Quote from @Dave Brown:
I've found that the payment standards are sometimes quite a bit higher than what I'm seeing as actual rent for an area. In these scenarios - does affordable housing tend to go with the actual market rent? Or do they allow closer to what is listed in the payment standard rate? I'm worried about buying my first section 8 investment - and the rent being much lower than what is advertised on the section 8 payment standard. thanks!
The market-rate housing is made affordable by having a landlord that accepts Housing Choice Vouchers (aka Section 8) and charges a market rent that is below the payment standard.
Public housing authorities (PHAs) typically set the payment standards based on HUD's fair market rents (FMRs) at the county level of geography. Payment standards are 90% to 110% of FMR unless an exception is granted. A rule change in 2016 requires PHAs in specified metropolitan areas to use small area fair market rents (SAFMRs). Many of the metros discussed in this post, including Detroit, Columbus and Cleveland, will be affected by this change starting in 2025 (link). Therefore, the zip code in which the property is located will determine the payment standard, not the county's FMR.
As Arsen mentioned and using Detroit, this city is "street to street" with regards to quality/condition, so this rule change could affect your asking rent. Keep an eye on the SAFMRs for your target zip code and see if there are nearby comparables to gauge market rents. Your comps and any adjustments to them for size, condition and features should help you set your rent, at least until you have connections to local committees or housing authority contacts that could provide practice-based guidance (sounds like a great tip from @Arsen Atanasovski).
It is also worth noting that PHAs undertake Rent Reasonableness studies (link to PDF), which "ensure that rents charged by owners to Housing Choice Voucher (HCV) program participants are reasonable. The PHA must compare the rent for the voucher unit to rents for similar unassisted units in the marketplace." This is where I think it's important to improve condition and curb appeal, because that condition/upgrade premium could be used as support for an asking rent that is closer to the payment standard if nearby comps are lower quality and have lower rents.
