Fair market rents (FMRs) are established by the U.S. Department of Housing and Urban Development (HUD) and are calculated annually. While HUD uses FMRs as a way to determine rental voucher amounts for government assistance programs like Section 8 housing contracts, knowing your property’s FMR is important for all investors as it can be a helpful starting point when accurately determining your own property’s market rent.
The 40th Percentile Rents
Fair market rents used for government programs are also called 40th percentile rents based on how they are calculated.
To determine FMR, HUD collects data from its American Housing Survey, the U.S. Census Bureau, and additional surveys conducted throughout the year. The resulting fair market rent amounts are estimates of the 40th percentile gross rents for standard quality units within a given metro area or non-metro county. The calculation excludes low-quality units, units that are already subsidized, and any that have been built in the last two years.
You can find current and previous years’ FMRs for thousands of metropolitan areas on HUD’s website. You can also find 2023 fair market rents for all bedroom sizes in Franklin County. FMRs also include the cost of core utilities like water and electricity but exclude optional services.
Factors that Affect Fair Market Rent
There are numerous variables that affect FMRs. These are some of the most common.
- Location – More desirable locations command higher rents.
- Amenities – Differentiated amenities like outdoor spaces or open floor plans can set your property apart and allow you to ask more for rent.
- Space – More square footage generally equals higher rent rates.
- Bedrooms and bathrooms – Similarly, more bedrooms and bathrooms relative to others in the area means you are more likely to secure higher rent rents.
- Property condition – The better the property condition, the more likely market rents will be higher.
- Demand – Supply and demand will always play a pivotal role in market rents. When there’s increased demand, rental rates will also increase.
As you prepare to establish rent rates for your investment property in Columbus, start by researching the fair market rents in your area and then drill down to look at comparable properties in your neighborhood. From there, you can calculate average rent and make adjustments based on any unique factors affecting your property. For more information, be sure to check out our upcoming blog post where we’ll be further discussing how to calculate FMR for your property.
For help understanding FMRs in Franklin County and why they matter for the success of your investment, contact us at RL Property Management.