If you are a Section 8 tenant, you already know your rent is reasonable. The Housing and Urban Development (HUD) department requires Section 8 landlords to rent their units at reasonable rates.
If you're a non-section 8 tenant, you can also benefit from understanding what a "reasonable rate" means. Reasonable rates sit within the middle percentile of any given rental market.
Are you wondering if your current rent is considered reasonable for your area? Then check out this guide because we will show you how to calculate this value next.
Section 8 Reasonable Rent Factors
Whether or not a unit's rent is reasonable depends on multiple factors. These factors include Fair Market Rent, the number of bedrooms the rental property has, and comparables in the area.
Fair Market Rent
HUD updates its own list of Fair Market Rents annually. The department assigns a rental rate based on location.
Historic rent is the main factor in the Fair Market Rent calculation. HUD will consider the last 15 months of rental rates in the area. Newer units and units reserved for retirees do not go into this calculation.
Number of Bedrooms
Two-bedroom units are the standard for Section 8 Fair Market Rent calculations. Reasonable rental rates for all other unit sizes come from two-bedroom unit rental prices.
Local Comps
In real estate, comps (or comparables) are two properties with similar square footage, amenities, and age. Local HUD offices use two types of comparables when determining reasonable rents for Section 8.
The first type of comp is a similar property in the area. This property may be part of the Section 8 program, too, but it doesn't have to be. Usually, these properties are detached single-family homes.
The second type of comp is another unit within the same property. This type of comp only applies to multi-family dwellings. HUD wants to ensure that the Section 8 rent is less than or equal to the rent in comparable units.
How HUD Calculates the Payment Standard
HUD's payment standard is how much a local housing authority will pay for a unit. Unit payment standards vary based on Fair Market Rents and the highest amount your local Public Housing Authority is willing to pay per bedroom.
The Public Housing Authority offers a payment standard to landlords. It typically equals 90%-110% of a property's Fair Market Rent. HUD calculates the payment standard using the middle 40th or 50th percentile of Fair Market Value.
That way, rental residents can get a home that is more affordable than 50%-60% of the market. Landlords can collect a reasonable rate for their property.
Need Help Finding Affordable Rentals?
Section 8 reasonable rents can help non-Section 8 tenants learn if their unit is affordable for the area. HUD calculates reasonable rental values using Fair Market Values, the number of bedrooms, and local comps.
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