Section 8 hedge against recession or STR

18 Replies

I have around $100k and a VA loan to invest after selling my house. I am considering rehabilitating cheap properties including mobile homes and renting them as section 8. I think it would be a reliable income through a recession.

I am also considering investing in STRs in the Smokey mountains. STRs produce more income, but during a serious recession vacations will be some of the first sacrifices people make.

I will probably do both. If you have any experience or ideas I would appreciate your input.

So, some things to consider: If you're looking to buy and sell mobile homes, make sure you understand your state's laws regarding licensing. In some states, you need to be a licensed mobile home dealer. Maybe not if you're just renting them out. 

We recently interviewed Danny Burbol (episode coming soon), a mobile home investor, who buys mobile homes, rehabs them, then sells them using an owner finance model. He takes a small down payment from the buyer and then holds the note. They own the home and he acts as the bank. When he started off, he briefly ran afoul of his state's manufactured home regulatory agency. Personally, I would rather do that than do Section 8, but I don't know what your specific situtation is.

We love short term rentals but I share your concerns about how they'll perform in a recession. I would just say be REALLY conservative with your underwriting assumptions. Go in with plenty of cash reserves to handle any long periods of vacancy.

If I could buy a vacation rental somewhere that would also cash flow as a long term rental, that would be ideal.

@Account Closed     Half my rentals have Section 8, Half don't....guess which ones do NOT ever keep me up at night regarding miscellaneous "mess". Section 8. Guaranteed money, the tenants take care of the property, I get a free inspection each year from The Housing Authority and the tenants know if they "mess up" too badly they can lose their voucher.

@Neil Henderson it sounds like Danny has a nice business plan. We will be out of the country for an undetermined amount of time, so I would prefer a more passive route. Thanks for the ideas.

I have a friend investing in mobile homes and renting them to section 8. He said one of the main requirements is that they are on bricks. I will talk to him more before making a decision. I'm probably going to get an STR in Gatlinburg and several section 8 rentals.

@Ty Cover any reason in particular you would want to go to S8? I don’t know the requirements as well as I should for S8 in TN and more specifically Knoxville. However, I’m positive there are other places in Knoxville that have a low barrier to entry, have high upside potential, and would cash flow phenomenally.

Do you mind doing a reno?

I own 2 B class properties, 13 low income doors (almost Section 8, but not officially), and 5 STR's in the Smokies. The 5 STR's paid for most of the low incomes. If you check the tourism data from the National Park Service, you will find that tourism to the Smokies stayed flat, and even on a slightly upward trend during the last recession. Will people scale back on luxury vacations in a recession? Probably. But the data shows that they still will go on vacation, just probably not to Aspen.

The combination of STR's, low incomes, and B class properties has worked well for us. It's good to diversify. But the high cash flow from the STR's has definitely helped us scale faster.

@ty cover     As an FYI....I didn't say there wouldn't be any maintenance. The good news though is that I've only ever had one section 8 tenant move out....and she left the place immaculate. The others simply won't move out :-)   There is always maintenance on any property....but the Section 8 tenants I B, C and D neighborhoods rarely call my PM about anything. 

@Kenneth Mooney I like the reliability of S8. I think the tenants would be less critical of a property that is being subsidized. I also like that up to 70% of the rent is direct deposited from the state. I haven’t read any comments from landlords of S8 properties warning me to stay away, they all say it provides what I’m looking for.

@Ty Cover I’m a landlord of one S8 resident personally and she’s great. I think it’s like anything else and there can be some nightmare residents. The biggest issue we have in my city is the annual/bi-annual inspections. When they give you a “failed items list” they aren’t always real specific as to what those items actually are which can cause problems in getting them corrected. I’d keep an eye out for that.

Section 8 and DSS in New York is horrible.  We've been selling off our low income in New York since early 2019.  They are just very hard tenants to deal with.  They wreck their places and usually miss or refuse to make their share of the payment.  Their agent rep, couldn't care less.  In New York, if you are a landlord, you are the enemy.

@Account Closed mentioned we have noticed that the Section 8 tenets take care of property much better than market tenets to not loss their voucher.    It isn't all gravy as in multi-family most Section 8 don't allow you to bill back water for instance (unless can be in tenets own name), but just build your models to have this accounted for as the few other items.    We are still learning but have been very happy with Section 8 in our early experience.

@Brian Garlington Hey Brian! I have a duplex in Cleveland Heights and they have a portion covered under the CMHA. Next year their leases are up, however, doesn't the CMHA evaulate how much they're going to pay based on the market conditions? So if there is a recession, won't they decrease the rent they're willing to pay?

@Rik Patel    Out of 4 Section 8 units I have, I have only seen the amount drop once,...and that was by about 7 or 8 Dollars.    Also, keep in mind how you can add income. I have found out that CMHA WILL allow you to bill the tenant for water IF there are separate emails in your duplex AND if your Property Manager will let you. On your initial lease CMHA basically makes you cover the water and sewer, however, afte the lease is up and it foes in to month to month, you can simply raise the rent to help cover the water.....although the water and sewer still needs to be in your name, you should definitely be able to raise the rent.