I have limited capital to work with and the idea of buying a property at $25,000 putting about $10,000 into rehabbing the house and renting it for $800 (local section 8 rent estimate) sounds like a great deal. I would hire a property manager experienced in section 8 to guide me through the venture, but I do not want to rely on someone else for the success of my business. Could someone with section 8 experience help me understand how the section 8 program changes the rental process, and if there are any hidden expenses with section 8?
@John LaVecchia The Section 8 programs are going to have an inspector come out and inspect the property to meet their standards. You could hire a Home Inspector that works on a lot of Section 8 housing to do the same thing, one time. You can call your local section 8 offices and see if they have some people they recommend, then do your background checks on the people recommended. You should be able to find some good ones who can tell you what you need to fix to pass an inspection and get you on your way for the program. Best of luck to you.
Perhaps the accompanying questions is WHY do you WANT to get involved in Section 8 governance? There are positives and negatives.. are you looking to be talked out of the negatives?
so for $35k you could rent it for $800/mo? That seems like the deal of a lifetime. I'd be curious about your expenses. I've had experience with section 8 and it can go either way depending on the tenant. Some will screw you and cause you nothing but problems, others will be just like any other tenant and your rent always shows up on the 4th like clockwork. There should not be any hidden expenses if your property meets code and passes inspection.
@Jack Bobeck thank you for the insight, I will definitely speak to my local section 8 office for the recommendation.
@David Boroughes that's how I felt when I reviewed the numbers on this deal. The market rent off section 8 would be about 600 - 650, which would still be a cash flowing deal
@Eric Taylor, my motivation to participate would be the increase in rent. In this case I would get about $200 more a month using the program.
Well ... there may be the answer. Should you get into Section 8....’yes’ when you can produce ‘greater’ returns which you feel are offset by the anticipated risk. The math will always say it’s a good idea because on the “guaranteed” portion of payment - any others questions are just a solicitation for a horror story. If you are not really ready to take the full plunge.. try to identify Elderly Section 8 tenants who are less like to ‘ behave destructively’...
Totally agree with Eric. I would also add that it is very important that you still screen your prospective tenant thoroughly, regardless of age, even though they have a Section 8 voucher. Section 8 may be paying all or most of their rent, but that should not affect your credit, previous landlord and criminal background checks. Best of luck to you.
@Eric Taylor Having an elderly section 8 tenant is a great idea to reduce the risk of damage to the property. I will definitely try to find a solid marketing outlet to that demographic. Thank you for that creative idea to reduce the risk of my investment.
@Laticia Braxton What would you consider a "good" credit score for a section 8 tenant?
You decide what you will require as a "acceptable" credit score. You do not lower your standards to qualify sub standard applicants. Even S8 recipients can have descent money management skills. If they do not then you do not want them as tenants. A low credit score is a indication of a overall sub standard individual in most cases.
600 + credit scores is what I look for with section 8 tenants and non-section 8. While inspections are a pain it’s really a free evaluation of your home and can help you keep up on important things.
When reading posts from people discouraging you from going Section 8, make sure and get a feel for whether or not they have ever rented a property through Section 8. I have a Section 8 property, my numbers are very close to your desired target range, the venture has been lucrative and I am having a blast. My tenant only pays $46 and the government pays $629. I didn't see the need to run their credit, I received a deposit of $600, so if the tenant doesn't keep up, I won't renew to him. I do send him a bill every month saying the right things but I don't sweat it much. I did go with a disabled man in his 50s because I think he gave me a good shot at a long term tenant.
I'll be happy to answer any specific questions you have about Section 8. I did not go with a property manager, I just got a list from my local housing authority of what they need done to the property and showed the list to my contractor. You will likely fail your first inspection of two, don't worry about it and be nice to the inspector; I thought of it as a long term play, I want to do many deals with Section 8 so I will likely deal with the inspector many times over. Be calm when dealing with the bureaucratic red tape of the housing authority; make a phone call to figure out the next step when you are going through the process, when you get sent to voicemail, leave a message; when you don't hear a reply a day later, send an email; when you don't get a reply from your email two days later, drive to the Section 8 office and politely figure out what the next steps are. A lot of times you will be past from one person to the next and the last person won't tell you that you are now to be working with a new person.
I get a direct deposit into my bank account every month. I get above market rent. It's a sweet deal. Just be cool and have fun with it, you'll love it once you do your first deal.
Typically, anything below 600 (whether a Section 8 or a traditional tenant) will not be approved although I don't consider a credit score as an indicator of a "sub standard individual". Many people have had or will have challenges at some point in their lifetime. I do, however, look very heavily at past rental history and ability to pay and that is what mainly drives the decision with Section 8 tenants.
@Thomas S. What do you think of the 600 mark suggested by Mr. Calloway and Ms. Braxton?
@Jonathan R. Do you find it is harder for you to get equity partner on a section 8 property, and how do you present the investment to minimize the perceived risk (without being dishonest or misleading)?
How would you go about increasing rent of a section 8 tenant? I am closing on my first property in a month and there is a section 8 tenant and their rent is $900 a month. Current market rent for section 8 should be about $1,450
@Ryan Delauz You can only raise it 5% per year. To get it up that high you have to finish the lease and start a new one with a new tenant all together. @John LaVecchia I have never used an equity partner. I think it would be pretty simple. Something like, "Here are the days I get direct deposits, it is nice not to have to worry about getting the majority of my money on time. We are also providing an excellent home for someone in need and a tremendous amount of value to the community."
Thank you for the tip @Jonathan R. I'll be using that line when I speak to my potential partner later today!
@Jonathan Roper So my best option would be not to renew lease when it expires and get a new section 8 tenant at higher rent?
@Ryan Delauz Yes, that is the only way. Always shoot high and let the housing authority correct you downward if need be. It isn't difficult to get a tenant to agree to your number on Section 8, at least not in my area.
I have a portfolio of mostly Section 8 units and have been doing it for eight years. There are positives and negatives:
- Rent paid electronically on the 1st of the month (majority of rent, tenant still has a portion)
- Reduced evictions - Applicants lose their voucher if they are evicted so collecting the tenant portion of rent is easier. The question we often have to ask short/no payers is "do you want to pay us $200 now or $900 without your voucher?"
- Increased vacancy - At least in Chicago, the unit must be vacant before an inspection can occur. Add to that the processing time of moving papers and potential for a failed first inspection, it can take 30+ days before the applicant moves in.
- Bureaucracy - Expect plenty of red tape, delays and unexpected problems.
- Limited recourse - Tenants typically have little income so collecting on any judgments/damage is practically non-existent.
- Inspections - This might be a local issue but these have been getting stricter and fail rates have been increasing. Quality control inspections (after a pass) can make a simple passed inspection turn into three (initial inspection, quality control fail, 2nd inspection from quality control). Inspection times are only provided the afternoon before so it makes scheduling difficult especially if you have multiple inspections on a day (they do not always consolidate inspections of multifamily buildings).
On screening, we never hold Section 8 tenants to FICO credit scores as many are underbanked and the scores have little predictive insight for this population. I personally have had many great long term tenants who have been unscored (shows up as a no hit) by FICO. However, I recommend screening every tenant to review for criminal, evictions and overall stability.
@Jeremy S. Thank you so much for that breakdown of the system. Your experience shows in your ability to articulate the pros and cons of the system. As a rookie, how can I appropriately screen tenants for stability outside of there criminal and evictions records?
You got lots of pros and cons for Section 8, from above replies. If you have tenant now, just keep until they move out. No point in kicking out a paying tenant. If no tenant now, I would go with section 8 tenant.
I currently have section 8 tenants. From what I noticed, opinions are 50-50 to which is best.
There are two main reasons why I chose section 8.
1. Can get 20-25% more than market.
2. I don't have to chase down late paying tenants, and list to excuses why they are having difficulty paying. Here's a real situation that happened within last two weeks. Tenant has been 50-50 late over past year, and I have been waiving the late fee. This last month, November, tenant have not been return call or text message. When finally get a hold of daughter of tenant, she starts off by yelling at me for not fixing items, which I have and have handyman living in same complex. I agree to work with her to fix items. I ask about rent, then she said Thursday. Thursday comes and go's. She next said Friday, Friday comes and goes. She pays Saturday, but not late fees per our lease agreement.
I send her a copy of portion lease regarding late fees, and current 3 bedroom 2 bath rental for $895 in same complex. Current tenant is paying $700.
Now what is wrong with this picture?
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