This question comes up a lot – and a year or less ago if you had asked me if I wanted Section 8 tenants I would have adamantly said “no way”. Since then, however, I’ve learned a lot more about the pros and cons to Section 8 and now I am much more willing to consider it. Plus, I’ve realized there are some times when it may even be the better way to go.
The Bigger Picture of Section 8
Most everyone seems to be familiar with the basics of Section 8 tenants. In case you aren’t though, the gist of it is the government offers financial help for low-income individuals or families so they can secure housing for themselves. The government pays a set share of their rent each month and the tenant is responsible for the rest. The government tends to offer a nice pretty penny, if I do say so! At least from what I have seen as far as how much they pay versus the tenants. Anyway…
The general idea with Section 8 tenants is that they are, in fact, low-income and that increases the risk for the quality of their tenancy. It is assumed Section 8 tenants will cause more damage to the property and not take care of it. The reality is this won’t always be the case, and there are a lot of Section 8 tenants who will take immaculate care of a property. However, it is realistic to assume the risk to be higher of getting less-than-stellar tenants than if you were renting in a nicer part of town to higher income individuals. So there is my disclaimer to everything else I say- not all Section 8 tenants are or will be bad quality. Not at all! There is just a higher risk of it happening.
So rent to Section 8 or no? I’m going to list out a few pros and cons that you may or may not be aware of, and from there, you decide! It’s totally up to you as an owner and you shouldn’t do anything you aren’t comfortable with. I do want to make sure you have some education on the topic so you can make a well-informed decision though. And of course none of the pros or cons are guaranteed, they are just potential factors to consider.
The Pros of Section 8
- Guaranteed rent. Any investor who has had a hard time collecting money from tenants should love this one. Guess what, the tenant isn’t paying you every month, the government is! So you are going to get your check in the mail, on time, each month. To some that may not seem like a big deal but me being one of those investors who has had tenants who haven’t paid, I can certainly appreciate not having to worry about when or if I’m going to get a check!
- Less vacancies. This one isn’t guaranteed, but it is common for Section 8 tenants to stay in one place for longer than usual tenants. Mostly because they government is paying a big majority of their way, so why move? They won’t be buying a house anytime soon, so it is likely they are considering the property they are in their home and may stay there for quite a good a while. I have heard an opposing argument to this though, which is there can be increased vacancies because Section 8 tenants will often hop around to new houses that are enrolled in the program, again because the government is paying most of their way. So if a new house pops up they like better, they move into it. I’m not sure on that one, but from my experience I’ve seen more of the ‘less vacancies’ case than not.
- May get you higher rents. I wouldn’t have known this one had it not been for one of my properties in Atlanta. I bought an adorable house in what seemed to be a good area, and it had a rental guarantee for 12 months so I was guaranteed to get the $1025 in rent each month that was advertised at the time I bought it. Turns out the house isn’t in that great of an area and after the tenants walked out with all the appliances and it was sitting vacant, I was told there would be no way it could rent for $1025 (don’t even get me started on venting off about that property management company!). In fact, they said it may be lucky to bring in about $700. I immediately decided if I were to ever go with Section 8 tenants, now was the time. I was stuck with a property in a not-so-hot area anyway, so if I’m going to have lower-end tenants I might as well have them be Section 8 which would probably get me more in rent each month and it would secure that ‘guaranteed’ side of getting paid each month whereas with non-Section 8 low-income tenants, my chances would be sky high of not getting paid.
The Cons of Section 8
I don’t need bullets for this one as there is really only one major con I know of, which is whether or not the tenants will take care of your property. Being left with astronomical repairs expenses after a tenant moves out can kill an investment. Again, not all Section 8 tenants will destroy your house, but it should be assumed to be a higher likelihood than not. At least that way if you plan for it and then you end up with a spanky clean property when they move out, then that’s just a bonus, right?
One way to look at these repairs costs is that if those tenants live in the house for an extended period of time before they ever move out, because they were getting the government help, then all of the money you saved on vacancy expenses can just go towards repair costs when they do move out. So higher-income tenants- lower repairs expenses but higher vacancies. Lower-income Section 8 tenants- higher repairs expenses but significantly less vacancy expenses. Those are total generalizations, but at least they give you an idea of how it may work out. Also, don’t forget that your insurance policy on the property may cover tenant damage, so if it’s really that bad you would get covered after your deductible anyway. I know my insurance policy covers tenant damage.
The only other potential con I have heard for Section 8 is really more location-based. Where is this property you are considering Section 8 for and how will that location affect a potential future resale? I guess the issue really there is more for a debate on whether or not to buy in low-income areas more than it is about Section 8, but I can see where those two would go hand-in-hand so worth thinking about.
Anyone have any input on Section 8 experience, either for or against it?
Note By BiggerPockets: These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.