Location: Los Angeles-Long Beach-Glendale, CA | Metro: Los Angeles-Long Beach-Glendale, CA 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 | $3,020 |
| 1 Bedroom | $3,370 |
| 2 Bedrooms | $4,160 |
| 3 Bedrooms | $5,280 |
| 4 Bedrooms | $5,910 |
| 5 Bedrooms | $6,856 |
| 6 Bedrooms | $7,679 |
| 7 Bedrooms | $8,293 |
| 8 Bedrooms | $8,708 |
Zillow median home prices vs Section 8 FMR rates (Data: 2026-08-31)
| Bedrooms | Monthly FMR | Median Price | 1% Rule | Grade |
|---|---|---|---|---|
| 1BR | $3,370 | $826,621 | 0.41% | F |
| 2BR | $4,160 | $1,155,263 | 0.36% | F |
| 3BR | $5,280 | $1,922,597 | 0.27% | F |
U.S. Census Bureau data (2024)
The Section 8 cap rate analysis for ZIP code 90401 in Santa Monica, CA, provides a clear picture of the financial viability of participating in the program. The Fair Market Rent (FMR) for a two-bedroom apartment in fiscal year 2024 is set at $3770 annually, while the market rent, measured by Zillow's ZORI index, stands at $3,798 per month, equating to $45,576 annually.
To calculate the gross yield, we first annualize the FMR and market rent figures. For the FMR scenario, the annual rental income would be $3770 multiplied by 12 months, totaling $45,240. Given the median home value of $1,317,892, the implied gross yield for a property receiving Section 8 payments is approximately 3.4%. This calculation is straightforward: divide the annual rental income by the median home value and multiply by 100 to get the percentage.
In contrast, the market rent scenario offers a significantly higher gross yield. With an annualized market rent of $45,576, the gross yield increases to about 3.5%. This slight increase over the FMR scenario reflects the premium landlords can potentially command in the competitive Santa Monica rental market.
Considering the high renter density of 94.8%, it's evident that Santa Monica has a strong demand for rental properties, making market rents more likely to be realized. However, the N/A-day DOM (Days on Market) indicates that there isn't enough data to determine how quickly properties are rented out, which could impact the reliability of market rent estimates. Despite this, the high renter density supports the argument that market rents are more realistic.
In conclusion, while the Section 8 FMR provides a stable, government-backed income stream with a gross yield of 3.4%, the market rent scenario offers a slightly better return at 3.5%. Given the robust rental market in Santa Monica, landlords and small-portfolio investors should consider the potential for achieving higher returns through market rents, although the security of Section 8 payments cannot be overlooked. The choice between these two options ultimately depends on the investor's risk tolerance and financial goals.
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.