Section 8 Tenant Demand in Different Areas of Los Angeles

5 Replies

Esteemed fellow BP readers,

I am considering between purchasing either a 4 unit apartment building in the Watts neighborhood of Los Angeles or a 6 unit apartment building in the Mid City neighborhood of Los Angeles.  My business plan is to rent out the units to Section 8 tenants as both the areas in which the apartment buildings are located have higher Section 8 rents compared to market rents for those areas.  

In order to understand better each investment opportunity though I wanted to reach out to and see if any readers had an idea or experience as to where I could go or who I may speak to or where I may research to get an idea of the Section 8 tenant rental demand in the two areas I am considering.  Basically, to help answer the question, how much rental demand is there from Section 8 tenants in these areas (or other areas in Los Angeles)

Any ideas would be appreciated.

Thank you in advance :)

A

Welcome to BP @A Bee

Let's see - where to begin. I do not believe the Section 8 statistics you are looking for regarding demand are accessible. However, you could extrapolate the demand by looking at a few things.

Take a look at the California Section 8 qualifications:
http://www.hcd.ca.gov/hpd/hrc/rep/state/incNote.ht...

Qualification is largely based on the total number of income earners in the household and how the total income compares against an area's median income (in the case of Los Angeles County, the Area Median Income is $64,800). 

Knowing this, where might you suspect you'll find lower income earners - MidCity or Watts? Watts of course. Expect Section 8 demand to be higher there.

Also, I believe that is a Section 8 official / inspector that dictates market rate rent for an area. I find it highly unusual that a like-kind property in Watts has higher market rate rent than in MidCity.

Personally, I would not advise making your investment decision nor your business plan, in Los Angeles, based soley on which property will bring you more Section 8 income. There are a variety of other factors to consider and tradeoffs to guaranteed Section 8 that you should really understand before proceeding.

If you could share more info about the units you are comparing, such as the acquisition price, size of the units, current rents, etc - I think we'll be able to give you a better recommendation. 

Without knowing anything else, off the top of my head, I would choose the MidCity 6-unit over the Watts. In general, demand is higher, rents are higher, and quality of tenants will be higher.

I'm rooting for Watts and like the rest of South LA, it is making progress, but I'd feel a heck a lot safer managing my tenants in MidCity than in Watts.

@A Bee

Regarding investing in Watts. If that is indeed in your future, One of the first things I would suggest you to do is to introduce yourself to the 15th District Council Office of Los Angeles. This office represents the Watts area. In theory, they should welcome investors like you with open arms for thinking of investing in their area of jurisdiction.

The person to seek out first would be the Watts Field Deputy. He is listed under the -

Watts Office. 10221 Compton Avenue, - section. 

The Field Deputy is literally your expert on the ground for Watts. I'm sure any advice he will have will be worth your while. His name and number are listed on this pdf.

http://cityfone.lacity.org/verity/department_direc...

All the best in your investing future!

Hi @A Bee ,

You seem to already have some guidance on where to find rent statistics for Section 8 tenants above.  I can speak to the practical knowledge having owned and managed Section 8 tenants in both neighborhoods you discussed.  

Both areas, in fact most, moderately priced and/or up and coming neighborhoods, will have a stronger demand from section 8 tenants than there is supply of willing landlords.  Like non subsidized tenants, the unfortunate reality for landlords is that it requires diligent screening to find a "good" tenant.  There are some truly exceptional and responsible tenants who use Section 8 vouchers and you will find them eager and/or willing to live in most areas of Los Angeles.

The bigger question for you as it relates to which of your two properties could be the better investment should be about the building itself.  

First consider the structure of your acquisition.  A four unit property will have more financing options (see better leverage) and allow for cheaper borrowing than a 5+ unit apartment building.  It you measure the better investment by returns on your money, It seems out the gate the four unit would have a leg up in the competition.

Next, which building is better suited to attract the tenants you are seeking? In my experience the "better" (read more responsible, more stable) tenants in the Section 8 world are those with families to support and care for.  These tenants will need more bedrooms in their units; the more the better.  If you buy single, one or even two bedroom units you may find yourself at a disadvantage vs. the landlords offering three or more bedroom units.  So consider which of your two buildings allow you to offer the best choices to your tenant pool.

Finally, building condition and surroundings.  I've found two things to be very true about renting to section 8 tenants (actually to most tenants, but i'll stay on topic).  First, the better a landlord maintains his building and the unit he delivers to a new tenant, the better a tenant will treat their rented home.  Second, the more the area surrounding your tenants home has to offer the longer they want to stay put.  So, as it relates to comparing your two buildings, consider how much investment it will take to bring each building to a quality that exceeds the other rental options in the area and factor that into your proforma.  Also, research the schools in each area, the shopping options, the public transportation options, and the proximity to social services.  The more community services around your building, especially if in walking distance to your rental units, the more appealing it will be to tenants and easier it will be for them to stay.

Best of luck and keep us posted on your choice.

Allan

Medium asg logo bAllan Glass, ASG Real Estate Inc ® | 213.973.8637 | http://www.asgreinc.com | Podcast Guest on Show #98

Hi A Bee.

I too invest in South LA and have section 8 tenant.  The key is not to specifically target section 8 tenant, but understand the numbers behind your purchase.  Acquisition price, size of the units, condition of the units, existing/new tenant, current rents, rent controlled etc.  Hope you can share some numbers so we can give more concrete advice.

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