Section 8 is a rental subsidy program funded by The Department of Urban Housing and Development (HUD) and run by local public housing agencies. In other words, Section 8 will help pay all or some of a tenant’s rent. Section 8 is available to low-income, elderly, and disabled tenants to help pay their rent and utilities. According to the HUD’s website, in order to qualify for Section 8, the applicant’s combined total family income cannot exceed 50 percent of the average income for the area, and over 75 percent of vouchers go to applicants whose income is 30 percent below the average income for the area.
Additionally, Section 8 requires that properties be held to certain HUD-approved standards, and all Section 8 rentals must be inspected before the landlord can receive money from the Section 8 program. Most of these requirements are common sense things that you shouldn’t have a problem making sure your properties have, such as windows that open, heat, ventilation in the bathroom, and more. Furthermore, Section 8 defines the maximum amount of rent they will pay based on bedroom, which can be both good and bad, depending on what they define for your area. In our area, Section 8 pays almost $100 more per month over what we can get from other non-Section 8 tenants, which provides added incentive to take the Section 8 Program.
So should you accept Section 8? Let’s look at some of the pros and cons to help you decide.
Download Your FREE copy of ‘How to Rent Your House!
Renting your house is a great way to enter the world of real estate investing, but most first-timers (understandably) have a lot of questions. Fortunately, the experts at BiggerPockets have put together a complimentary guide on ‘How to Rent Your House’. All the skills, tools, and confidence you need to successfully rent your house are just a mouse-click away.
Pros of Section 8
- You’ll generally not need to worry about the Section 8 paid portion of the rent being late, as it comes directly from the local public housing agency every month.
- Tenants must meet and adhere to certain requirements of the Section 8 program or potentially be faced with being dropped from the program. For example, one of the expectations is that the tenant complies with the terms in their lease.
- Housing Authority will conduct annual inspections of the unit, making sure the tenant is not destroying the property.
Cons of Section 8
- In order for the rental to qualify for Section 8 tenants, the unit must be inspected by the local public housing agency and meet the program’s standards for habitability on an annual basis. We listed this as a “con” since it requires that the landlord adhere to the government’s standard of habitability, not their own. It’s not necessarily a bad thing, just something to keep in mind.
- If the landlord presents a nice, clean, habitable home that meets all Section 8 requirements, then the tenant allows the home to fall into disrepair by not caring for it properly or failing to report maintenance issues, not only is that a problem in and of itself for the landlord, but it can also lead to the tenant being dropped from the program. This means no income, no rent, and no reimbursement for forthcoming damages.
- Even though the tenant must meet the Section 8 program’s guidelines to keep their Section 8 status, there is no guarantee they will, once again resulting in being dropped from the program and leaving the landlord with a tenant who can’t afford the rent.
- Finally, in our experience, Section 8 tenants can be more difficult to manage than their unsubsidized counterparts. We’ve typically found that Section 8 tenants cause more damage to the property and often allow more garbage and junk to pile up than our other tenants. Perhaps this is due to the fact that (in their mind) they aren’t financially responsible for what happens, or perhaps it’s simply a correlation between low-income tenants and cleanliness. But whatever the reasons, whether financial or socio-economic, Section 8 tenants are often harder on a property, which is the number one reason why we don’t jump to rent to Section 8 unless a weak rental market makes it advantageous.
We have had both good and bad experiences with Section 8 tenants. One bad experience we had with Section 8 involved an inherited tenant (they were in the rental when we purchased it), and it was really bad. We’ll spare you all the dirty details, but it went from bad to worse very quickly and ended in a long, drawn out eviction, a house full of cockroaches, a death threat, and a few thousand dollars in rehab costs—plus months of lost rent!
This situation could probably have been avoided altogether had the property manager who placed the tenant screened correctly, but that’s one of the risks you take when buying properties with existing tenants.
Just because a tenant is on Section 8 doesn’t automatically make them a good or bad tenant. It’s up to the landlord to screen every applicant correctly and thoroughly and only accept those who meet their minimum standards. If you do decide to accept Section 8 in your rentals, you will need to be sure all applicants meet all your other criteria, including rental references (do they abide by the terms of the lease, do they have good housekeeping habits, are they all-around good tenants?), credit (do they pay their bills?), background (do they obey the law?), and any other criteria you have for your rental.
[This article is an excerpt from Brandon Turner’s The Book on Managing Rental Properties.]
Do you invest in Section 8 housing? Why or why not?
Leave your comments below!