Section 8 Fair Market Rent (FMR) for ZIP 94661 - 2027

FY 2027 Fair Market Rent Rates

The analysis for ZIP code 94661 reveals some key points about the potential Section 8 cap rate scenario. With the Fair Market Rent (FMR) for a two-bedroom apartment set at $2590 annually for fiscal year 2024, we can derive an implied gross yield when compared to the median home value in the area.

Unfortunately, the specific median home value for ZIP 94661 is not available, making it challenging to calculate an exact gross yield. However, assuming that the median home value is known, the gross yield would be calculated by dividing the annualized FMR by the median home value. For instance, if the median home value were $500,000, the gross yield would be approximately 0.52% ($2590 / $500,000).

To provide a more accurate comparison, we would also need the market rent for a two-bedroom property in the same ZIP code. Without this figure, we cannot determine how the Section 8 rental rate compares to the local market rates. If the market rent were, say, $3000 per month, or $36,000 annually, the gross yield would be significantly higher at 7.2% ($36,000 / $500,000).

The disparity between these hypothetical gross yields highlights the importance of knowing the local market conditions. A gross yield of 0.52% based on the Section 8 FMR is considerably lower than the 7.2% implied by a higher market rent. This difference suggests that investing in properties for Section 8 tenants might offer a lower return relative to renting to market-rate tenants.

Given the lack of specific data on renter density and days on market (DOM), it's difficult to conclude definitively which scenario is more realistic. However, typically, areas with higher renter density and shorter DOM periods tend to favor market-rate rentals over Section 8 due to the higher yield potential. Landlords and small-portfolio investors should carefully consider these factors when deciding whether to participate in the Section 8 program or pursue market-rate rentals.

In summary, while the precise median home value and market rent figures are necessary to make a definitive gross yield comparison, the initial data points suggest that Section 8 properties in ZIP 94661 could offer a substantially lower gross yield compared to market-rate rentals. Investors should use this information to guide their decision-making process, considering the trade-offs between guaranteed rental income through Section 8 versus potentially higher yields from market-rate rentals.

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.