There are alot of lower income neighborhoods in my backyard ( not actually in my backyard but you get it) I have alot of oppertunities to be a cashflow monster with the lower entry price point. My question is what are the pros and cons from those of you who are running this niche ??????
Investor/Landlord · Farmington Hills, MI · Member since 2011 · 1k+ posts · 1k+ votes
10y
When you accept section 8 you enter into a very uneven relationship with Government. You will be held to any contract you sign (plus the numerous addendums) but the housing authority will be free to change their agreement at will. You may have the opportunity to take the housing authority to court for their breach--good luck with that. This topic comes up often. Do a search and you will find many landlords who love the program and many who don't. Much of this depends on how your local housing authorities operate. I participated for ~3 years. Never again. I believe there are two types of landlords: those who refuse section 8 and those who will soon refuse section 8.
Investor · New York City, NY · Member since 2014 · 370 posts · 85 votes
10y
I would say the biggest and clearest benefit is guaranteed monthly income. Downsides are the on boarding process is a pain and slow, rent increases are minimal, annual inspections. You likely will have more maintenance with this set of tenants but not necessarily. I have two and one is pretty good and has great credit. NYC is so expensive that people need Section 8 to live here.
Urbana, IL · Member since 2012 · 1k+ posts · 425 votes
10y
Section 8 can be just fine. Its a matter of running back round checks just as you would with any other tenant. In my area they also get a year long lease if you they pass the backround check so that may play into your thoughts depending on how you prefer to write your leases.
Investor · Douglasville, GA · Member since 2014 · 313 posts · 181 votes
10y
An investor friend of mine specializes in section 8 rentals.
He likes the guaranteed rent (prefers tenants who get 100% subsidy). He screens the tenants just like any other tenant, but the section 8 ones also have a history with the housing authority. You can read the exit interview with previous section 8 landlords, and see what kind of tenant they have been. He likes tenants that have been in the program at least 2 years; says they know the importance of that subsidy, and will do anything to keep it.
Section 8 gets a lot of flack for having tenants that destroy houses. He has never had that happen.
Investor/Landlord · Farmington Hills, MI · Member since 2011 · 1k+ posts · 1k+ votes
10y
When you accept section 8 you enter into a very uneven relationship with Government. You will be held to any contract you sign (plus the numerous addendums) but the housing authority will be free to change their agreement at will. You may have the opportunity to take the housing authority to court for their breach--good luck with that. This topic comes up often. Do a search and you will find many landlords who love the program and many who don't. Much of this depends on how your local housing authorities operate. I participated for ~3 years. Never again. I believe there are two types of landlords: those who refuse section 8 and those who will soon refuse section 8.
Investor · Douglasville, GA · Member since 2014 · 313 posts · 181 votes
10y
@Account Closed is correct. there are very strong opinions on either side of the section 8 debate. I haven't personally tried using section 8 yet, but would be willing, if I ever have a vacancy I can't fill without it. Here in Georgia, we have people with vouchers waiting for good places that will accept them, so you can fill a place fast. Jeff is also right that it depends on how your local housing authority operates. You should be able to view section 8 rentals on a local site, and call the landlords. see if any of them are willing to talk to you. Find out how they like the program.
Residential Real Estate Broker · Fresno, CA · Member since 2009 · 11 posts · 5 votes
10y
Pro:
Section 8 portion of rent deposits on the first
I have found there are more Section 8 qualified tenants needing homes at least in my area them normal (probably because less landowners want Section 8 tenants)
If you don't do walk throughs or home inspections (you should) Section 8 does them annually and will have you correct issues hat need addressed ( although sometimes they don't need to be fixed and the inspector tells you they should.. More about that in con)
Con:
Screening process takes longer to get a great section 8 tenant.. Maybe this is just me, but I really make sure I don't put someone in the home that won't appreciate the house as much as I do.. As with any tenant, just seems to take longer to find that gem with section 8
Section 8 can change there rent portion on you mid lease and you can't say anything about it. For example: tenant qualifies for a 3/2 voucher - total rent is 1100, the tenant portion is 300.00 and section 8 portion 800.00. Let's say that tenant gets a new job and a pay increase, so section 8 drops there portion to 200.00... Now your tenant pays 900.00, but you only qualified them for 300.00 and the job really isn't pay enough to qualify them for the additional amount needed to cover there portion of the rent, you have no say in the matter...
In my experience Section 8 is pro tenant, take that for what it's worth.
The inspections can be good but also point out frivolous issues that don't need to be fixed or can point out costly fixes that you don't want to address until you do a remodel or sell the rental in the future. If the inspector says it's time to fix, if you want to keep the tenant you'll need to fix
Wow thanks guys.....very helpful advice here. I think this is a wealth of info at your finger tips. I am greatful fo all the responses and look forward to hearing any other angles
Real Estate Agent · Virginia Beach, VA · Member since 2012 · 2k+ posts · 1k+ votes
10y
My experience was that their annual inspections were very harsh depending on the inspector, in some instances giving me 24 hours to fix an issue or withholding rent, changing the tenant portion of the rent annually, usually meaning more of it came from the tenant and tenant's portion usually late, tenants don't have much expendable income so do not keep the property up as well as others. In 2008, our Section 8 froze rents for several years, no increases, even though I was under market to begin with, then told me I could only raise 3% per year. Recently, they've told me that policy is no longer allowed, so maybe it's better now, but I'd rather avoid it from now on.
Rental Property Investor · Columbus, OH · Member since 2014 · 63 posts · 9 votes
10y
I recommend comparing non-section 8 rental comps to the value of a section 8 voucher. In some cities, non-section 8 market rents are LOWER than the value of a section 8 voucher. In said instance, if you were to accept section 8 tenant(s), your cap rate could spike!—especially if you have a multi-family or host of single family homes. In this scenario, it really wouldn't matter much if they allowed you to increase 3% each year, as you would already be making $100 more per door than the non-section 8 tenant. I also suggest talking to several property managers in each city on section 8 vs. non-section 8. Get multiple opinions. Good luck!
You're going to have a much harder time liquidating property with section 8 tenants should you ever desire to sell.
Ryan, can you elaborate on that? I get asked about Section 8 all the time. Don't currently take it. Have considered it. But I tend to buy a home, do a light reno, keep it 1-2 years, then do a deeper reno and sell it. In my market, usually the market has gone up over that 1-2 years, and by holding it, I'm paying long-term capital gains, rather than short-term.
Is there something about Section 8 that would keep me from saying, "Sorry, Mr. Tenant, your lease is up and it's time for me to sell the house now."
I have a few apt buildings that host Section 8 tenants. The one area I am vested in demands for S8 rentals. People on S8 don't want to lose it so most abide by the guidelines. I was very very hesitant at first but I was getting hundreds of calls of s8 renters vs financially responsible individuals.
The inspections do waste time because they fail you for the dumbest / littlest things....rescheduling takes a few weeks. HOWEVER, if you just follow their guidelines before inspection, you can be good to go.
As far as rent control, I haven't had much of an issue..A few dollars less. You can appeal their rent decision by providing comps & sometimes it works.
My PM fully screens all S8 tenants as the other tenants, no difference. We require a full deposit just like the other tenants.
It hasn't effected my business model at all ...yet...I am interested to see the longevity of the S8 success. EX: will my s8 rented units be trashed after move outs?
I haven't had ANY issues with any of my (15) S8 tenants. I guess time will time, it's been about a year so far that I have started to rent to S8 tenants.
Keep in mind, you don't want to rent to S8 tenants in B+ areas....I would obviously love to avoid S8 simply on the basis of avoiding inspection however if the area's demographics are in favor of that population, go for it. This business is about making smart calculated moves & money. Challenges will arrive but it's all worth it in the end!
Rental Property Investor · Milwaukee, WI · Member since 2013 · 6k+ posts · 4k+ votes
10y
Some cons to Section 8:
a) Section 8 can change the payment arrangement on you with almost no notice. My tenant's payment portion changed on me and HA suddenly sent me a notice that they were retroactively going back to the start of the lease. I had no say in this.
b) Section 8 makes you submit rent increase "requests" very far in advance. For example for a February 29, 2016 lease end, I have to submit my request for a rent increase by November 30, 2015.
I haven't had any negative issues with an inspection yet.
You're going to have a much harder time liquidating property with section 8 tenants should you ever desire to sell.
Ryan, can you elaborate on that? I get asked about Section 8 all the time. Don't currently take it. Have considered it. But I tend to buy a home, do a light reno, keep it 1-2 years, then do a deeper reno and sell it. In my market, usually the market has gone up over that 1-2 years, and by holding it, I'm paying long-term capital gains, rather than short-term.
Is there something about Section 8 that would keep me from saying, "Sorry, Mr. Tenant, your lease is up and it's time for me to sell the house now."
For the reasons folks have stated. You're surrendering power to an agency that asks you to jump and your answer is how high. Inspections are more thorough vs regular county occupancy inspections. Several of my end buyers won't even touch them. Which narrows my options down further.
I have owned rentals in a c class area. You can get a MUCH better quality of tenant who wants to stay long term than section 8 will typically find you. We looked into it on two units we were desperate to rent. They wanted to give us 200-300 under what we rented them for. I should also say the tenants we placed have been awesome there.
Real Estate Agent · Rancho Palos Verdes, CA · Member since 2015 · 6 posts · 10 votes
10y
I had a Section 8 tenant in one of my out of state properties a few years ago. It was a brand new 3 bed/ 2 bath in a great neighborhood but the rental market was slowing down. Because it was a new home, getting it approved was easy. I received my check from the government on time and everthing was going great. Then one day I received a call from the tenant saying she couldn't afford to pay for one of her utilities anymore and asked if I would pay it. I forget all the specifics, it's been a while, but the government paid the rent but required my tenant to pay utilities. Sort of a "skin in the game" incentive. Even though it wasn't a lot, I wasn't going to start heading down the path of paying her utilities. Problem solved, moving on. A few months later I get another call...from a neighbor. The back door is open, a couple of windows are broken and the house is empty. She's gone! Brand new house. Government's paying the rent. Packs up and leaves. Not a word to anyone. And as a parting gift the house was trashed.
@Dave Poncia Ouch! I am sorry to hear that. Were you ever able to track her down and pursue legal action or is it not even worth it because she has no money to her name?
Real Estate Agent · Rancho Palos Verdes, CA · Member since 2015 · 6 posts · 10 votes
10y
Hi Frankie,
The first thing I did was call my HUD contact who didn't sound too surprised. As far as going after her, it's very hard and expensive to find someone who really has no ties and if I was lucky enough to do so, probably has no way of paying. So, another leason learned.