I am looking at investing in a decent (NOT slumlord-style) 6 unit property in Los Angeles. Looking at Section 8 tenants, and looking at the City of LA payments for 1 br/1ba and 2 br/2ba it looks like the numbers could work out well. Of course, I'd need to renovate a few of the units but not too bad. Before I dive in too deep, has anyone had experience with Section 8 tenants? I have heard a few people say it's great because the City is responsible for most/all of rent and it arrives like clockwork, upgrades/renovations are basic (no need for super fancy) but others recount nightmares of hard-to-get out tenants and yearly City inspections always finding something you need to remedy and costing $$.
If there are any folks out there who have made a good business and can educate me on the upside here that would be very much appreciated.
Real Estate Agent · Inglewood, CA · Member since 2015 · 294 posts · 150 votes
6y
@Daniel Johnson a 6 unit will require a commercial loan with 25% min downpayment. Section 8 rents are competitive and in some cases with specific programs (VASH for veterans and HIP for homeless) they can be above mkt rents in the area. You need to vet and interview tenants as you would with a cash tenant, which tends to be where people go wrong. Some believe the tenants are "checked out" because they have a section 8 voucher and this is not the case. Yearly or biannual inspections will occur in the City of LA even if you do not have a section 8 tenant as it is part of the RSO (Rent Stabilization Ordinance), the standards for section 8 and the city are not far from each other so if you can pass one you likely can pass the other. I have clients and colleagues that recently told that LA is offering a bonus $1000 for placing section 8 tenants, likely an incentive to compete against cash tenants. Diversifying between section 8 and cash tenants is a good strategy that can be beneficial, especially considering section 8 income comes from the gov and must be reported back to them. It sounds like you have hopes of buying a vacant building and placing tenants, chances of finding a vacant 6 unit will be very slim. If tenants are already in place RSO will prevent you from having much rent upside and section 8 will allow annual increases but probably not at the rate you will want or need. A deal can still be found, but definitely consider the aforementioned in your search.
@Clarence Johnson this is really helpful. Thanks so much. I would love to have a conversation with you so given we are both in LA let’s talk! Where can I reach you? I am looking at an 8 unit now with 4 vacancies and running numbers that look good. I know the numbers work just worries about my own blind spots on section 8 intricacies.