Why Section 8 Can Be Great! (Part I)
As Section 8 comes out of the shadows and almost synonymous with rental properties, many blindly jump towards or away from tenants with vouchers without understanding the program.
Not going to get too deep here, understanding the history and premise of the HUD Section 8 program is a story of good intentions but somewhat poorly planned design... kind of like most welfare programs.
So what is important to know?
Section 8 tenants are low income tenants that receive, after sometimes years waiting, a portion or all of their rent from the Section 8 program funded by HUD. Last time I checked, they pay up to 30% of the rent. After assisting clients in leasing to literally hundreds of voucher recipients I have found that a mass majority pay 0% and the government 100%. Regardless of the tenant responsibility, each month the government sends you a check for their portion of the rent. It's like Uncle Sam co-leasing the property.
As I said earlier, voucher recipients can wait years for their voucher. Emergency situations triage to the top and everyone else remains in line. A contact at the Kansas City Section 8 department claimed over 10,000 on their list. A Birmingham resource told me it was pointless to count. Generally HUD provides the program with a budget and when the budget is gone, those waiting have to wait another year.
So someone finally gets a voucher and they are now free to look for a property that falls within the rent range they are allowed. Primarily, the more kids, the more rent. Once they receive a voucher, you can bet they are out looking for a home immediately. NOTE TO INVESTORS - If your property manager sits by and waits a day to return a call or schedule an appointment, the potential tenant has probably found a home and the voucher is resting comfortably in some other landlords hands... another reason to ask for updates constantly on vacancies (please no hate mail managers, I know this is an annoyance).
So where do they rent? Everywhere but for different reasons...
If your property is in an area known for poverty and you are having trouble renting your home on the open market, Section 8 can be a windfall. Many on vouchers lack transportation and may also depend on local family members for support. Being close to public transportation and relatives is incredibly important to those trying to make it. They will actively seek out properties that the open market may have no interest in. Although HUD follows Fair Market Rent tables to determine rent amounts, these are all over the board and usually grossly over valued...to your benefit.
A property with a Section 8 tenant can normally cash flow $50 to $100 more over an open market tenant. Another neat trick is that a 2 bedroom voucher holder can go up in house size... and some 2 bedroom vouchers are higher in value than what the open market would allow for a 3 bedroom in a particular area. I've seen many times a tenant "playing the game" and searching in lower income areas for 3 bedroom homes knowing that their 2 bedroom voucher will open the door.
So the rent is great but what about the quality of the tenant? Each voucher holder has a counselor and you reporting them for damages to a house can cause a cancellation of their voucher... after years of waiting. This is a pretty strong incentive to keep the tenants mindful of the recourse for acting improperly.
Yes, there are horror stories, but aren't there always?
So how do you find them? Use basic advertisement that they can get to easily. Craigslist, Thrifty Nickel and Ugly Yellow Signs are normally the trifecta. If your property is in an area known for vandalism and theft, you might refrain from giving an exact address and simply provide BR/BA, Rent, Section 8 OK, and a number to contact.
Tomorrow we will look at why suburban properties and Section 8 tenants can be equally well fitting.....
Not going to get too deep here, understanding the history and premise of the HUD Section 8 program is a story of good intentions but somewhat poorly planned design... kind of like most welfare programs.
So what is important to know?
Section 8 tenants are low income tenants that receive, after sometimes years waiting, a portion or all of their rent from the Section 8 program funded by HUD. Last time I checked, they pay up to 30% of the rent. After assisting clients in leasing to literally hundreds of voucher recipients I have found that a mass majority pay 0% and the government 100%. Regardless of the tenant responsibility, each month the government sends you a check for their portion of the rent. It's like Uncle Sam co-leasing the property.
As I said earlier, voucher recipients can wait years for their voucher. Emergency situations triage to the top and everyone else remains in line. A contact at the Kansas City Section 8 department claimed over 10,000 on their list. A Birmingham resource told me it was pointless to count. Generally HUD provides the program with a budget and when the budget is gone, those waiting have to wait another year.
So someone finally gets a voucher and they are now free to look for a property that falls within the rent range they are allowed. Primarily, the more kids, the more rent. Once they receive a voucher, you can bet they are out looking for a home immediately. NOTE TO INVESTORS - If your property manager sits by and waits a day to return a call or schedule an appointment, the potential tenant has probably found a home and the voucher is resting comfortably in some other landlords hands... another reason to ask for updates constantly on vacancies (please no hate mail managers, I know this is an annoyance).
So where do they rent? Everywhere but for different reasons...
If your property is in an area known for poverty and you are having trouble renting your home on the open market, Section 8 can be a windfall. Many on vouchers lack transportation and may also depend on local family members for support. Being close to public transportation and relatives is incredibly important to those trying to make it. They will actively seek out properties that the open market may have no interest in. Although HUD follows Fair Market Rent tables to determine rent amounts, these are all over the board and usually grossly over valued...to your benefit.
A property with a Section 8 tenant can normally cash flow $50 to $100 more over an open market tenant. Another neat trick is that a 2 bedroom voucher holder can go up in house size... and some 2 bedroom vouchers are higher in value than what the open market would allow for a 3 bedroom in a particular area. I've seen many times a tenant "playing the game" and searching in lower income areas for 3 bedroom homes knowing that their 2 bedroom voucher will open the door.
So the rent is great but what about the quality of the tenant? Each voucher holder has a counselor and you reporting them for damages to a house can cause a cancellation of their voucher... after years of waiting. This is a pretty strong incentive to keep the tenants mindful of the recourse for acting improperly.
Yes, there are horror stories, but aren't there always?
So how do you find them? Use basic advertisement that they can get to easily. Craigslist, Thrifty Nickel and Ugly Yellow Signs are normally the trifecta. If your property is in an area known for vandalism and theft, you might refrain from giving an exact address and simply provide BR/BA, Rent, Section 8 OK, and a number to contact.
Tomorrow we will look at why suburban properties and Section 8 tenants can be equally well fitting.....
Comments (4)
Hey Mat! Glad to see you reading up on some articles. Let me know if you have any questions. How's KC? I'm up there next Sunday through Tuesday.
Curtis Williams, over 13 years ago
It's more articles like these that I need to forward to my wife :)
Mat Lewczenko, over 13 years ago
Thanks Jon... its definitely a subject that can get a group of investors going for days. I'm always open to opinions though, I think with subjects like this there are really several right answers.
Curtis Williams, over 13 years ago
Good ballanced article on a topic that almost always brings out strong opinions and sometimes not too much objectivity.
Jon Klaus, over 13 years ago