Low-Income and Section 8 housing

7 Replies

Hello Everyone!

I am fairly new to real estate investing and have yet to make my first deal. I have spent the past couple of years educating myself, learning some expensive lessons (gurus...), and getting my financial ducks in a row. I am now at a point where I am looking more seriously at getting started.

Currently, I am interested in learning more about low-income and Section 8 housing. I am in the Phoenix area and am seeing a desperate need for this type of housing. There are hundreds and hundreds of units being built here, but none offer units in a price range that is accessible for the majority of blue-collar workers. 

Can you wonderful folks please point me in the direction of some resources for how low-income housing is funded, how to evaluate low-income and Section 8 housing if it is different than how traditional deals are evaluated, the pros and cons for investing in this category, and any guidance for getting started?

Thank you all in advance!

Great question Tonya! 

Low-income and Section 8 housing is a segment of the market that many investors dismiss entirely based on common misconceptions such as a) all of these properties are located in "war zones" and b) that the tenants come with more baggage and are more difficult to deal with than, say, young professionals. 

And like all stereotypes, they usually begin with a kernel of truth and then get misconstrued over time. Are these properties usually located in slightly more run down neighborhoods? Yes, as a general rule. Can some of the tenants with Section 8 have baggage or be difficult? Sure. But that doesn't mean that this is true 100% of the time. 

I am in the process of renting out an apartment in a 4 unit building that I am looking to purchase to a single mother with three children who just finished her associates degree and is looking to finish her bachelors and then go to law school. She's is very intelligent, prioritizes her children and career path above all else and ended up in a difficult situation by having children earlier in life with perhaps not the best partner. 

My point is, just like everything else in real estate, there are great scenarios to be found in all market classes and segments - if you properly screen tenants and evaluate the properties appropriately. 

There is no magic formula for low income/Section 8 housing - all it requires is an open mind and an understanding that you may run into a couple of more headaches than some of the other asset classes - but if executed properly these deals can be significantly more profitable than purchasing a brand new property in a great neighborhood that will more easily attract more stable tenants. The tradeoff between having fewer issues with your property and your tenants is that you will make a little bit less money while saving yourself time and energy. 

My response contains many generalizations and each deal and each tenant are unique, so take what I say with a grain of salt. If you have any follow up questions feel free to ping me directly! 

@Tonya Manning  You are right that new construction rarely is affordable to low income people.  My guess is that this has been the case for a couple of centuries.  As properties age and neighborhoods shift what was once a A class property becomes a B, then a C becoming more affordable over time.

One resource that you should look at is "The Section 8 Bible" in some ways this is a book on how NOT to do things but there are some truths in the book as well.  If you have not listened to the Joe Asimoa (sp?) Podcast on Section 8 in Washington DC that is a great episode. 

My personal experience has varied with housing assistance.  I have one property manger that just refuses to do section 8, her experience has been that the units require a lot more work when they turn over and the local HA is a PITA to deal with.  I have other property managers in different cities that take section 8 on several of our properties with good success.

Overall I would say Section 8 has been an OK experience for us.  Not something to dedicate our strategy towards but something that works about the same as the rest of our workforce housing portfolio.

I did not buy section 8 on purpose. I kinda stumbled upon it. So far my tenant seems like a decent human. 

My suggestion would be to look for your local section 8 ( Housing Authorities) office. Go there and directly speak to them. It will help set you at ease about the section 8 process. 

Hey @Tonya Manning ! I have owned several section 8 (government housing). There is definitely a need for this type of housing and really good tenants who qualify for it. It is rare for new construction to be rented to low income without a tax credit or similar program. In my area the maximum allowed section 8 rent is listed per bedroom on their website. It is common that those rent rates are at market value so some landlords accept the tenants. 

My experience was not that great with Section 8. Most of them brought in roaches and did more damage.

The strategy that I see some other landlords use is they take a class c property and advertise it as section 8 available but they set the rent at class b property prices. They maintain the units in operable condition but do no updating. If it’s not broke, don’t fix it. Yes there is more hassle and damage but getting above market rent with a good portion of it guaranteed by the government. Another plus is it’s easier to do yearly COLA rent increases.