Does the 50% Rule Apply to Section 8

Question

I have learned a ton on this website, including the 50% rule regarding expenses (not including P&I). Look at gross rents (for example, $1,000 a month), and expect $500 in operating expenses.  Now my question is, does this rule apply to Section 8 properties? I am trying to analyze these numbers and they look significantly better than "regular" properties. I would think expenses would potentially be higher considering the inspections and clientele. 
Can anyone with experience please share your thoughts?
Thanks in advance.

Michael Lauther · Answer

My short term experience with section 8 in Dayton is that initial rehab cost is higher due to regulation, maintenance has been the same and utilities are paid by the tenant. The up side is rent is deposited electronically like clockwork. would take all the section 8 I can get but you must screen tenants just as car fully.

Bill Gulley · Answer

In our area, we found that there was less turnover in Section 8 than similar properties, at nearly the same rent levels. We certainly don't have a great surplus but have a considerable amount if Sec. 42 properties which are nice. After they get in, rents being paid timely, most are satisfied and stay. Normal life changes for family units still apply, but vacancy is less than 10% and due to waiting lists, quickly rented if new vouchers are authorized.

It's the landlord's responsibility to screen tenants, you can certainly have quality tenants in Sec 8, if you preceive this group as being undesirable, it's not the socio-economic factor as much as the lack of due diligence by the owner/manager.

Michael Lauther · Answer

Josh M. as you have already researched the 50% rule you know that it is only an average. The condition of the property and maintenance issues will probably be your biggest variable. Taxes, insurance, and property management are easily determined  the age of the building and any deferred maintenance can make an enormous difference in profit. A new roof could take a large bite out of profit and vacancy can throw a wrench into your numbers. Part of your due diligence is to evaluate these variables realistically. so on the face of it it looks like a $12,000 net annual cash return on an $85,000 investment.  IMO this would be a good return in an upscale  stable neighborhood But would not be attractive in a lower income "C" area where you would expect more vacancy , difficult tenants, and higher maintenance.

Josh Dane · Answer

Im looking at a two unit, 3 bed 2 bath in each unit for a combined $2,100 a month in gross revenue. Financing aside, how much would you guys realistically expect to profit from this? $85,000 asking. (Not for rehab, already has tenants). 
Thanks in advance.

Geof Greeneisen · Answer

My experience is there is no higher income from section 8, just more confidence in getting paid. Properties get used when people are present. Our offices have issues from 9-5. Our houses have issues at night or on weekends.

Our section 8 tenants seem to spend most of the day and night at home, i.e. more utility expense and more wear and tear on the house. We have higher reserves set for our section 8 properties due to the increased usage.

Does the 50% Rule Apply to Section 8

Most Popular Reply