Section 8

24 Replies

What are some opinions on going Section 8 - Good - Bad or Indifferent?

Section 8 is OK from my experince with their renters. I don't like having to jump through hoops to get my places to pass their inspections. I have to have my properties inspected by the city in order to obtain a dwelling permit and that should be well enough, but its not.

Also you have to consider the type of renters that you will get on section 8. Not all, but many are no income people for one reason or another. If you have low income to no income rentals, then section 8 is a very good source to find customers.

At one time I was receiving over $60,000 per month in HUD subsidies. Now, I won't accept ANY type of subsidy, unless the tenant ALSO can provide a qualified guarantor.

Certainly, the execution of various funding programs varies from market to market, and you MAY find it worthwhile. As the previous poster states, your unit has to meet their inspection criteria. See the inspection form here:

http://www.hud.gov/offices/pih/programs/hcv/forms/forms.cfm

You need the HUD 52580-a, and the actual contract if you want to review is the HUD 52641.

Some inspectors are less rigorous than others, but in general they stick to the form. Your inspector may or may not indicate "tenant repair item" for damages when they do an annual or complaint inspection. This means YOU may have to pay for the repair, and you will have monthly checks stopped until repairs are complete.

It is not uncommon, depending on move-in date, to have to wait 2 months for your first payment. You are dealing with a bureaucracy...expect to fight long and hard should a payment be missed or misdirected.

My biggest, and most recent, gripe- If THEY choose to terminate a tenant, you just don't get paid anymore. It's up to you to deal with/evict the tenant if they can't pay the full amount without the subsidy.

Generally, these tenants ARE harder on the property, harder on the neighbors (noise, excess cars, late nights) and have more drama than people that work for a living, or are otherwise independently wealthy. Sorry, that's just my observation over the past 12 or so years. It is NOT discrimination if you choose to NOT accept subsidy programs (although you should check LOCAL ordinances before doing so).

If you feel these are the ONLY people that will rent your unit, you should give serious consideration to upgrading the unit and attract a better tenant. There are far more good tenants than bad.

Some inspectors are less rigorous than others, but in general they stick to the form. Your inspector may or may not indicate "tenant repair item" for damages when they do an annual or complaint inspection. This means YOU may have to pay for the repair, and you will have monthly checks stopped until repairs are complete.

Here in my little corner of Ohio, they make the tenant fix "tenant repair items". Also, if any item fails the inspection (except safety items, like smoke detectors), the landlord has 30 days to fix them and there is NO loss of rent.

Mike

Originally posted by "MikeOH":

Here in my little corner of Ohio, they make the tenant fix "tenant repair items". Also, if any item fails the inspection (except safety items, like smoke detectors), the landlord has 30 days to fix them and there is NO loss of rent.

Mike

Sorry, I was not clear...generally the rent does get paid if you fail an inspection, however it CAN be withheld until the unit passes. This means your "regular" monthly payment may be skipped, and you receive it with the next month's payment...which may present a cash flow issue for some. Also, I HAVE had payments forfeited when the tenant moved out before a re-inspection could be performed.

As to the tenant repairs, as I said it varies by market AND by inspector. Just be sure you attend all inspections, so you can specifically point out issues that SHOULD be tenant responsibilities. Do not rely on the inspector to be accurate, fair and impartial!

One last personal note regarding HUD programs in particular. As a Taxpayer, I am offended by the abuse these programs encourage. I have had countless subsidized tenants that were absolutely employable, but choose to take advantage of the system instead. Certainly, there ARE people legitimately in need of these programs, but they should not be allowed to participate forever with NO accountability.

I dare say that almost without exception every subsidized tenant I have had has cable tv, LOTS of beer in the fridge and a continual chain of cigarettes. More often than not they have expensive, customized cars, nice rented furniture, and ALWAYS additional, unauthorized (per the HUD contract), "live-in" occupants. They make absolutely no effort to obtain employment, and give no thought to how they will support yet another child.

As a Taxpayer, I have no desire to pay for someone else's play...I work for mine!

Beach,

You are not alone on that.. I have one When he moved in, he hooked up his cable TV, bought a new frig with water and ice in the door, new washer and dryer, those fancy round door ones and new furniture for the living room. HUD pays damn near all of his rent which is $600 bucks per month. I don't fault anyone for wanting nice things for his kids, but for Pete sake..How in the world does he get to have cable TV and still get his rent paid for by us. Yes, most of those items that he bought, I am sure are from Rent A Center on a weekly payment plan.

Beach and TC,

I am SHOCKED that you guys are so intolerant (especially Beach coming from a liberal state like HI). Our constitution gives everyone the right to pursue happiness. What could make a deadbeat hillbilly happier that sitting on their fat butt; smoking a cigarette; working on a case of Bud; all of the while watching their 120 inch big screen TV - ALL PAID FOR BY THE TAXPAYERS? Don't git any better dan dat! Please don't kill their joy!

Mike

Originally posted by "Traderrik":
What are some opinions on going Section 8 - Good - Bad or Indifferent?

Due diligence is the key, like any thing else in REI. If you want an "unfiltered" view of Section 8 investing, I suggest you pick up the self-published book entitled "The Section 8 Bible." A great read.

http://www.section8bible.com/

Speaking of Section 8 (and since we are off the Politically Correct juice). Check this out:
http://section8clothing.com/

Scott, did you create those shirts? :wink:

Originally posted by "ScottFicek":
Speaking of Section 8 (and since we are off the Politically Correct juice). Check this out:
http://section8clothing.com/

Originally posted by "Beachbum":

As a Taxpayer, I am offended by the abuse these programs encourage. I have had countless subsidized tenants that were absolutely employable, but choose to take advantage of the system instead. Certainly, there ARE people legitimately in need of these programs, but they should not be allowed to participate forever with NO accountability.

True story. I bought a (2 family) house near Boston. One tenant was on Sec.8. The rent was $800 for a $1200 apartment. The tenant was responsible for only $300 of the $800 a month rent. After this tenant was evicted from my house (her lease ended and she refused to move out)...the tenant bought a $580,000 three family just outside Boston. This is fact. One of my co-workers at Remax was the tenant's agent. The tenant milked the system and was able to buy a nearly 600k house!

I'm curious to those of you that do participate in sec 8, why you're still in it if it's poor?

I'm just curious, very few landlords in my county will do Sec 8 ,and we always get letters from them asking us to go through the program.

Originally posted by "schockergd":
I'm curious to those of you that do participate in sec 8, why you're still in it if it's poor?

I'm just curious, very few landlords in my county will do Sec 8 ,and we always get letters from them asking us to go through the program.

It's a good way to get some of our tax money back.. :)

Originally posted by "TC":
Originally posted by "schockergd":
I'm curious to those of you that do participate in sec 8, why you're still in it if it's poor?

I'm just curious, very few landlords in my county will do Sec 8 ,and we always get letters from them asking us to go through the program.

It's a good way to get some of our tax money back.. :)

Do you like Sec 8? In your previous posts, you seem iffy on whether sec 8 is a good thing to be in.

In my area, they're REALLY lax on the inspections due to the fact landlords won't rent to sec 8 most of the time.

In addition to that, the rents recieved from Sec 8 is usually a bit higher than you would normally have.

I'm curious as to if I should put any properties in it or not.

I guess it depends on the section 8 person. I was willing to drop my rent by 50 bucks a month in order to accept the person. He works full time, so according to their calcuations, I was only able to charge him a certain percentage of his income based on the 3brd home. The only problem I have with section 8 is the hassle of the inspection, mainly because it requires that I take a day off work to be there. You really need to look at the renter who is applying and consider your market conditions. I use section 8 as another source of customers, nothing more.

Section 8 can be great and it can be a pain in the side. I've found that section 8 does pay higher rents than normal in some circumstances. Many people will say that Section 8 is bad, but depending on your neighborhood, it could actually bring you better tenants.

I've had property in some BAD neighborhoods and the great thing about the Section 8 tenants was that they knew if they screwed up they'd be kicked out of the program. The other tenants (non sec8) in the same building just didn't care -- this resulted in a TON of evictions, no matter how well we screened.

I'm a new member and am very glad I found this forum. I'd appreciate any input on this topic.

I've been looking at single family houses as rentals, and recently saw one that has a Section 8 tenant in it. The family is a mother and 2 teenagers. The mother said she is single, but her boyfriend is clearly living in the house. Whether he's legally living there according to HUD is unknown. The asking price of the house and the total rent paid makes it appear to have very good cash flow. I haven't found out yet why the seller is selling.

The tenants want to stay in the house if it's sold. The tenants, the listing agent, and the current landlord have stated that the tenant's share of the rent has always been paid on time for the last 3 years. That can be verified so I'm not worried about it now. What I'm worried about is the HUD inspection. The tenant turned the screened porch into a bedroom, which is clearly non-compliant. They insulated the outside walls with plywood (so the outside door is now covered), put down a ratty carpet, and have an electric space heater in there with their bedroom furniture. Whose responsibility is it to convert it back, and if it's not converted back, I can't see how it will pass inspection. HUD's or the city's. And can HUD decide the house is no longer worth the current rent, and reduce their share?

The house isn't destroyed but it is a dump. There is a new water heater/furnace and the mess seems to be all cosmetic, but again, is it the seller, the buyer, or the tenant that has to make sure it will pass HUD's inspection? Does HUD even care about cosmetics? If the tenants ever leave, the house can be renovated to a good resale potential.

Thanks in advance!
Aly

The asking price of the house and the total rent paid makes it appear to have very good cash flow.

Aly,

First, why not post the numbers (gross rents) and purchase price so we can see if this is really a good deal?

Whose responsibility is it to convert it back, and if it's not converted back, I can't see how it will pass inspection. HUD's or the city's.

It is definitely the landlord's responsibility to ensure that the rental will pass inspection. If the tenant violated the lease by doing the modifications, you can try to get them to undo them, but I doubt that will end well.

Whose responsibility is it to convert it back, and if it's not converted back, I can't see how it will pass inspection. HUD's or the city's.

Look in the mirror. When it comes to landlording, the tenant is often irresponsible and the landlord is always required to be the responsible one.

Good Luck,

Mike

Thanks Mike.

The asking price of the house is $225K. Taxes are $3500 a year. The rent is $1650, of which $470 is paid by the tenant, $1180 by HUD. Tenant pays all utilities except water and sewer and is responsible for lawn care and snow removal. The tenant is coming to the end of her 2 year lease and wants to stay but has told the listing agent she cannot afford a rent increase.

When you say it's the landlord's responsibility to ensure the house passes inspection, do you mean the current landlord? He knows what they've done, and I've asked my agent to find out if he will modify the porch back to it's original state. I can't see how he can sell the property, with or without HUD tenants, as that porch bedroom is a code violation.

This would be my first rental property. I would not have chosen a Section 8 tenant, but this tenant has apparently paid consistently for 3 years. Are there enough red flags here to run from? :)

There is one HUGE red flag and that is the NEGATIVE CASH FLOW. With a purchase price of $225K and gross rents of $1,650, this thing will bleed so much negative cash flow that the street will turn red! OUCH!

Mike

I'm coming up with $1450 for the mortgage, taxes, and insurance. Even with $100 budgeted for monthly maintenance, there is still a positive cash flow with $1650 for rent. And that's if I paid the full asking price. What numbers are you using to get a huge negative cash flow?

Aly,

You ommitted nearly ALL of the operating expenses. That's where the huge negative cash flow comes from. Operating expenses include taxes, insurance, management, maintenance, vacancy allowance, advertising, entity maintenance, legal expenses, damage done by the tenants (in excess of the security deposit), evictions, setout expenses, office supplies, utilities paid by the owner (during vacancies, etc), capital expenses (not technically an operating expense), etc, etc, etc, (I could go on and on and on).

Good Luck,

Mike

Mike, as I noted above, I did include the taxes, insurance, and an estimate of monthly maintenance. Since the tenant wants to stay and would sign another lease, there would be no advertising or vacancy cost for the immediate situation.

Some of the other expenses I hadn't accounted for. What is the difference between maintenance and entity maintenance?

Mike, if you have to include all those things, you probably have to have a zero mortgage to fit in your positive cash flow hypothesis.

Originally posted by "donalduckmoore":
Mike, if you have to include all those things, you probably have to have a zero mortgage to fit in your positive cash flow hypothesis.

One of the reasons new landlords fail is because they fail to account for these expenses which are 100% real! I have a property that currently has 2 of 4 units vacant and I pay hundreds of dollars a month in utilities and other expenses on them. These are 100% part of the equation. Ignore them at your peril.

Lets try and get back to Section 8, though!

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