I am new to the world of real estate (let alone real estate investing). I've heard a lot of great things about section 8 (how its a steady, guaranteed cash flow), but also some things that are not so great.
I wanted to reach out to you all and get your thoughts on if this is something I should pursue. Please keep in mind that I am a brand new investor (doesn't get any greener). I am currently in Richmond, VA and would really appreciate your guidance.
You're going to get a wide variety of answers. Some people like S8 because, as you said, they view it as "guaranteed" cash flow. However, many don't like S8 because:
- the quality is often (but not always) worse (will leave your unit trashed, play music loud, damage stuff, etc.)
- S8 won't always agree to pay what you're asking for rent and/or won't agree to what you want to raise rent to in the future
- it can be harder to get a S8 tenant out (I don't think you can just give them notice to vacate like you can with a normal tenant, or so I've heard)
- you have to deal with the bureaucracy and inspections of your unit (they make you fix minor things like a window screen, and I think they can withhold rent because of it)
I'm not an expert on S8 by any means, but I've heard enough about it to have formed my own opinion.
I do hope others from New Jersey chime in as I am curious if I can use sec 8 as a hedge against a Rental Bubble. I keep my places in great condition and I understand you can scrutinize your sec 8 through the same as a reg Non sec 8 tenant. I have inherited BAD "regular" tenants at least I know what I might be getting and can prepare for it. Slum lord I am not nor never will be. In fact I might look at it as a good thing for me and the tenant....
@Haider Zaman if you use the search bar at the top right there are TONS of discussions on this. Read those and decide if it's for you.
I have a friend who has over 20 S8 props and loves it. Not really my cup of tea, but I would be curious to give it a try down the road.
My experience with S8 tenant was not bad at all and I truely believe you have to do your due diligence and then train you tenant. When I find out that an applicant has a voucher, I screened them more than I would someone who wasn't a voucher holder. For example, I will find a creative way to meet with them at their current home for whatever reason to check out how they maintained their home. You will have to be creative in your screening process and make sure you're not breaking any laws.
Once you have your tenant, set the tone upfront to let them know what type of Landlord you are and stick to it. Create "house rules" and make sure they understand the rules because this can help you terminate the lease if you no longer want them as your tenant. Document, document, document!
With Section 8 tenants or any other tenants is screening and a lock tight lease. I would suggest you contact your local Section 8 office for a landlord briefing which gives you really good information on screening and the process. In my area, it's about an 1 1/2 hours, but a lot of good insight.
I have had a section 8 tenant in place for about 3 years now, and no problems with her or the rent payment. The unit was listed for $850, Section 8 approved $827.00.
The first year she was there, I did quarterly (every 3-4 months) inspections, with 24-48 hour notice, which was documented in my lease to make sure the SFH wasn't being destroyed, now I do annual inspections along with Section 8 and document it on her file. I think the landlords that have had problem, because they just sit back and collect the rent check or bad choice in the tenant selection process with no inspections.
All my units are opened to Section 8 tenants when vacant but usually gets rented before the Section 8 folks start calling.
The bottom line is how does the Sec 8 rent compare to market rents? Sec 8 rent is the median rent for the area and all Sec 8 rents for the entire country are on www.huduser.org Most of our rentals exceed the rent that Sec 8 will pay because they are in the top 50% of rents, ie above the median rent. Sometimes the Sec 8 rent is above what the market rent is or at the market rent in those cases it makes sense to allow Sec 8 into your buildings.
There are yearly inspections of the property by Sec 8 and your building must comply or they won't pay. Peeling paint, cracked glass, hand rails on stairs, are among the issues that they look for. HUD puts out a little booklet that you can get from your local Sec 8 administrator that outlines what they are looking for.
The administration of the program varies a lot from area to area and by the size of the program and the demand for Sec 8. Some local areas have waiting lists of years for tenants looking to get into the Sec 8 program, other areas no waiting list.
One thing that has happened with this recession since 2008 is that fewer people are getting off Sec 8, so there are fewer vacancies and it is harder to get assistance now, at least in our local area.
Sometimes what can "make or break" Section 8 for landlords is the particular housing authority associated with the program for your area. If they are easy to work with in terms of inspections and reporting problems with your tenants to their caseworkers this makes things easier for the landlord. If you get an inspector that's a pain in a low spot this can drive many landlords to the point where they decide it's just not worth dealing with this program.
Discuss the experiences other local landlords have had with the housing authority in your area.
We did Section 8 once and hope not to need to do it again. The tenant was a pro and knew more about the law than we did at the time. As said, you can get the inspection booklet from S8 before the inspection and make sure your property complies. It's all reasonable, if you keep your properties in good condition you should pass with no problem. We found the problem to be the tenant. While she was very clean and took care of the house, she had the entitlement attitude common to those on public assistance. If she wanted something I didn't have to provide, she would get loud and belligerent. If we wanted to come to the house to repair something and she couldn't be there, she would refuse entry - by screaming curses on the phone, threatening to call the city, legal aid, etc.
We got the rent like clockwork for 2 years and then the tenant got a pit bull, unauthorized. We served her a notice to cure or quit, and her lease was up soon after. We told her we would not renew, and she said she wouldn't renew either if she couldn't keep the dog *and* she wanted a 2nd one.
What type of property would you be renting? A lot of your question comes down to whether or not you would have a hard time finding quality "traditional" tenants for your property. Many times you will find that approved section 8 rents are lower that what you might be able to get through a traditional renter. I agree with the other members that recommend screening. That alone will alleviate many potential problems before they arise. One perk to S8 is that you *MAY* have a lower turnover rate because the tenants are likely to continue to rent as long as it is subsidized.
Section 8 has been good for us. Depends on your local Housing Authority and how they operate. The Vancouver Housing Authority is efficient and the case managers are responsive to our needs. They pay market rents. The VHA portion of the rent is in our bank by direct deposit prior to the due date. They hold the tenants to the terms of the program agreement they have with them. We hold the tenants to the terms of our rental agreement. Our properties are not run down so they always pass the VHA inspection. Our quarterly inspections and the VHA's periodic inspections (every two years) keep the tenants on their toes. Our section 8 tenants tend to be long term, one over 20 years, two over 10 years. I like that!
I'll add to @andrea m comment. Inspect weekly for first month. Then monthly for next 3 months. Have it in lease they don't pass muster, they have to quit. If all checks out, then quarterly inspections. Dont assume just because your getting your voucher payment all is good in paradise. Im not talking drive by inspections. You must get into the property. Yard can be well maintained, but inside a carnival house of horrors. One word. Hoarder. Your place can be wrecked by time the next section 8 annual inspection. I could not believe the sheer volume of filth and squaler that was built up in just 11 months. It looked like they lived there for 20 years. I had to call in a hazmat team cause my trashout boys wouldn't go in. My skin still crawls thinking about it.
It's very important to screen diligently with Section 8, just as with market tenants. Yes, it may be "guaranteed rent" but if you get bad Section 8 tenants, they will destroy your unit and bring over all sorts of trouble makers to loiter at your property. This is especially problematic with apartments. That being said, there are good Section 8 tenants and bad ones, just like there are good market tenants and bad ones. Section 8 is a tool you should have, in some neighborhoods, it's about the only way to get a property rented and consistently receive the rent. Just be careful with it.
section 8 is a great tool for a landlord. I wouldn't have all your sources of rent coming from the program. About 30% of my tenants are sec 8 and 20% of my gross rents come from section 8. Also, You don't want a tenant 100% of there rent relying on the program.
It has been GREAT for me!! Make sure you screen your tenant and I inspect the home monthly. When a Sec 8 tenant looses his or her job Housing Authority pays more of the rent you still get PAID!!! On the other hand when a CASH paying tenant looses his or her job you more than likely have to EVICT them!! I hate to say it but we ALL know this is true!!
I definitely would not put all my eggs in one basket to better protect yourself 20-30% section 8 and the other 70% cash paying tenants is a good formula kudos to @Frank Romine we are on the same page!!
I have a nice townhouse that I rented via section 8 here in Vancouver, WA, and the tenant has been great. The VHA always pays on time, and my tenant has only been a little late just a couple of times in the 4 years she’s been living there. We were able to raise the rent recently and they were receptive to that but still just a little below market value. They don’t really seem to bump up the rent as quickly as the market. They denied my request last year. However, with the regular inspections by the housing authority and my management company, I’ve never had bad feedback. The tenant has stated she is comfortable where she is and would like to stay as long as possible.
Here in Dallas section 8 will pay the full rent so the tenant will not be coming out of pocket anything but don't look for section 8 to give more funds if you decide to raise the rent. If you get in good with your section 8 manager you do not need to go to court to evict you just call your manager and they will haul the problem tenant away and cancel their voucher.
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