Section 8 - What's the catch? (Out-of-State Investing)

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Section 8 - What's the catch? (Out-of-State Investing)

Adam Eckhoff
Member since 2020 · 43 posts · 22 votes

Hello Everyone,

Hypothetically speaking, let's say you accrued an amount of $100,000 and you have the goal to invest in real estate. That being said, is it as easy as buying 5 to 10 $50k to $100k properties in Central USA, and securing a section 8 tenant? Assuming you get a management company to look after the properties (since i would be out-of-state investing). Or am I missing something here? 

I've looked into buy and holds, short-terms, long-terms, BRRRR's, and section 8's.

Thoughts on Long-Distance Section 8?

Thanks,

Adam.

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Jonathan GreeneBusiness Member
Real Estate Consultant · Madison, NJ · Member since 2016 · 6k+ posts · 7k+ votes
2y

Whatever you are thinking, stop thinking it. Even the notion that owning 5 to 10 $100k properties would be easy is absolute insanity. The properties that you are talking about owning and the tenancies are the hardest in the business, in general. $50 to $100k properties need maintenance and hide other issues. Tenancies are all over the map. Section 8 can be great because the tenant is only paying a portion of the rent, but managing the tenancies is not easy, especially a hard no from out-of-state. Your property management payments will be higher for C to D areas at those price points.

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  • Jonathan GreeneBusiness Member
    Real Estate Consultant · Madison, NJ · Member since 2016 · 6k+ posts · 7k+ votes
    2y

    Whatever you are thinking, stop thinking it. Even the notion that owning 5 to 10 $100k properties would be easy is absolute insanity. The properties that you are talking about owning and the tenancies are the hardest in the business, in general. $50 to $100k properties need maintenance and hide other issues. Tenancies are all over the map. Section 8 can be great because the tenant is only paying a portion of the rent, but managing the tenancies is not easy, especially a hard no from out-of-state. Your property management payments will be higher for C to D areas at those price points.

    [email protected]Podcast Guest on Show BiggerPockets Daily 667: 5 Amazing Benefits Multifamily Investments Offer (That Single Family Homes Don’t) by Gino Barbaro
    Zen and the Art of Real Estate Investing59 Reviews
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    7Reply
  • Adam Eckhoff
    OP
    Member since 2020 · 43 posts · 22 votes
    2y
    Quote from @Jonathan Greene:

    Whatever you are thinking, stop thinking it. Even the notion that owning 5 to 10 $100k properties would be easy is absolute insanity. The properties that you are talking about owning and the tenancies are the hardest in the business, in general. $50 to $100k properties need maintenance and hide other issues. Tenancies are all over the map. Section 8 can be great because the tenant is only paying a portion of the rent, but managing the tenancies is not easy, especially a hard no from out-of-state. Your property management payments will be higher for C to D areas at those price points.


     Thank you for the feedback. I'm also from NJ. How would you begin if you were in my shoes?

    Thanks.

    1Reply
  • Mohammed Rahman
    Real Estate Broker · New York, NY · Member since 2020 · 2k+ posts · 1k+ votes
    2y

    hi @Adam Eckhoff - if I'm in your shoes I would attend a couple of local investor meetups to really brush shoulders with and speak to other investors and vendors in the space. 

    On paper what you're describing might sound doable - but it sounds like your perspective on REI is based off of knowledge of only the "good parts" Managing and owning rentals (yes, even with a PM & price point of sub $50k) comes with its own challenges and headaches.

    Attend a couple of meetups and speak with a few investors face to face, I think that'll give you a jump start on a fresh perspective and may also help you nail down what direction to focus on. 

    0Reply
  • Travis Biziorek
    Investor · Arroyo Grande, CA · Member since 2014 · 1k+ posts · 1k+ votes
    2y

    Hey Adam, you aren't missing anything besides the drawbacks of the Section 8 program in general.

    @Jonathan Greene has a pretty negative take here but I'll speak as someone who owns 12-doors in Detroit, 3 of which are section 8.

    My portfolio is worth ~$1.4MM today so definitely in the ~$100k/door ballpark. And when I bought them, they were $40,000-$50,000 properties. These are solid C Class areas and, for me, not that difficult to manage.

    I suppose if you compare it to A and B Class areas in many other markets it's more difficult... I don't know. But it's been extremely lucrative.

    Regarding Section 8, there are pros and cons. You probably know the pros but the drawbacks tend to be that placing tenants takes longer (sometimes 3-4 months) due to paperwork, inspections, etc. and tenants tend to be rougher on your property.

    Happy to discuss in more depth if you'd like. 

    5Reply
  • Michael SmytheBusiness Member
    Real Estate Agent · Metro Detroit · Member since 2023 · 4k+ posts · 3k+ votes
    2y

    @Adam Eckhoff curious as to what online S8 "guru" you're following or where you're getting your info about S8?

    S8 programs do NOT pay enough rent to put low-demographic tenants into any Class A properties and few Class B properties!

    That leaves Class C & D properties. 

    Who wants to live in these properties and neighborhoods?
    -- Not the best tenants statistically!
    --So, S8 doesn't solve everything and has its own challenges

    Read more below (copy & paste):

    Recommend you first figure out the property Class you want to invest in, THEN figure out the corresponding location to invest in.

    If you apply Class A assumptions to a Class B or C purchase, your expectations won’t be met and it may be a financial disaster.

    So, when investing in areas they don’t really know, investors should research the different property Class submarkets.

    Here’s our OPINION for the Metro Detroit market (use as a template for your target area!) that we’ve learned in our 24 years, managing almost 700 doors across the Metro Detroit area, including almost 100 S8 leases.:

    Class A Properties:
    Cashflow vs Appreciation: Typically, 3-5 years for positive cashflow, but you get highest relative rent & value appreciation.
    Vacancy Est: Historically 10%, 5% the more recent norm.
    Tenant Pool: Majority will have FICO scores of 680+, zero evictions in last 7 years.

    Class B Properties:
    Cashflow vs Appreciation: Typically, decent amount of relative rent & value appreciation.
    Vacancy Est: Historically 10%, 5% should be applied only if proper research done to support.
    Tenant Pool: Majority will have FICO scores of 620-680, some blemishes, but should have no evictions in last 5 years

    Class C Properties:
    Cashflow vs Appreciation: Typically, high cashflow and at the lower end of relative rent & value appreciation. Can try to reposition to Class B, but neighborhood may impede these efforts.
    Vacancy Est: Historically 10%, but 15-20% should be used to also cover tenant nonpayment, eviction costs & damages.
    Tenant Pool: majority will have FICO scores of 560-620, many blemishes, but should have no evictions in last 2 years. Verifying last 2 years of rental history very important! Also, focus on 2 years of job/income stability.

    Class D Properties:
    Cashflow vs Appreciation: Typically, all cashflow with zero or negative relative rent & value appreciation
    Vacancy Est: 20%+ should be used to cover nonpayment, evictions & damages.
    Tenant Pool: majority will have FICO scores under 560, little to no good tradelines, lots of collections & chargeoffs, recent evictions. Verifying last 2 years of rental history and income extremely important to find the “best of the worst”.

    Make sure you understand the Class of properties you are looking at and the corresponding results to expect.

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  • Simon Ashbaugh
    Realtor · Columbus Ohio, Cleveland Ohio · Member since 2022 · 849 posts · 830 votes
    2y
    Quote from @Adam Eckhoff:
    Quote from @Jonathan Greene:

    Whatever you are thinking, stop thinking it. Even the notion that owning 5 to 10 $100k properties would be easy is absolute insanity. The properties that you are talking about owning and the tenancies are the hardest in the business, in general. $50 to $100k properties need maintenance and hide other issues. Tenancies are all over the map. Section 8 can be great because the tenant is only paying a portion of the rent, but managing the tenancies is not easy, especially a hard no from out-of-state. Your property management payments will be higher for C to D areas at those price points.


     Thank you for the feedback. I'm also from NJ. How would you begin if you were in my shoes?

    Thanks.


    Hey Adam, while long-distance Section 8 investing offers benefits such as stable rent, it also comes with challenges like managing a property management company from afar and dealing with repairs remotely. I'd say consider starting with one property for starters, thoroughly researching the market you choose to be on and build a strong team before diving into multiple properties.
    2Reply
  • Mike PaolucciBusiness Member
    Realtor · Columbus Cleveland Dayton, OH · Member since 2022 · 504 posts · 556 votes
    2y
    Quote from @Adam Eckhoff:

    Hello Everyone,

    Hey @Adam Eckhoff, It's definitely doable depending on your target market. With the right property manager, preferably one with good relationships with the local Section 8 offices/employees, you could definitely do well with the investments. 

    When I was an OOS investor (originally from San Francisco, CA), I was able to take advantage of what the program brings to the table thanks to my property manager. Here in Columbus, OH, Section 8 has raised their monthly rental amounts every 6-10 months for a couple of years now making it very attractive for lots of investors. 

    Happy to connect and share my OOS investing experiences. 

    [email protected]614-892-9184
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  • Jonathan GreeneBusiness Member
    Real Estate Consultant · Madison, NJ · Member since 2016 · 6k+ posts · 7k+ votes
    2y
    Quote from @Adam Eckhoff:
    Quote from @Jonathan Greene:

    Whatever you are thinking, stop thinking it. Even the notion that owning 5 to 10 $100k properties would be easy is absolute insanity. The properties that you are talking about owning and the tenancies are the hardest in the business, in general. $50 to $100k properties need maintenance and hide other issues. Tenancies are all over the map. Section 8 can be great because the tenant is only paying a portion of the rent, but managing the tenancies is not easy, especially a hard no from out-of-state. Your property management payments will be higher for C to D areas at those price points.


     Thank you for the feedback. I'm also from NJ. How would you begin if you were in my shoes?

    Thanks.


    Go to meetups, as many as possible and network with other investors so you get comfortable and make some good connections. We run monthly in-person meetups in New Jersey just for this reason. We have a lot of investors who invest closer in Philly where prices are good, but you have to know what you are doing.

    [email protected]Podcast Guest on Show BiggerPockets Daily 667: 5 Amazing Benefits Multifamily Investments Offer (That Single Family Homes Don’t) by Gino Barbaro
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    0Reply
  • Denis PonderPro Member
    New to Real Estate · Yuma, AZ · Member since 2023 · 280 posts · 246 votes
    2y
    Quote from @Adam Eckhoff:

    Hello Everyone,

    Hypothetically speaking, let's say you accrued an amount of $100,000 and you have the goal to invest in real estate. That being said, is it as easy as buying 5 to 10 $50k to $100k properties in Central USA, and securing a section 8 tenant? Assuming you get a management company to look after the properties (since i would be out-of-state investing). Or am I missing something here? 

    I've looked into buy and holds, short-terms, long-terms, BRRRR's, and section 8's.

    Thoughts on Long-Distance Section 8?

    Thanks,

    Adam.

    I would start with one and see how it goes.  Don't move too fast.  Get a taste of it, get acclimated, and move from there.

    0Reply
  • Tanner Lewis
    Lender · Austin, TX · Member since 2021 · 448 posts · 441 votes
    2y

    The biggest catch I see is financing. Due to the high foreclosure rates, many lenders will not consider a deal with less than a $100k loan amount. In my opinion, it is best to buy deals valued at less than $100k in all cash, but if you want to scale faster with leverage, you need to find higher value section 8 deals. The low valuation also makes it more difficult to sell if needed since you would need to sell to an all-cash buyer. A lot less market liquidity increases the risk profile for these deals. 

    0Reply
  • Shawn K HicksBusiness Member
    Real Estate Agent · Gainesville, FL · Member since 2019 · 128 posts · 107 votes
    2y
    Quote from @Adam Eckhoff:

    Hello Everyone,

    Hypothetically speaking, let's say you accrued an amount of $100,000 and you have the goal to invest in real estate. That being said, is it as easy as buying 5 to 10 $50k to $100k properties in Central USA, and securing a section 8 tenant? Assuming you get a management company to look after the properties (since i would be out-of-state investing). Or am I missing something here? 

    I've looked into buy and holds, short-terms, long-terms, BRRRR's, and section 8's.

    Thoughts on Long-Distance Section 8?

    Thanks,

    Adam.


     I see opinions are a little bit all over the place & to some extent I understand why. My two cents is it also makes a difference how section 8 is handled in a particular area. Coincidentally, way back in 2003, my very first client owned section 8 properties somewhere in New Jersey. He got burned in that particular market as he said tenants were intentionally breaking things & abusing the system so as to get out of paying any rent. He got caught up in a vicious cycle of constantly fixing things in an effort to get paid at all. This particular investor refused to then try it here in the market where I specialise in Gainesville FL.

    Overall, I've had clients from both in & out of town that have had success with section 8 here in Gainesville. There are two factors that I believe are what has most contributed to it being worthwhile. 1. In our market, the housing authority doesn't play around. If they get wind a tenant is playing the game & up to some funny business, tenants in our area understand that once they lose section 8, they can never get it back. So here it's a pretty fair/balanced system. 2. I had a good 10 year run with a property manager that was excellent with building rapport with the tenants themselves. She used to do quarterly inspections. The tenants had a high level of trust in her, & there weren't many incidents pertaining to tenants not disclosing legitimate issues. (For example, a minor leak that when neglected turns into something more significant.)

    In conclusion, I'm not going to tell you it's all candy canes & lollipops with Section 8, but if you properly vette all of the particulars, in can be something that works for you. I still would concur with some of the other posts in that step #1 for you might be to go to some local investor meet ups and see what strategies other investors are having wins with first hand.

    [email protected]352-871-5770
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  • Nicholas L.Pro Member
    Flipper/Rehabber · Pittsburgh · Member since 2018 · 6k+ posts · 5k+ votes
    2y

    @Adam Eckhoff

    Hello.  I'm with @Jonathan Greene - no, don't buy 5 properties in that price range in a random market.  unless you know what you're doing and have a great team you will get crushed by deferred maintenance, vacancy, and capex.  see this thread.

    https://www.biggerpockets.com/forums/12/topics/1171104-the-m...

    the first few years of investing in real estate generally consist of... investing.  and unfortunately, with rates and prices high, it has just gotten very, very tough to cash flow on long term rentals.

    i browsed a few other threads you started and it sounds like you already own your primary residence and are looking to get started in investing.  that's great.  if your immediate area is too expensive, i'd pick a couple markets between 1 and 3 hours away, learn them, go to meetups, look at properties, get connected, research strategies, walk them, narrow down to 1, repeat, etc.

    and if that sounds like it's too time consuming or something you're not interested in... no worries.  you can keep saving and learning in the meantime.

    cycles / timeframes in RE can be longer than they're made out to be on YouTube.  i started researching seller financing (NOT sub to) back in 2020 and started looking for a seller finance deal.  found one... 3 years later.

    hope this helps

    1Reply
  • Lisa Verna Staggers
    Alexandria, VA · Member since 2013 · 54 posts · 19 votes
    2y

    I have found it very difficult to find an effective property manager to manage section 8 tenants. They require a lot more hands on care and this could put extra stress on you if you are not local.

    0Reply
  • Michael SmytheBusiness Member
    Real Estate Agent · Metro Detroit · Member since 2023 · 4k+ posts · 3k+ votes
    2y

    @Lisa Verna Staggers how much extra have you offered to pay PMCs for the extra time & resources it takes to effectively manage S8 tenants?

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  • Lisa Verna Staggers
    Alexandria, VA · Member since 2013 · 54 posts · 19 votes
    2y

    @Michael Smythe

    Usually 2-4% higher than the standard fee. And that’s the minimum. For example, my property in a B location with market tenants always cost less to manage which is my point. In my experience overall- costs are going to be higher. As they should be, it takes more effort to wait for inspectors, make repairs, ensure rules are adhered to, etc. and that should be factored in. Also, I am sure there are many quality property managers out there, but unfortunately the pickling were slim in my particular sub market.

    0Reply
  • Michael SmytheBusiness Member
    Real Estate Agent · Metro Detroit · Member since 2023 · 4k+ posts · 3k+ votes
    2y

    @Lisa Verna Staggers well, it sounds like you appreciate and are willing to pay for above average performance:)

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  • Adam Eckhoff
    OP
    Member since 2020 · 43 posts · 22 votes
    2y
    Quote from @Jonathan Greene:

    Whatever you are thinking, stop thinking it. Even the notion that owning 5 to 10 $100k properties would be easy is absolute insanity. The properties that you are talking about owning and the tenancies are the hardest in the business, in general. $50 to $100k properties need maintenance and hide other issues. Tenancies are all over the map. Section 8 can be great because the tenant is only paying a portion of the rent, but managing the tenancies is not easy, especially a hard no from out-of-state. Your property management payments will be higher for C to D areas at those price points.


    Hi Jonathan Greene - I live in New Jersey and would like to eventually get into BRRRR. Since you are also from NJ, do you recommend any local meet-up groups that i should attend? I'm trying to build my team while i study more into REI.

    Thanks,

    Adam. 

    0Reply
  • Jonathan GreeneBusiness Member
    Real Estate Consultant · Madison, NJ · Member since 2016 · 6k+ posts · 7k+ votes
    2y
    Quote from @Adam Eckhoff:
    Quote from @Jonathan Greene:

    Whatever you are thinking, stop thinking it. Even the notion that owning 5 to 10 $100k properties would be easy is absolute insanity. The properties that you are talking about owning and the tenancies are the hardest in the business, in general. $50 to $100k properties need maintenance and hide other issues. Tenancies are all over the map. Section 8 can be great because the tenant is only paying a portion of the rent, but managing the tenancies is not easy, especially a hard no from out-of-state. Your property management payments will be higher for C to D areas at those price points.


    Hi Jonathan Greene - I live in New Jersey and would like to eventually get into BRRRR. Since you are also from NJ, do you recommend any local meet-up groups that i should attend? I'm trying to build my team while i study more into REI.

    Thanks,

    Adam. 


     We have meetups once a month in-person in Northern NJ. Send me a DM and I will send you the link. They are also always in the BP events here under Zen and the Art of Real Estate Investing. June's event is in Whippany. July. is in Morristown.

    [email protected]Podcast Guest on Show BiggerPockets Daily 667: 5 Amazing Benefits Multifamily Investments Offer (That Single Family Homes Don’t) by Gino Barbaro
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  • Joseph Guzzardi Jr
    Rental Property Investor · Member since 2019 · 411 posts · 148 votes
    2y

    @Adam Eckhoff Easy and Landlording don't belong in the same sentence. Section 8 is great but just be prepared to deal with the occasional routy tenant and extra wear n tear on your properties. You will get tough skin, and if you can handle sec 8 you can pretty much handle any other tenant.

    100k unfortunately won't get you too far in many places; BRRRR is fine but unlikely to pull out 100% of your money.

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