-bedroom apartment set at $910 annually for FY 2024, and the market rent at $675 based on Census ACS data, we can derive two distinct gross yields.
First, using the FMR of $910, the annualized rent would be $10,920. Given that the median home value is not available, let's consider the implications of this figure. The gross yield, which is the annual rental income divided by the property value, cannot be precisely calculated without knowing the property value. However, if we assume a property value of $100,000 as a hypothetical benchmark, the gross yield would be 10.92%. This represents a significant return on investment, especially when compared to traditional fixed-income investments.
Second, using the market rent of $675, the annualized rent would be $8,100. Again, assuming a property value of $100,000, the gross yield would be 8.1%. This is lower than the FMR-based yield but still competitive in many real estate markets.
To determine which scenario is more realistic, consider the 10.9% renter density and the unavailability of days on market (DOM) data. The lower renter density suggests a smaller pool of potential tenants, which could impact the ability to maintain occupancy at the higher FMR rate. However, the Section 8 program guarantees a steady stream of tenants, reducing the risk associated with vacancy.
In conclusion, while the FMR-based gross yield of 10.92% is higher, the market rent-based gross yield of 8.1% might be more attainable due to the lower renter density. Landlords and small-portfolio investors should weigh these factors carefully before making investment decisions. The stability offered by Section 8 contracts, combined with the higher gross yield, presents a compelling case for participation in the program. Nonetheless, market conditions and the specifics of individual properties must also be considered to ensure a successful investment strategy.
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.