Fair Market Rents for Section 8 Properties
Fair Market Rent (FMR) is a statistic developed by HUD in order to determine payments for various housing assistance programs, most notably, the Section 8 Housing Choice Voucher Program. FMRs differ by local area, and are updated on an annual basis. You can determine current and historical FMRs for your area by visiting HUD’s FMR Dataset and Search Tool.
In addition to helping determine rents for the Section 8 Housing Choice Voucher Program and certain project-based Section 8 developments, Fair Market Rents are also used for to determine rent ceilings for the HOME Investment Partnerships program and the Emergency Solution Grants program, as well as the Moderate Rehabilitation Single Room Occupancy program (Mod Rehab).
Fair Market Rents and Section 8 Landlords
The HUD Section 8 program pays rents for low-income households directly to private landlords. In most cases, the local housing authority (funded by HUD) will pay about 70% of a tenant’s rent, while the tenant will pay the other 30%. Fair Market Rents generally determine the maximum rent that a Section 8 landlord will be allowed to charge their residents. However, it is only a ballpark estimate, as landlords to have some flexibility to charge more or less based on the number of bedrooms and bathrooms in a unit, as well as the units overall square footage. Landlords may also be able to increase rental rates for units with amenities such as central A/C, a balcony or garden, or new interior finishes. In the end, the exact rental rate will typically have to be approved by the local public housing authority (PHA) that is administering the Section 8 program. This process may involve some negotiation.
So, while there is a certain degree of flexibility in rental rates, overall, this means that if a landlord is interested in applying for the Section 8 program, they should look at the FMRs for their area first. If the FMRs are very low, and/or will not be able to support their investment strategy, the program may not be a good fit for them. In addition, Fair Market Rents also impact rents for the Section 8 renewal process, though that process is more complex and beyond the scope of this article.
How Is Fair Market Rent Calculated?
Fair Market Rent is generally calculated as the 40th percentile of gross rents for regular, standard quality units in a local housing market. This excludes low-quality units, already subsidized units, and units that have been built in the last 2 years. FMR rent data is typically taken from recent move ins rather than long-term tenants, as long-term tenants generally receive a lower monthly rental rate. FMR includes core utilities, like water and power, but doesn’t include internet and other optional services.
In order to calculate Fair Market Rents, HUD utilizes several different sets of data, including gross rents data from the U.S. Census Bureau, gross rent information from HUD’s American Housing Survey, as well as additional rental rate data gleaned from yearly telephone surveys. After combing through this data, HUD will issue annual FMRs for approximately 2,500 different areas in the United States.
Just as regular rental prices differ significantly based on factors such as unit size and number of bedrooms, so do Fair Market Rents. For instance, the FMR for a one-bedroom apartment in a specific area may be $1100, but it might be $1400 for a two-bedroom apartment. So, no matter what area your property is located in, if you’re considering renting to Section 8 tenants, or getting involve in certain other HUD affordable housing programs, you should be very familiar with Fair Market Rents and how they may affect your potential investment.
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