The Pros and Cons of Renting to Section 8 Tenants?
You may be a brand new investor or a seasoned investor looking for new ways of increasing your income. Some of the real estate guru’s have made big money selling real estate investing courses touting the benefits of government programs, specifically Section 8 housing, and how you can make money hand over fist. Others take a more cautionary approach, essentially arguing just the opposite.
With two opposing views, who’s right, who’s wrong, and what’s the difference?
There are a couple of Pros to Section 8 investing. But as you will quickly see the list of Pros is much shorter than the list of Cons.
First, if you rent to Section 8 tenants, you know you’re going to get your rent money. As a general rule, it’s going to come in like clock work. You’ll have your money each and every month, conveniently deposited into the bank account of your choice.
Second, if you advertise the fact that you accept Section 8 tenants, you will have no shortage of prospective tenants lining up with a housing voucher ready to move in on a moment’s notice. When tenants are hard to come by, say in a strong housing market, it’s an excellent way of guaranteeing a steady flow of renters willing to be your tenants.
Unfortunately, this is where the list of positives ends.
Section 8 tenants can present a host of challenges and problems to you from a variety of angles.
First, as a property owner, you may be lured by the easy money that renting to Section 8 tenants can generate, but if you think the Paperwork Reduction Act applies to Section 8, you have a lot to learn.
Whenever you deal with any government bureaucracy, there are massive paperwork considerations. If every I isn’t dotted and every T crossed on every form the government throws your way, you’re in jeopardy of not being paid, having your payment delayed or even worse being declared a slumlord.
We have also seen when all the paperwork and other delays can take anywhere from 3 to 5 months to complete. During this period your property sits empty with no income.
Second, Section 8 requires property inspections. In order to participate in Section 8 you first have to qualify as a property owner, which means an inspection. If the inspector finds deficiencies of any kind, they have to be corrected on the government’s timetable. Once you’ve met the timetable, you have to repeat the inspection process. When you’ve waded through all the red tape necessary to accept tenants, you really get into the heart of the problem of the Section 8 program dealing with tenants.
Third, there are Section 8 tenants who are attentive to your rules, but there are plenty of bad apples. If you have a troublesome renter one that can’t/won’t pay their rent on time or is a constant troublemaker, your inclination is to give them their walking papers (i.e., eviction). But if the individual you’re trying to evict is a Section 8 renter, you have to follow due process rules that are stricter than any state laws anywhere.
Once you’ve begun eviction proceedings, Section 8 tenants are entitled to free or very low cost legal assistance. Once an attorney enters the picture, this turns into an expensive, time consuming process. You need to ask yourself at what point does a guaranteed rent payment become not worth the hassle, the expense and the headache?
Fourth, we generally see that Section 8 pays about 70% to 80% per month of what you might get for normal tenant. So you need to make decision as to whether this discount is offset by the consistent payment source.
Fifth, Section 8 renters aren’t famous for taking care of your property. So unless you’re willing to entertain the thought of having to make extensive repairs with little hope of recovering damages it is probably in your best interest to not involve yourself in the program to begin with.
As you can see the Cons of Section 8 investing outweigh the Pros. Our experience is the program has many problems and we rarely recommend Section 8 investing.
I invite you to learn more about Real Estate Investing and become a member of our FREE weekly tele-seminar class where we teach tips and strategy on how to grow your real estate investing business and how to raise Private Money by going to http://www.realestatewealthtoday.com/TuesdayTipsSignUp.html.
Mike Lautensack is a full-time real estate entrepreneur, coach and mentor in Philadelphia, PA and creator of the Private Lending Presentation Kit. This powerful done-for-you kit is loaded with tools and techniques to attract and develop a consistent stream of private investors into your real estate business. To learn more about this kit and receive your FREE eBook go to Real Estate Investing Blog
With two opposing views, who’s right, who’s wrong, and what’s the difference?
There are a couple of Pros to Section 8 investing. But as you will quickly see the list of Pros is much shorter than the list of Cons.
First, if you rent to Section 8 tenants, you know you’re going to get your rent money. As a general rule, it’s going to come in like clock work. You’ll have your money each and every month, conveniently deposited into the bank account of your choice.
Second, if you advertise the fact that you accept Section 8 tenants, you will have no shortage of prospective tenants lining up with a housing voucher ready to move in on a moment’s notice. When tenants are hard to come by, say in a strong housing market, it’s an excellent way of guaranteeing a steady flow of renters willing to be your tenants.
Unfortunately, this is where the list of positives ends.
Section 8 tenants can present a host of challenges and problems to you from a variety of angles.
First, as a property owner, you may be lured by the easy money that renting to Section 8 tenants can generate, but if you think the Paperwork Reduction Act applies to Section 8, you have a lot to learn.
Whenever you deal with any government bureaucracy, there are massive paperwork considerations. If every I isn’t dotted and every T crossed on every form the government throws your way, you’re in jeopardy of not being paid, having your payment delayed or even worse being declared a slumlord.
We have also seen when all the paperwork and other delays can take anywhere from 3 to 5 months to complete. During this period your property sits empty with no income.
Second, Section 8 requires property inspections. In order to participate in Section 8 you first have to qualify as a property owner, which means an inspection. If the inspector finds deficiencies of any kind, they have to be corrected on the government’s timetable. Once you’ve met the timetable, you have to repeat the inspection process. When you’ve waded through all the red tape necessary to accept tenants, you really get into the heart of the problem of the Section 8 program dealing with tenants.
Third, there are Section 8 tenants who are attentive to your rules, but there are plenty of bad apples. If you have a troublesome renter one that can’t/won’t pay their rent on time or is a constant troublemaker, your inclination is to give them their walking papers (i.e., eviction). But if the individual you’re trying to evict is a Section 8 renter, you have to follow due process rules that are stricter than any state laws anywhere.
Once you’ve begun eviction proceedings, Section 8 tenants are entitled to free or very low cost legal assistance. Once an attorney enters the picture, this turns into an expensive, time consuming process. You need to ask yourself at what point does a guaranteed rent payment become not worth the hassle, the expense and the headache?
Fourth, we generally see that Section 8 pays about 70% to 80% per month of what you might get for normal tenant. So you need to make decision as to whether this discount is offset by the consistent payment source.
Fifth, Section 8 renters aren’t famous for taking care of your property. So unless you’re willing to entertain the thought of having to make extensive repairs with little hope of recovering damages it is probably in your best interest to not involve yourself in the program to begin with.
As you can see the Cons of Section 8 investing outweigh the Pros. Our experience is the program has many problems and we rarely recommend Section 8 investing.
I invite you to learn more about Real Estate Investing and become a member of our FREE weekly tele-seminar class where we teach tips and strategy on how to grow your real estate investing business and how to raise Private Money by going to http://www.realestatewealthtoday.com/TuesdayTipsSignUp.html.
Mike Lautensack is a full-time real estate entrepreneur, coach and mentor in Philadelphia, PA and creator of the Private Lending Presentation Kit. This powerful done-for-you kit is loaded with tools and techniques to attract and develop a consistent stream of private investors into your real estate business. To learn more about this kit and receive your FREE eBook go to Real Estate Investing Blog
Comments (7)
Do you get to choose your section 8 tenant?
Brady Hurs, over 6 years ago
I agree with Michael, this post is VERY misleading. I have been doing Section 8 investing for the past 8 years with much much success. I also sell a coaching program in Memphis where I walk hand and hand with my clients and teaching them everything they need to know about Section 8 and Section 8 inspections............with much success. Those posts about the unit sitting empty for months without pay is not true. The day you pass inspection is the day your rental income start, even if it means that FIRST check coming in about a month or so, but even that is pro-rated. RED TAPE, the inspector simply inspects the things that will make the house safe and habitable, who wants to rent their rental house when it is not SAFE and HABITABLE.......only a slumlord. Anyone can reach me at [email protected] if you have questions and want REAL answers about Section 8.
Lamottis Woods, over 7 years ago
@John S., as I understand it, there are two portions of the rent. There's the part that the tenant is responsible for (you may or may not get) and there's the part from the government (the so-called "guaranteed" income). Depending on the individual, some pay more or less for their share.
Account Closed, over 7 years ago
I'm confused - I thought if it's section 8 housing, you're guaranteed to get paid. Then why, did the writer mention the 3rd point about not getting paid? How would this ever even happen??
John S., over 7 years ago
I would never recommend a newbie investor starting with Section 8. When it comes to making money with real estate, experience is everything. You kind of need to learn the hard way when it comes to fine tuning how to pick tenants and getting a good lease that <a href="http://legalrentalforms.com/rental-lease-agreement-form/">covers all of the common problem areas</a> and then some. Then just the ongoing maintenance and how to deal with problematic tenants. Until you get the hang of it you really want to start with the easier properties.
Jason Rigler, over 10 years ago
I find the article misleading. Most of my investments are section 8. They ALWAYS pay the rend on time, they stay for about 2 years and they don't wreck the place. What red tape, My most recent HUD home experience went like this, I had a renter in 5 days with just a street sign on the front lawn, I called for an inspection and the HUD inspector was there in 5 days. The renter put $1,000 deposit, in cash. I'm getting $300 more a month than any non-comp out there. The renter is now living in the house. Perhaps you are referring to the red tape that means the home should be secure and safe and sanitary. if you were a renter wouldn't you want the rental to have those features? The whole process was less than 30 days. Your advice should be written by someone who does this, rather than just read about it. In Florida the renter is out in 30 days or less, lawyer or no lawyer, I've never had to wait more than 30 days to get the property back. The best money out there is in low income houses, I know one fellow that has 55 and another who owned 650 and just sold everything to move out of the US because he said the country was going downhill, he had 40 people working for him now they don't have jobs, I guess this job creator wasn't one in the end. I guess he no longer believed in the American Dream but I do!
Michael Hickmott, over 10 years ago
Not all tenants that are on Section 8 tear up the property. There's good tenants out there. Just like any program,you will have people that take advantage of the problem. But there is people out there that just trying to better their lives via Section 8. So I say if you're considering renting to someone on Section 8 feel them out first.That way you can tell what kind of renter they would be.
J Byrd , over 11 years ago