New Construction for Section 8 Tenants - Thoughts/Experience?

Question

Anyone built new construction specifically for Section 8 tenants, or similar situations where tenants are low-income, but rent is somewhat guaranteed by vouchers, etc? I am looking at building a quad w/ 4 units (2bd/1ba each) but appreciate anyone's input on any size property made for this demographic.

What was your experience like? How is it going now? Worth it?

What cash-on-cash return did you require on paper in order to go through with the project?

Appreciate anyone's input.

Happy Friday!

Ken Chud · Answer

Section 8 want 3-4 bedroom with finished basement. In my area, cost of the land plus construction is quite high for buy and holds.

Brian Kloft · Answer

Don't worry about the inspectors being nit picky. If you are taking care of your places then that isn't a problem. The bigger problem is going to be the numbers. Which tends to be behind the times when if comes to the amounts their vouchers are paying. With rents rising the way they have they have not kept up. Most people building any multi family are having to rent them out in the top range of the market to make any money on the costs of a new build and Sec 8 would not pay that amount. The only multi family I have seen built for sec 8 is subsidized to get built so it can pencil. First find out what the Sec 8 voucher pays for a 1 bed, 2 bed, 3 bed etc in your area and look to see how those numbers work for you.

Melanie P. · Answer

If you're building for section 8 go three or four bedroom.

Personally I think when the market is thin on deals a lot of people post here that they're going to buy land and build a four unit but it's pretty rare anyone posts that they did it.

Brandon Roope · Answer

Thank you for your reply. Have you done any yourself? Have you had good experiences or bad overall?

I did not know that the State will not pay their portion if the tenant doesn’t pay theirs…

Brandon Roope · Answer

Did you ever do this? Just curious, as this idea just popped into my head and I came across your question. Planning on building simple ranch 4beds and renting to section 8 tenants.

Glen Wiley · Answer

We require about $300 after debt service monthly for a deal to pencil.

Section 8 is risky - those tenants tend to be hard on the property and usually getting assistance because they can't manage finances well. If they don't pay their portion then the state will not pay its portion. Section 8 also requires certain minimum maintenance that I feel is super picky, consequently expensive and usually not actually necessary (they inspect the property occasionally).