HUD Fair Market Rents (FMR) for FY2024 went live on October 1, 2023. This is an exciting time, even if you do not plan on subsidizing your units and renting to recipients of Housing Choice Vouchers (HCV’s). The process of arriving at FMR’s is about as complex as sending a rocket to the moon, but in short, a bunch of data geeks assess micro markets on a long list of criteria based on a wide array of data, which includes the rental rates private pay (“open market”) tenants are paying.
So, in a lot of ways, FMR’s are a quick way to learn what rents are doing in your area…and you don’t need a subscription to Rentometer or any other paid platform to get within 90% accuracy of what your property will rent for.
It is interesting to point out that the long-term trend across Metropolitan Statistical Areas (MSA’s) has been creeping upward to keep pace with open market rents. The message in your city is probably the same as any MSA experiencing growth…we need more units in general, and more affordable units desperately. Many of the Public Housing Authorities (PHA’s) have even been able to convince HUD to bump their FMR’s as much as 20% above the standard to get a competitive edge over private landlords.
Unfortunately, what you see is not exactly what you get in the world of FMR’s…it’s common for investment focused real estate agents to promote FMR’s as a guaranteed rate of rent payment for calculating ROI, which is highly irresponsible. There is a complicated Request for Tenancy Approval (RTA) process that will arrive at a final calculation and then you’ll likely be hit with a Rent Reasonableness response from the housing authority, guaranteed to be lower than the FMR.
Want to learn more about leasing to Section 8 tenants, check out THIS ARTICLE
Despite all the complications with subsidizing private units and accepting voucher holding tenants, it’s still a viable way to promote long-term stability in your residential rental property (and the market as a whole). And depending on the market you’re in, voucher holders may be the only interested applicants you get. After managing around 170 subsidized units we learned a lot about life in general and can say that it’s truly a mixed bag…irrespective of payer source, there are good tenants and bad tenants…that’s just life.
If you have never rented to a Section 8 tenant, here are a few tips to keep you safe;
1- Section 8 tenants are going to trash my unit
Not entirely true, but we can say the lifestyle that many poor people promote requires a lot of reminders on how to be a decent human being. Just because someone has a section 8 voucher…or because they are poor, doesn’t mean they will live like a slob. Some of the cleanest folks we house are Section 8 voucher recipients. That said, there is certainly a larger oversight component here…routine on-site presence is a must.
2- Subsidizing my unit subjects me to higher standards and government control
Sort of, but not entirely. Yes, you are subsidizing your private unit to the government…and by accepting government money for rent, you may be subject to oversight that private pay landlords are not….but this is not a bad thing. The upfront Housing Quality Standards (HQS) inspection is a helpful measure…it ensures the unit is safe and 100% ready for occupancy.
You can see an HQS inspection form here: 52580A.PDF (hud.gov)
3- Leasing to a Section 8 tenant will lead to unqualified folks occupying my unit
Underqualified may be a misstatement- the qualifications are just different. For example, setting income requirements such as 3x the monthly rent is not an option because a lot of folks on vouchers do not have wages….they simply will not meet any income standard you set for occupancy. This is not a bad thing…if your tenant does not have a job, they will never be unemployed and miss a rent payment.
I wrote a blog post about this topic here if you are interested: Why I Prefer My Tenants To Be Unemployed | Realize Property Management, LLC (realizepm.com)
UPDATE:
Since writing this article at the start of the 2024 season, we have been able to see the historical FMR increases implemented through completing lease ups and lease renewals… and it’s been good…better than any time in recent history, actually. We’ve nearly been able to double rental rates in secondary markets with rent increase requests and exceed open market rents on new leases. We’re seeing Section 8 leases as much as 30% higher than they were just a year ago. Section 8 rents have been so good, that we’re renewing our focus on housing voucher tenants and renovating units with the intent of subsidizing.
Just to provide an idea of what we’re doing…here are a couple of recent Section 8 lease up examples:
Columbus Metropolitan Statistical Area
2BR UNIT- E. 22nd St. 43211
875 sq.ft. fully renovated townhouse style apartment
- Class-C location
- Open market rent: $995-$1,050/mo.
- Requested rent: $1,485.00/mo.
- Rent Reasonable Rate: $1,399.00/mo.
Gross annual difference over open market: $4,848.00
3BR UNIT- Seymour Ave. 43205
1250 sq.ft. fully renovated townhouse style apartment
- Class-C location
- Open market rent: $1,400-$1,500/mo.
- Requested rent: $1,795.00/mo.
- Rent Reasonable: $1,645.00/mo.
Gross annual difference over open market: $2,940.00
Secondary Market
2BR UNIT- Heritage Cir. 44820
875 sq.ft. fully renovated townhouse style apartment
- Class-C location
- Open market rent: $650-$700/mo.
- Requested rent: $850.00/mo.
- Rent Reasonable Rate: $850.00/mo.
Gross annual difference over open market: $2,400.00
Learn more about HUD FMR HERE
Brandon S. Sturgill is the principal broker of Realize Property Management Group, headquartered in Columbus, Ohio. He has experience managing over 500-units of scattered site and multifamily housing. Brandon can be reached at Brandon@RealizePM.com
