Section 8 for first rental

15 Replies

Hi,

I am looking at starting my rental journey and I found a home that meets my criteria in OKC area, however the current tenant is on month to month Section 8 housing.  Is this something I should steer clear from? If not what information should I get to ensure this is a good tenant? 

Thanks,
Jason

I have a few S8 tenants, I'm 100% perfectly fine with it. In fact in my area certain houses have a higher than market rate for rentals so section 8 produces more income for me. 

You can still screen tenants the same way you normally would. There is very little difference between renting a section 8 home, in fact the biggest difference is that your checks are guaranteed when you have a S8 tenant. 

the downsides to S8 are highly overrated and in my experience perpetrated by those with a chip on their shoulder about low income people. 

I have no issue with tenants on section 8.  I have issues with crappy tenants, whether they are on section 8 or not.  The nice thing about section 8 is that if they get evicted they get booted off of section 8 (for 5 years).  That creates a nice incentive.

To understand whether they are good tenants I would visit the property, see what condition it is in, what condition is their car in.  Same things you would do for any tenant.

Pretty funny story, I had a friend with a section 8 tenant that he wanted to get rid of.  They caused a lot of trouble for other tenants but the process for evicting for anything accept non payment of rent can be a real pain.  Instead, he cut a whole in the Sheetrock of the living room and then called the section 8 office and requested an inspection.

The inspection happened, he was told to repair or they would move the tenant out...problem solved.

@Jacob Sampson thanks for the info. I am a long distance investor so driving by isn’t really an option but I can find someone on Craigslist to drive around the neighborhood and record video if that turns out to be something I do.

I’ve heard horror stories about properties that already tenant occupied so I’m a little worried.

Originally posted by @Jason Lam :

@Alexander Felice this unit is already tenant occupied so I can’t screen. Is there something I should ask for to check to make sure they are a good tenant?

What is their contract? 

you're still going to want to screen them when their contract is near up so you can decide if yuo want to keep them or not. what has your property manager said? 

Get clarity on what utilities are being paid by the owner and what utilities are being paid by the tenant. Typically, in non-Section 8 situations, the standard is for the tenant to pay everything when it comes to SFRs. However, when it comes to Section 8, that is not always the case. The tenant's source of income must meet a certain minimum level in order for HUD to approve the tenant paying the water...along with all other utilities in the unit.

I've been burned in the past with a Turnkey company not properly disclosing to me that the water bill was being paid by the owner......despite the fact that the lease agreement explicitly states that the tenant was paying the water bill. This was an unexpected $100/month additional expense. In fact, I didn't even know the property was being rented by a Section 8 tenant till after I bought the property and I started receiving separate payments from the tenant and from the housing authority and asked the PM what was going on.

Of course, this is temporary because the tenant will eventually move out, one day or another. But hoping to rectify a $100/month issue with something that will cost thousands isn't exactly an ideal situation.

Outside of that, I've had very good experiences with Section 8 tenants as I have several other tenants in Los Angeles that are Section 8. I would imagine that you would be able to get some kind of rent roll or payment history from the PM. I think that a history of paying on time is one of the best criteria for evaluating a tenant. Also, I assume you've seen recent photos of the place and have an idea of how well they're taking care of it?

I would reach out to some local property management companies and ask them how section 8 is in that area. Every state has different rules, so it can be good in some places and cause headaches in others. 

Hey @Jason Lam

There are people that I know that do really well and don't have any issues with section 8, but they thoroughly screen their tenants and have nicer/cleaner houses that can allow them to be picky with which section 8 tenants they select.  Typically the people that have issues with section 8 homes/tenants are ones that rely entirely on property managers without section 8 experience to deal with every single aspect of their rental and/or they have low quality houses that attract low quality tenants.

The hard part about buying a home and keeping the existing tenants (or any tenants) is that you don't know what type of tenants they are until you start interacting with them. You'll want to be very actively involved in the tenant screening and inspections.  At the end of the day property managers are incentivized to fill vacancies as quickly and efficiently as possible. There are some property managers that do a fantastic job of screening tenants, and others that just take the first warm body with no recent evictions and some version of income 3x rent. Just make sure you do your homework as well.  

Originally posted by @Jason Lam :

Hi,

I am looking at starting my rental journey and I found a home that meets my criteria in OKC area, however the current tenant is on month to month Section 8 housing.  Is this something I should steer clear from? If not what information should I get to ensure this is a good tenant? 

Thanks,
Jason

The most complicated part of dealing with a Section 8 tenant is getting them into the unit. You've got to jump through hoop after hoop to get them approved. Once they are in there though it's smooth sailing. So no I wouldn't back away from this deal because of this.

@Jason Lam  ask for payment history and maintenance records. A great provider my be able to give these to you. Also, look at how long they've been here. If a tenant has been there for some time, payments have been made on time and maintenance records look average, I wouldn't worry. Also, ask whoever is representing you to send video of the area. It's tough to hide things over a live video stream! No need to ask someone on craigslist, however it's something you could do as well! You can also ask for a new set of photos/video of the interior to be taken your inspection. 

I would caution you that often section 8 or not, tenants can be messy. In my experience, there is sometimes just a different standard of living associated with lesser income areas. If you get photos that show a very messy property don't let the emotion around that dismantle the reality of situation. A normal inspection report (proving the property isn't in too much distress), a consistent payment history and a great rate of return isn't something to pass on if you're trying to make money!