Section 8 Fair Market Rent (FMR) for ZIP 85732 - 2027

FY 2027 Fair Market Rent Rates

The analysis of the Section 8 cap-rate scenario for ZIP code 85732 in Unknown, Arizona, requires an understanding of the Fair Market Rent (FMR) and the median home values. For FY 2024, the annualized Fair Market Rent for a two-bedroom property in ZIP 85732 is set at $1340. This figure represents the maximum amount that a landlord can charge a Section 8 tenant for housing assistance.

Given the lack of specific market rent data for ZIP 85732, it's challenging to provide a direct comparison. However, assuming the market rent is higher than the FMR, we can still derive some insights into the gross yield for both scenarios. The gross yield is calculated as the annual rental income divided by the property value.

In the case of using the FMR, the gross yield would be based on the $1340 annual rental income. If we hypothetically consider the median home value to be $268,000 (twice the annual FMR for simplicity), the gross yield would be approximately 0.5%. This calculation is purely illustrative due to the absence of actual median home value data.

Without the market rent data, we cannot calculate a precise gross yield for the non-Section 8 scenario. However, if the market rent were significantly higher than the FMR, the gross yield would naturally be greater. For instance, if the market rent for a similar property was $1,800 per month, the annual rental income would be $21,600. Using the same hypothetical median home value of $268,000, the gross yield would be about 8%, showcasing a stark difference compared to the Section 8 scenario.

The implied gross yields suggest that renting to market tenants could potentially offer a much higher return than participating in the Section 8 program. However, the decision should also take into account the renter density and the days on market (DOM). With the renter density being unknown, it's difficult to gauge the demand for rental properties. Similarly, without knowing the DOM, it's unclear how quickly a property might be rented out under either scenario.

Despite these uncertainties, the significant disparity in gross yields between the FMR-based Section 8 rents and a hypothetical higher market rent indicates that market renting could be more financially beneficial for landlords and small-portfolio investors. This conclusion is based solely on the gross yield comparison, without factoring in other variables such as maintenance costs, vacancy rates, and government subsidies.

Data Sources: FMR data from HUD (2027).

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.