Low Section 8 rent question

[David Epstein]

Friends,

I have had a section 8 tenant for the past five years and have to say they are fabulous tenants.  However, the rent has regularly been below what comparable properties in the area go for.  With recent inflation / rent rises, this disparity has only grown.


my question: considering I am very happy with this tenant and the fact that they are likely not going anywhere (taking account of no vacancies for foreseeable future) what are my options to see a rent increase (I use a property management company I am very happy with and which is very responsive).



I should add: having this tenant and being able to provide a good home is part of why I got into investing.  I am not looking to squeeze every penny out, but hoping to have a more profitable property in order to grow my portfolio to continue doing well by doing good.

thank you as always for the great support I always find here and hope 2023 provides great things for everyone!

[Cory J Thornton]

@David Epstein - I have a few properties I manage that are on vouchers. I sign one year agreements on a property so I have a chance to renew that voucher agreement every year. Housing programs are desperate for landlords that will take a housing voucher. The last time I talked to the local section 8 office, they had 93 people approved for a three bedroom in my county, but nowhere to put them. 

It takes more work than a normal renewal, but every single year I negotiate a rent increase with the section 8 office. On two of the properties I manage, we have maxed out what the housing voucher would pay, and then the tenant simply has to make up the difference out of their own pocket. This keeps the property much closer to market rates. In one case that means the tenant is paying around $20 a month to live in the home and at the other property the tenant is paying $200 a month to live in the home. We took over both of these properties in 2022 and they were leased significantly below market value. Now they are at market rate or just below, and the majority of the rent very month still comes from the voucher. 

Every single year the section 8 office has a guideline on what they will pay for a 1, 2, 3, 4, and 5, bedroom home. Every year the amount they are allowed to issue in the form of a voucher, is increased. Getting the increase on an existing voucher property takes time, so I usually try to start that conversation a good 90 days before the end of the lease term to make sure we max out the voucher payment, based on the number of bedroom for that year. 

I don't know if this changes at all from state to state, but that is how I've been running our properties on vouchers in NC. 

One last thought, there are at least two BP episodes where an investor from DC is interviewed. I learned a ton from those episodes since his business model is based on section 8 properties. It may be worth searching some old content to see what you can find. 

Best of luck on these properties and your investor journey!