Section 8 question

11 Replies

I recently rehabbed a foreclosure with the intention of using it as a student rental. It's two blocks off a college campus. 

I was unexpectedly approached by a family with a section 8 voucher for $1100, which is the market allowance for a 4br in Providence. I've never had a section 8 tenant. My asking rent is $1900 which a reasonable for a student rental. The family told me that they'd pay the difference between the $1100 and $1900 in cash. They told me this arrangement was "normal". 

This voucher plus cash arrangement is illegal according to what I've read, but apparently common. Which makes sense because the voucher allowance from seems to be $200-$300 below market in most cases here in Providence.

This question aside, the family checks all the right boxes for me and I'd happy rent the family the home.

What should I do?

Allowing the tenant to pay the difference will cause you trouble. Suppose you allow it and then have a problem with the tenant.  You can bet they they will remind you that you broke the law and will be glad to share it with their case worker.  RUN RUN RUN

Ruarri:

1) Don't do it. It would require you to lie on paperwork connected to the Federal government which, as you said, is illegal. The Federal government really, really doesn't like being defrauded. I imagine the potential penalties are severe but if you're still considering it, I'd ask you to research what they are/could be and let us know.

2) Definitely don't post about it on the Internet, and then do it anyway.

I don't always agree with what everything Robert Kiyosaki (Rich Dad, Poor Dad) says, but I agree with him when he says it's too easy to get rich legally, to risk everything by doing something illegal.

You picked the property intending to rent it to students and learn about that market. If I were in your position, I would continue with that plan. YMMV of course.

Section 8 does not allow side arrangements for the rent. The Section 8 tenant is required to contribute at least 30% of their income toward rent, but cannot contribute more than 40% of their income toward rent. You don't want to get into this sort of mess IMO. 

Originally posted by @Bob B. :

Allowing the tenant to pay the difference will cause you trouble. Suppose you allow it and then have a problem with the tenant.  You can bet they they will remind you that you broke the law and will be glad to share it with their case worker.  RUN RUN RUN

 Thanks - Your point is a good one that they'd have all the leverage in the event of a dispute down the road. This isn't a position I want to be in. 

The whole situation has me kind of bumped out. This seems to be a really nice family. I've been them twice and spoken on the phone several times. It pains me to think about the quality of housing they're likely to get for $1,100 a month in Providence.  

Originally posted by @Anthony Thompson :

Ruarri:

1) Don't do it. It would require you to lie on paperwork connected to the Federal government which, as you said, is illegal. The Federal government really, really doesn't like being defrauded. I imagine the potential penalties are severe but if you're still considering it, I'd ask you to research what they are/could be and let us know.

2) Definitely don't post about it on the Internet, and then do it anyway.

I don't always agree with what everything Robert Kiyosaki (Rich Dad, Poor Dad) says, but I agree with him when he says it's too easy to get rich legally, to risk everything by doing something illegal.

You picked the property intending to rent it to students and learn about that market. If I were in your position, I would continue with that plan. YMMV of course.

 Anthony - 

When you say; "Definitely don't post about it on the Internet, and then do it anyway." Are you really saying I shouldn't of asked the question and just done it??? I'm not going this route as it does seem to be too risky. The student housing market just started to open up so I'm not worried about filling the place yet. 

I see you're in RI, so I assume you know the market well. I struggle to see an investor making money on section 8 housing in Providence. The section 8 FMR allowances would seem to make most deal really thin with purchase and rehab expenses where they are in prime section 8 areas (South Providence for example). Am I right?

Yes I'm in RI and have some units in Providence. Don't fret for the family with the $1100 voucher. There are plenty of affordable, decent apartments & houses at that price point, believe me. They will be fine.

Section 8 FMRs are usually fine in my experience. You won't make a killing, but provided you don't trap yourself into a huge mortgage you'll probably be fine.

The main recommendation is always do your screening, even with section 8 - some might say, especially with section 8. Just because they have a voucher doesn't mean you shouldn't apply the same screening process as you do for all your prospective tenants. (See the Bigger Pockets guides on tenant screening.)

Section 8 has pluses and minuses. A minus is that you don't get to adjust the rent to whatever you like. A plus is that, assuming you screen well, your tenants tend to stay longer (less vacancy). A minus is that you have yearly inspections. But a plus is that it forces you to keep your properties in reasonable condition - which, if you believe in "pay now, or pay (much more) later" as I do, is probably a good thing on balance.

I wouldn't say try it on your first property, but if you're in RE for the long haul, and aren't philosophically opposed to section 8 (some are, and I understand that perspective too), then I'd recommend taking a section 8 tenant at some point just for the experience.

Originally posted by @Ruarri Miller :
When you say; "Definitely don't post about it on the Internet, and then do it anyway." Are you really saying I shouldn't of asked the question and just done it???

No, it was a somewhat tongue-in-cheek way of saying, if it was something you were honestly considering whether to do it and thought it might be illegal, posting about it on the Internet might not be the best choice :)

The Internet remembers forever--remember, your future tenants (or their attorneys...) might Google you and find this very discussion thread at some point down the line.

I can pretty much guarantee that maybe after one month of paying the extra $800, they will stop. You can't tell Sec 8 you agreed to an additional rent as they don't allow it. In fact, you will be screwed if you file eviction. You are required to give a copy of the lease to the Section 8 office. That same copy is the one the tenants will show a judge. They may seem nice, but so did Bonnie and Clyde.

They are simply attempting to rent an awesome house for $800 less than what it is worth and being 100% dis honest about it. If they had the ability to pay $800 on their own, they shouldn't be on the housing choice voucher program to begin with. That means they are gaming the system most likely. IF they game Uncle Sam, what about them seems nice or tells you they won't screw you as well?

Exactly. Not only should run from them, but remember their name and turn them in to your local housing office. That is what I do. Some say I shouldn't, but I want people who really need a helping hand to be on Section 8, not liars!

If you really want to rent to them, call the Housing Authority and ask them how you can legally do the deal and get the rent you're asking.

If they say you can't - there's your answer.

They're probably desperate for willing landlords, so they may find someone else for you that would qualify.

But, really, as nice as you seem - and this is coming from someone currently living with a Section 8 voucher in senior housing - don't take Section 8 unless you have no other way to get your place rented. It's more hassle and paperwork than non-section 8 tenants, and you can only kick them out "for cause" which HUD determines. That's a lot of extra work and hassle, with a lot less rights than you'd otherwise have with non-Section 8 tenants, so why do it unless you have no other choice?

Originally posted by @Sue K. :

If you really want to rent to them, call the Housing Authority and ask them how you can legally do the deal and get the rent you're asking.

If they say you can't - there's your answer.

They're probably desperate for willing landlords, so they may find someone else for you that would qualify.

But, really, as nice as you seem - and this is coming from someone currently living with a Section 8 voucher in senior housing - don't take Section 8 unless you have no other way to get your place rented. It's more hassle and paperwork than non-section 8 tenants, and you can only kick them out "for cause" which HUD determines. That's a lot of extra work and hassle, with a lot less rights than you'd otherwise have with non-Section 8 tenants, so why do it unless you have no other choice?

 Thank you for the insight Sue. I did call Providence Housing Authority and they did convey that this arrangement was not possible with a voucher. It's frustrating because from the few people I've spoken too locally they all say the arrangement is common, in addition to fudging other aspects of the section 8 paperwork. This makes it very tough for someone who's following the rules. I think I'm going to avoid section 8 for the time being. The other section 8 landlords worry more than the tenants.

In Texas (or at least in Baytown, TX) I was told by the housing authority that I can make a deal with the tenant for them to pay the additional rent.  My lease contract states that the rent is 850, section 8 housing pays 740, tenant pays 110.    I have a very good tenant that pays on time, but I am sure there are lots of others that do not pay.  I would check with local housing to see if this is legal before going forward, and I would be cautious because if they are needing section 8 that is a huge extra chunk of money coming out of their pockets.

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