Section 8 Investing

12 Replies

Hey y’all,

I need some advice. I am a new investor, and have been approached with an opportunity to purchase a House in Section 8. House currently has tenant in that wants to stay. I am curious about Section 8 housing in general, but more specifically the things I could do to raise rents in the Section 8 program (improvements to house etc.). Lastly, what are some pros/cons y’all have experienced with Section 8?

I would love and appreciate any feedback, thank you!

Preston

To clarify, the house isn't in section 8: the tenant is. The benefit goes with them when they leave. That does not mean that you cannot replace them with another voucher holder when they go though.

I was convinced to give voucher programs a try as a landlord towards the end of 2020 and so far I've had a good experience. I have 3 voucher tenants (out of 10 rentals). They are among my best tenants in terms of maintaining the property and I get above market rent that is mostly guaranteed by the government.

The con(s) are you're dealing with government bureaucracy and more thorough inspections. I'm sure others who have had a bad experience can fill this list out a bit more but I don't have the experience to do so.

A local (Baltimore) guy wrote a great book on the subject: Subsidized: A Comprehensive Guide To Government Funded Rentals

@Jon K. I wish they paid above market rent here :( Akron just passed a law that you can't discriminate on source of income so I tried it -- AMHA took 2 weeks to offer me $41 less than I've gotten on the last 3 rentals that I rented in the neighborhood (all the same size and layout). The applicant was very disappointed and I was surprised that they paid so little and couldn't tell me up front how much they would pay.

Originally posted by @Jill F. :

@Jon Kessler I wish they paid above market rent here :( Akron just passed a law that you can't discriminate on source of income so I tried it -- AMHA took 2 weeks to offer me $41 less than I've gotten on the last 3 rentals that I rented in the neighborhood (all the same size and layout). The applicant was very disappointed and I was surprised that they paid so little and couldn't tell me up front how much they would pay.

A-ha, another con for the list. You don't necessarily know how much total rent you will receive for a given applicant until the program has a chance to review the paperwork.

So the local programs I have worked with do "rent reasonableness" calculations. I would say it largely depends on the property. If you can get a legal, 4th bedroom in a townhouse basement then you will be beating what a market tenant would likely pay for the same property. If you're talking 2 or 3 bedroom, it gets closer or is the same.

That being said, every rental where I've accepted a voucher tenant thus far had that 4th bedroom so I've lucked out. It's a difference of roughly $200/month per house than what a typical well-remodeled 3-bedroom would pay.

Is there a way to specifically find section-8 tenants, or is their status relatively unknown until you receive a section-8 tenant application?

I don't use Section 8 for a number of reasons. Having said that, I know some that do and love it. At least in my markets, there is an abundance of people on the program. Having talked to the person here locally that handles approvals for Section 8, she said there is a waiting list they keep.

Originally posted by @Bill Conlan :

Is there a way to specifically find section-8 tenants, or is their status relatively unknown until you receive a section-8 tenant application?

GOSecion8.com is probably the best place to market listings specifically to tenants with vouchers. You can also network around and find a voucher tenant placement expert in your area (I've got a great referral for a Baltimore based one, if anyone is interested PM me).

@John Preston Neely  www.gosection8.com is one of the better resources to get a sense of the rental amount and locations, etc.

Here is a benefit I haven't seen anybody mentioned yet: they will never be late paying rent. remember last year? Remember when millions of people lost their jobs in March, April and May of 2020?  Well, no Section 8 tenant failed to pay rent.  so that's a benefit.  A big one frankly.

The cons are actually more relevant to the property itself than anything else; the property needs to be in tip top condition. There are also annual or biennial (every 2 years) property inspections. there's also a potential big issue if the tenants have kids under a certain age, but that will vary depending on location.

I might make the argument that it is better to be forced to maintain the property in good condition but at the same time there may also be costly repairs that don't necessarily add anything to the bottom line, but are required in order to have a Section 8 tenant.  Clear as mud?  😊

Lastly, if you're using a property manager I would make the argument it is important to use a property manager with significant experience with Section 8 tenants since their application and needs are often significantly more complicated and require expert advice.  For instance, my property manager is, in my opinion, the ultimate expert on Section 8 tenants. He might have some more to add: @Mark Ainley with GC Realty & Development

Thanks for the tag @Patrick Britton and happy to hear the opportunity @John Preston Neely .  I think the deciding factors comes down to where your property is located.  If you are in C&D areas then I think it is smart to have 50/50 section 8 vs market especially in tenant friendly markets.  When you are in A&B class markets we struggle to make the numbers work for what I can get market vs section 8.  There are also various programs that will pay above market rent. Patrick brings up some good points on the property because if you have an older property your risk of inspection issues rises.  I know a lot on Chicago section 8 and happy to share my resources anytime.  You are able to raise rents but there is a process and window of opportunity in advance of the lease expiring that you must request that increase.

I'm a bit weary of choosing a property that already has a tenant in place (section 8 tenant or not), because it always feels like a bit of a gamble. For all I know, the tenant is terrible and refuses to leave, and maybe why the seller is even trying to sell. 

I would agree with what's been said. I've also had luck in Baltimore, scoring an extra $300 in section 8 rent because I added a room in the basement. Adding a bedroom will score you more rent then renovating the kitchen and bathroom (although you shouldn't strive for bare minimum).

To determine what portion of the rent the tenant will pay, you can estimate this, by contacting their previous landlord and asking them. 

Spend time on GoSection8.com, that will answer a lot of your questions. Section 8 houses need to pass an inspection in order to qualify for the section 8 rent, and that inspection is a baseline standard the house has to be in. As I said before, a fully renovated kitchen and bathroom will not increase your rent, as much as an extra bedroom will, since the vouchers are determined mostly by how many bedrooms there are. 

A bit off topic, but people tend to take advantage of this by buying in rough neighborhoods and renovating it to the absolute bare minimum and posting it on GoSection8. These tenants might not have any other option. If you're in a reasonable neighborhood, and you are not a slumlord, you can get a lot of attention, which will allow you to be picky. I highly recommend listening to podcast episode 356, with Joe Asamoah in the DC area. Not everyone agrees with him, but I fully support his approach of listing high quality homes on section 8, and treating them like quality tenants, rather than scum only because of a disadvantaged financial situation.

Originally posted by @John Preston Neely :

Hey y’all,

I need some advice. I am a new investor, and have been approached with an opportunity to purchase a House in Section 8. House currently has tenant in that wants to stay. I am curious about Section 8 housing in general, but more specifically the things I could do to raise rents in the Section 8 program (improvements to house etc.). Lastly, what are some pros/cons y’all have experienced with Section 8?

I would love and appreciate any feedback, thank you!

Preston

Typically you can request a rent increase once a year on their renewal.

Pros: consistent payment, tenants are incentivized to treat place well, tenants stay longer, rent is higher than market rent typically

Cons: some of the tenants can be nightmares, lots of paperwork, yearly inspections

I know many multi-unit property owners who are very successful and they rent to only Section 8 tenants. In Long Beach California Section 8 was paying rents far higher that I was charging my tenants. I have an employee who was living in a 10-unit in Long Beach and his landlord terminated his tenancy because he did not want to pay the high price Section 8 was paying and she wanted only Section 8 tenants in her building.

Dealing with Section 8's inspections is no big deal because you should keep all your properties in pristine condition, anyway.

We did have a few Section 8 tenants in our buildings and we did have a little trouble with them. One tenants was only 21-years old and was gaming the system. She claimed she has Carpet Tunnel from using a keyboard at work and Section 8 paid about 70% of her rent. She thought she would 'game' us and was always late on her rent and the amount was always short. When we tried to evict her we found out that that lease was with Section 8 and not her.

We also had trouble collecting the money from Section 8. The person at Section 8 who was responsible to make sure we got paid must have been on drugs because we had to constantly call Section 8 because the rent was not paid on-time and when we called this clown handling her account always gave us a story. In the end, we got stiffed out of one month's rent.

Otherwise, as stated in several posts, I would go with Section 8 for a low-priced building in a low-income area if the numbers look good, but they had better look good enough to make up for dealing with hard-to-deal-with tenants where you had better be very good at using diplomacy to defuse situations.

What's required to raise the rent is adequate notification to the tenant or tenant's representative that you intend to raise the rent.

The pros, when you screen your tenant correctly, is the check shows up every month like clock work. The con, if you reduce your rental requirement standards in order to accept section 8 you may run into a problem tenant. Keep your standards the same whether a potential tenant is section 8 or not.