Section 8: Explained

Housing Authorities exist to assist people with low or no income in their search for a place to live.  The employees of these authorities are often responsible for many, many tenants or properties.  For the purpose of this discussion, I'll focus on SFR or small multi-units.

The 'Stigma' of Low-Income Housing

People ask me all the time why I would want to accept money from the housing authority, why I want to have 'poor' tenants.  I've found that the property that I can obtain is usually in areas that are economically depressed.  It makes sense to me that the people who live there may also not have much money.

Accepting Section 8 does not mark or blight your property in and of itself.  It does not intrinsically lower your property or resale value, it's simply a way to help people of lower means afford a place to live.

Finding a Section 8 Tenant

Section 8 tenants are everywhere.  When you post units for rent, simply add a statement like 'Housing Vouchers Welcome' or 'Section 8 friendly'.  It is important to say this is a way that is not discriminatory ... so don't say things like 'NO VOUCHER NO WAY' or 'VOUCHERS ONLY NEED APPLY'.  You can get into a big mess.

Another way is to simply go to the office of the housing authority that serves the area where your rental units are located.  I go to the Allegheny County Housing Authority (ACHA) offices 10 or 12 times a year for a variety of reasons, and every single time I'm there, at least one person will ask me flat out if I have any places for rent.  If nothing else, you can take their contact information for use the next time you have a vacancy.

Getting Approved

There is a application process that both you and the prospective tenant must go through to get the unit approved.  This process is repeated with every new tenant, regardless of whether or not the unit has previously been rented Section 8.  Among other things, you'll have to prove that you own the building, provide contact information, and an estimate of the rent.  Once the application has been submitted and reviewed, the housing authority will send out an inspector, and they will perform a Housing Quality Standard (HQS) inspection.  It's usually along the lines of an occupancy permit inspection (as far as scope) and can be pretty frustrating ... I once failed an inspection because the inspector was using an electrical outlet tester without a battery in it.

Setting the Rent

Once the inspection is complete, the housing authority will determine the monthly rent for the purpose of the contract.  This is done using the Fair Market Rent (FMR) which is published annually, and the Utility allowance worksheet which has a similar update cycle.

1. Establish FMR amount
2. Deduct allowances for utilities paid for by the tenant
3. Adjust based on tenant income

The most confusing part of this for most prospective landlords is the last step.  As a rule, a tenant may not pay more than 30% of their income as rent.  There are several forms of assistance that count as income, as well as W-2 income.  This often becomes confusing when the tenant has zero income, because it will usually cause a small unrequited reduction in the monthly rent.

Getting the Rent

Every month the housing authority will send you their portion of the rent.  Many of them now encourage or require the use of direct deposit, which makes it even easier.  You are responsible for collecting the rent the tenant owes you.

When Things Get Weird

There are many ways that a tenant (or the landlord) can disrupt the easy monthly rent cycle.  The most common one is when the tenant doesn't complete their annual re-certification paperwork properly (or on time).  To get re-certified, the tenant must submit their wage information, and list the people living in the house (as well as their wage information).  It is important to note that individuals with certain felonies are not allowed to receive housing authority benefits, so if your tenants lover suddenly shows up on the headcount, it can derail your income.

Any change in the tenants income with cause their monthly contribution to the rent to be recalculated.  If they lose their job, get a new job, or get a pay increase, you can expect their monthly payment to shift accordingly.

If you unit fails the annual re-inspection (in my experience, you will always fail... the inspector will find a way) and you do not make the required changes in 30 days, the housing authority will withhold payment.  This makes it crucially important that you repair anything that they find.

The housing authority will not assist you during an eviction.  They will want to know that a tenant is being evicted, so that they can stop payments ... but they will not offer any aid during that process.  HOWEVER, if you evict a tenant and receive a monetary judgment ... the tenant MUST repay that judgment (or have set up a payment plan to do so) within 18 months, or they will LOSE THEIR ELIGIBILITY.  This will help create incentive for your previous tenants to repay you anything that they owe.

Interesting Extras

If you buy a rental unit with a section 8 tenant in play, much of the same process applies ... and yes you can inherit the previous landlords tenant.  Similarly when you sell a property, the buyer may inherit them as well.  Alternatively, you can choose to terminate their lease ... and possibly have them evicted, it is your choice.

One side note, for people who do not want to rent to Section 8 tenants.  It is generally illegal to discriminate based on the source of an renters income.  To avoid doing anything in poor taste, you can always charge rents that are above the aforementioned FMR price.  This will almost always price voucher holders out of your rental.  If you do this, and then cannot get the unit rented, you may need to reconsider the non-low-income status of you property.