Section 8 Voucher Redemption
New to Real Estate · Minneapolis, MN · Member since 2020 · 27 posts · 5 votes
Section 8 Voucher Redemption
Most Popular Reply
Drew SygitBusiness Member
Property Manager · Royal Oak, MI · Member since 2012 · 12k+ posts · 9k+ votes@Natan Gutt Guessing what you're referring to is either:
1) Voucher is @ $1550, but once you deduct utilities (never include in rent!) pure rent number is $1300?
2) If you advertise your property for rent at $1300, S8 won't pay the pure rent of $1550 - which would be over market.
There are several scammers promoting themselves as S8 gurus online that use questionable means to get around #2 above.
An obvious solution is to buy properties that have a market rent of $1550! They'll be in nicer areas which usually means better tenants, S8 tenants aside.
You mentioned Detroit, well we use the method above to assist investors in finding properties in better areas. PM us for more info.
Logical Property Management4.9451 Reviews
13 Replies
- Real Estate Broker · Minneapolis, MN · Member since 2011 · 5k+ posts · 6k+ votes2y
Quote from @Natan Gutt:
Hi,
I am looking to start investing in section 8. I have a few long term rentals in Minneapolis and looking to find the right city to start in. I was getting locked in to start in Cleveland when the agent I was working there said that you can never redeem the full amount of the voucher because it’s always higher then fair market value of the rent.
For example. 3b 1bth house voucher is roughly $1,550, but the rents get no where near that much apparently and cap at around $1,300.
Is there a city that people do section 8 in that has houses for 100k close to turn key and also are high enough rents to match the voucher and take full advantage of that amount?
Thank you ahead of time for your help
Why not looking right here in own back yard?
I don't want to say too much on public forum but, MN is high income state, which makes for some of highest median incomes in US, which makes for some of the highest paying sec8 in country.....
Is it possible to hit 2% in MN sec8, yes it is. Meeting 1% rule is an expected MINIMUM, FYI.
And NO, I am NOT talking Minneapolis/ St Paul, hell to the no-NO! I mean sure, plenty do great in those sec8 pizz-ponds but "affordable housing" is in EPIC demand all over, and there IS far FAR better markets for one to start playing in then that.
If do research on sec8, learn how it works, how the payment standards work etc., it should come very clear very fast where the big opportunities are. From there call the sec8 authority in that area and ask if they need more properties, and prepare for the laugh. The biggest problem is filtering the 100 or so applicant's per week.
As for getting less then payment standard calculation, that stands true in theory. Here in MN, every market I have "played", I've never seen it nerf'd down from payment standard calculation.
I have seen "noob's" have issues with, say, a 5br home and trying to get that payment standard from a 3br voucher holder. So again, do your research to learn the ropes of the rules & reg's. Yes, those 7br homes look to be insane cash-cows, and they would be IF, if you can find an approved 7br voucher holder, which is very rare.
But again, your backyard out performs anything I've ever seen/heard of for anywhere Ohio, in sec8 strategy. It's not too hard to net $1kmnth per unit in MN in this strategy, in OH, good luck. Sure, the % is similar, but on much smaller $'s, that's the difference.
And let's be smart, would ya rather go where every a-hole from around the country is going to produce more rental inventory, or operate where supply is still insanely constrained?
- Cincinnati, OH · Member since 2020 · 4k+ posts · 3k+ votes2y
@Natan Gutt, I am not understanding why you would need, or even want the full value of the voucher.
I do understand wanting the highest rent to purchase price ratio, and I would assess markets based on that, if that is the route you are going. When assessing deals, in any market with or without section 8, you should be assessing market rents, not what a voucher may pay. While the Housing Choice Vouchers do have caps, as you noted, you are always going to be limited by your price point. A $100k, move in ready house in pretty much any major market, will be in some of the highest crime areas of town. High crime areas will also tend to have the lowest rents.
But back to your question, which really isn't around section 8 at all, but seems to be based on where can you find the highest rent to purchase price areas: they will be in the high crime, low value areas of any market.
Additionally, and please confirm this, I don't believe the HCV system increases their upper limit every year. So if you go in at $1,550 and they don't increase the cap next year, you cannot apply for a rent increase.
Lastly, I would also make sure you fully understand the other commitments that come with Section 8 (HCV). In Cincinnati, they have bi-annual inspections. So even if you have the same tenant without turning over, your property will be inspected every other year, and you will be required to make repairs, that with a market tenant would not have otherwise been required until turn. It has been about 4 years since I had my least HCV tenant in Cincinnati, and I will note that those bi-annual inspections were becoming about $1,500/occurrence affairs. Not a ton, but not nothing. They average to about $60-70/mo of expense that I would not have had, assuming a market rate tenant would have stayed the same period of time.
- 2yAdam TafelBusiness MemberReal Estate Agent · St. Paul, MN · Member since 2017 · 573 posts · 395 votes
Talk to @Grigoriy Gorshteyn about MPLS sec 8 best practices and strategies.
Upside Property Sales 4.9108 Reviews - New to Real Estate · Minneapolis, MN · Member since 2020 · 27 posts · 5 votes2y
Thank you to everyone who replied.
I guess to clarify what I was asking is what was being presented online as to why Section 8 can be lucrative. When you have mortgage, insurance, tax, vacancy, maybe utilities, and maintenance you could reach a 20% CoC return. After doing my diligence when I thought Cleveland would be a good city, it was close to 8-11% CoC return. I was asking which cities would have that price range of a Section 8 home, and would have that larger rent amount, to get that higher CoC returns.
- New to Real Estate · Minneapolis, MN · Member since 2020 · 27 posts · 5 votes2y
Quote from @James Hamling:
Quote from @Natan Gutt:
Hi,
I am looking to start investing in section 8. I have a few long term rentals in Minneapolis and looking to find the right city to start in. I was getting locked in to start in Cleveland when the agent I was working there said that you can never redeem the full amount of the voucher because it’s always higher then fair market value of the rent.
For example. 3b 1bth house voucher is roughly $1,550, but the rents get no where near that much apparently and cap at around $1,300.
Is there a city that people do section 8 in that has houses for 100k close to turn key and also are high enough rents to match the voucher and take full advantage of that amount?
Thank you ahead of time for your help
Why not looking right here in own back yard?
I don't want to say too much on public forum but, MN is high income state, which makes for some of highest median incomes in US, which makes for some of the highest paying sec8 in country.....
Is it possible to hit 2% in MN sec8, yes it is. Meeting 1% rule is an expected MINIMUM, FYI.
And NO, I am NOT talking Minneapolis/ St Paul, hell to the no-NO! I mean sure, plenty do great in those sec8 pizz-ponds but "affordable housing" is in EPIC demand all over, and there IS far FAR better markets for one to start playing in then that.
If do research on sec8, learn how it works, how the payment standards work etc., it should come very clear very fast where the big opportunities are. From there call the sec8 authority in that area and ask if they need more properties, and prepare for the laugh. The biggest problem is filtering the 100 or so applicant's per week.
As for getting less then payment standard calculation, that stands true in theory. Here in MN, every market I have "played", I've never seen it nerf'd down from payment standard calculation.
I have seen "noob's" have issues with, say, a 5br home and trying to get that payment standard from a 3br voucher holder. So again, do your research to learn the ropes of the rules & reg's. Yes, those 7br homes look to be insane cash-cows, and they would be IF, if you can find an approved 7br voucher holder, which is very rare.
But again, your backyard out performs anything I've ever seen/heard of for anywhere Ohio, in sec8 strategy. It's not too hard to net $1kmnth per unit in MN in this strategy, in OH, good luck. Sure, the % is similar, but on much smaller $'s, that's the difference.
And let's be smart, would ya rather go where every a-hole from around the country is going to produce more rental inventory, or operate where supply is still insanely constrained?
The reason being, and maybe I assumed, but with the amount saved to start a portfolio, 150k, I thought a city like Cleveland or for the sake of argument Detroit, would stretch that farther for more homes. My criteria being C class homes around 75-100k near turnkey ready. If you are saying that's a possibility here, then yes, I agree, I do need to look in my own back yard.
- Real Estate Broker · Minneapolis, MN · Member since 2011 · 5k+ posts · 6k+ votes2y
Quote from @Natan Gutt:
Quote from @James Hamling:
Quote from @Natan Gutt:
Hi,
I am looking to start investing in section 8. I have a few long term rentals in Minneapolis and looking to find the right city to start in. I was getting locked in to start in Cleveland when the agent I was working there said that you can never redeem the full amount of the voucher because it’s always higher then fair market value of the rent.
For example. 3b 1bth house voucher is roughly $1,550, but the rents get no where near that much apparently and cap at around $1,300.
Is there a city that people do section 8 in that has houses for 100k close to turn key and also are high enough rents to match the voucher and take full advantage of that amount?
Thank you ahead of time for your help
Why not looking right here in own back yard?
I don't want to say too much on public forum but, MN is high income state, which makes for some of highest median incomes in US, which makes for some of the highest paying sec8 in country.....
Is it possible to hit 2% in MN sec8, yes it is. Meeting 1% rule is an expected MINIMUM, FYI.
And NO, I am NOT talking Minneapolis/ St Paul, hell to the no-NO! I mean sure, plenty do great in those sec8 pizz-ponds but "affordable housing" is in EPIC demand all over, and there IS far FAR better markets for one to start playing in then that.
If do research on sec8, learn how it works, how the payment standards work etc., it should come very clear very fast where the big opportunities are. From there call the sec8 authority in that area and ask if they need more properties, and prepare for the laugh. The biggest problem is filtering the 100 or so applicant's per week.
As for getting less then payment standard calculation, that stands true in theory. Here in MN, every market I have "played", I've never seen it nerf'd down from payment standard calculation.
I have seen "noob's" have issues with, say, a 5br home and trying to get that payment standard from a 3br voucher holder. So again, do your research to learn the ropes of the rules & reg's. Yes, those 7br homes look to be insane cash-cows, and they would be IF, if you can find an approved 7br voucher holder, which is very rare.
But again, your backyard out performs anything I've ever seen/heard of for anywhere Ohio, in sec8 strategy. It's not too hard to net $1kmnth per unit in MN in this strategy, in OH, good luck. Sure, the % is similar, but on much smaller $'s, that's the difference.
And let's be smart, would ya rather go where every a-hole from around the country is going to produce more rental inventory, or operate where supply is still insanely constrained?
The reason being, and maybe I assumed, but with the amount saved to start a portfolio, 150k, I thought a city like Cleveland or for the sake of argument Detroit, would stretch that farther for more homes. My criteria being C class homes around 75-100k near turnkey ready. If you are saying that's a possibility here, then yes, I agree, I do need to look in my own back yard.
This is a fatal flaw in the calculous of the novice investor, that getting more unit's = "more" returns....
I can do a running list of all the major flaws in this thinking but for ease I will start with one of the biggest ones. Those properties are a lot less $, because the rents also are equally a lot less. So it's same rent-to-price ratio, if not worse but let's be graceful and say it's the same. How much is a roof? Is a roof half the price because it's not in MN? Are the shingles half price? How about a furnace, counter tops, a fridge...... No, material costs sit nearly identical. BUT, as mentioned rents are a LOT less.
So now, sure, your return is same or similar %, but, off a LOT less $. Which means your net is a LOT less. But your expenses, remain about the same.
So maintenance and cap-x cuts a LOT deeper on those low $ performing properties.
- 2yDrew SygitBusiness MemberProperty Manager · Royal Oak, MI · Member since 2012 · 12k+ posts · 9k+ votes
@Natan Gutt Guessing what you're referring to is either:
1) Voucher is @ $1550, but once you deduct utilities (never include in rent!) pure rent number is $1300?
2) If you advertise your property for rent at $1300, S8 won't pay the pure rent of $1550 - which would be over market.
There are several scammers promoting themselves as S8 gurus online that use questionable means to get around #2 above.
An obvious solution is to buy properties that have a market rent of $1550! They'll be in nicer areas which usually means better tenants, S8 tenants aside.
You mentioned Detroit, well we use the method above to assist investors in finding properties in better areas. PM us for more info.
Logical Property Management4.9451 Reviews - 2yTim SwierczekPro MemberLender · White Bear Township, MN · Member since 2016 · 1k+ posts · 1k+ votes
Quote from @Natan Gutt:
Hi,
I am looking to start investing in section 8. I have a few long term rentals in Minneapolis and looking to find the right city to start in. I was getting locked in to start in Cleveland when the agent I was working there said that you can never redeem the full amount of the voucher because it’s always higher then fair market value of the rent.
For example. 3b 1bth house voucher is roughly $1,550, but the rents get no where near that much apparently and cap at around $1,300.
Is there a city that people do section 8 in that has houses for 100k close to turn key and also are high enough rents to match the voucher and take full advantage of that amount?
Thank you ahead of time for your help
I have heard nothing but horror stories from out-of-state investors in Cleveland. From my second-hand accounts, I would stay far away from that market. It's my understanding that you must have local knowledge to be successful there. I second @James Hamling's comments to stay in MN and look for markets here that attract good section 8 tenants.
- New to Real Estate · Minneapolis, MN · Member since 2020 · 27 posts · 5 votes2y
@Drew Sygit
Yes, the obvious answer would be to get a property that cash flows that amount. But at its core what I am looking for is what markets seem to have the highest cash in cash returns.
- 2yDrew SygitBusiness MemberProperty Manager · Royal Oak, MI · Member since 2012 · 12k+ posts · 9k+ votes
@Natan Gutt and you're going to ask a bunch of strangers that most are just giving their opinions with no facts and the rest all have their own agendas to sell you something?
Logical Property Management4.9451 Reviews - Real Estate Broker · Minneapolis, MN · Member since 2011 · 5k+ posts · 6k+ votes2y
Quote from @Natan Gutt:
@Drew Sygit
Yes, the obvious answer would be to get a property that cash flows that amount. But at its core what I am looking for is what markets seem to have the highest cash in cash returns.
Oh come on now, you can't be THAT green....
If all your going to do is chase that 1 #, oh man, dude your so scr#wed!
Sec8 COC is NOT the thing to chase, lol, NEVER. COC is the most worthless metric to watch in sec8 buddy.
What matters is retained NET.
There is a TON, and I do mean a TON of places that will pencil out with huge COC. And there is damn good reason for it, the operational impact and expenses will eat you ALIVE!
Sec8 is all about operations, Operations, OPERATIONS. That's where you make or loose $ in sec8.
- New to Real Estate · Minneapolis, MN · Member since 2020 · 27 posts · 5 votes2y
Quote from @James Hamling:
Quote from @Natan Gutt:
@Drew Sygit
Yes, the obvious answer would be to get a property that cash flows that amount. But at its core what I am looking for is what markets seem to have the highest cash in cash returns.
Oh come on now, you can't be THAT green....
If all your going to do is chase that 1 #, oh man, dude your so scr#wed!
Sec8 COC is NOT the thing to chase, lol, NEVER. COC is the most worthless metric to watch in sec8 buddy.
What matters is retained NET.
There is a TON, and I do mean a TON of places that will pencil out with huge COC. And there is damn good reason for it, the operational impact and expenses will eat you ALIVE!
Sec8 is all about operations, Operations, OPERATIONS. That's where you make or loose $ in sec8.
I can appreciate your opinion if it didn't reflect a tone of me being ignorant. Nowhere did I say is CoC my only metric, and asking a question shouldn't come back to about my greenness or me being screwed. Others have contacted me privately here on bigger pockets to help me understand the different markets they have worked in sec8 on the returns they have received. If it weren't for the fact that I already have a few great cash-flowing properties in MN from COVID time and have some experience I'd feel like you cared more to show ignorance in my question rather than truly help.
- Real Estate Broker · Cleveland, OH · Member since 2023 · 208 posts · 79 votes2y
So much DRAMA. I love real estate!
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