Section 8 Strategy
I'm new to investing and currently analyzing 3-5 unit properties, in search of my first deal. My plan to this point has been to find a property in a B-class neighborhood in Philadelphia, PA. The other day I spoke with another investor, who has had very significant success operating rental units all throughout Philadelphia and has many years of experience. He gave me the idea to possibly get started in section 8 property rentals. Until then, I hadn't given the section 8 strategy much thought, as I wrote it off as too costly, with high potential for tenant vacancies and much higher difficulty with property management altogether. But I figured, if this person recommended the strategy, I would at least consider it and do some research on pros and cons.
The topic came up when I asked about various sub markets, as I'm currently creating a market profile, in order to choose the sub-market that is best aligned with my initial investment goals.
Please correct me if I'm wrong with any assumption, as I'm hoping to receive some feedback, verifying my assumptions, based on what I've learned so far. Also, If anyone has experience renting to section 8 tenants and would like to point out pros and cons, or general analysis, I'd appreciate your time and comments. Thank you in advance!
I'm not sure how the laws vary by state, but I am looking to invest in Philadelphia. From my understanding, the local housing authority will provide a voucher to the tenant for the cost or partial cost of the rent; otherwise known as, Housing Choice Voucher Program.
My understanding is that the housing authority will dictate the fair market rental price or price range, per the unit type in a general area and that price is represented by the voucher as the max amount allowed to pay the rent.
Lets say that within the general area, in which the fair market rate was considered, there are various submarkets. The sub-markets may vary from block to block, by the actual rental rates being paid for a specific type apt.
If I were to locate a property deal in a sub-market, where the actual rental rates for a specific unit type, were lower that the voucher rate, would it be possible to charge the max rate of the voucher?
What is the typical strategy to maximize cash flow when working with section 8 tenants? If you can't increase rent above the voucher rate, it seems that your only option to add cash flow potential would be to find a property in an area where the rent is lower than the fair market rent subsidized by the HA. Is this common practice? Would there ever be a situation where you would ask for less in rent, than what the voucher has the ability to pay? For example, if a unit recently becomes vacant and the previous rental rate was $500 to non section 8 tenant, would the rate be required to stay at $500 for the section 8 tenant, even if the voucher covers up to $650 for the given unit type?