Section 8 House Hack???

21 Replies

So I've come across a potential deal: A duplex with one side vacant and one occupied with a Section 8 tenant. The numbers look better than average - the rent from the occupied side would completely cover the mortgage (PITI) with an additional $90 remaining. I know there are tons of expenses to factor in, but it's not a bad start. When I move out, the numbers would look even better.

My concern isn't so much about the Section 8 program itself, but more so the prospect of inheriting a tenant I know nothing about, and living next door.  I'd rather start fresh with screening a new tenant myself. 

Anybody house hacked with a Section 8 tenant? I know it's irrelevant that they're in the program (people can be good or bad tenants, no matter their income) but you hear so many stories, just makes you wonder.

Thoughts?

- Mark Douglas

@Mark Douglas I have had some experience with a similar situation. The main problem is if your planning to self manage. Self management complicates the arrangement exponentially and needs careful consideration/structure. You will either become friends or enemies and neither is good for business. If I was going to do it I would hide the fact that I'm the owner and would instead be the onsite manager that answers to a higher power, this is easy to do if it's in a LLC.

hmmmm...good point.  I am planning on managing myself.  When you introduced yourself, did you say you are the owner or PM?

I like house hacking but Remember to maintain a professional relationship with the tenants. Always address them as miss or mr tenant. Bring them to your office or use a realtor office to sign all documents.

I'm new to REI and I'm curious what is a section 8 tenant? Also, what are the options for having tenants move out when there is a new owner? Are there any good reasons for keeping the existing tenants in small multifamily homes?

Originally posted by @Lauren Baker :

I'm new to REI and I'm curious what is a section 8 tenant? Also, what are the options for having tenants move out when there is a new owner? Are there any good reasons for keeping the existing tenants in small multifamily homes?

 Lauren, 

I grabbed a link ( http://portal.hud.gov/hudportal/HUD?src=/topics/ho... ) if you'd like to skim through it, but it's a federal program to assist low income individuals/families pay for housing.  Each case is different, but the government will pay for a percentage (sometimes 100%) of monthly housing costs for qualified persons.

I was asking about others' experiences because there's a lot of debate about the pros and cons of renting to Section 8 tenants.  A major plus is that the owner isn't waiting on the tenant to pay rent, because it's wired on time each month by the govt, on behalf of the tenant.  On the flipside, there seems to be higher overall maintenance costs associated with Section 8 renters, so there's a trade-off.

One thing you want to do before purchasing a property with existing tenants is to have a look at the rent roll. This will show the payment history for each tenant in the building. From this, you can usually see their lease terms, how many late pays they've had, their actual rent amount (sometimes it's a different amount than what may be advertised on the MLS, the realtor, the seller, etc.) and so on. If the current tenants seem to have a good rental history, there's really no reason to discontinue their lease. Be sure you're aware of the laws in your state though; I've heard some states allow a change in ownership of the property to be just cause for changing/dissolving the existing lease agreements, whereas other states say the new owner has to honor the current lease agreements.

@Mark Douglas to answer your question: I set myself up as a property manager. I am a softy and struggle with confrontation, however all that is avoided if I'm an employee and its "my job". It's against my morals to lie, so I set up my entity(S Corp) and become an employee of the company. In the Corp is a set of rules, not my rules, but company rules. When out in a tight spot I react apologetically and then reintegrate that I'm just the mail carrier, whom also has to abide by the rules. In doing this I can remain friendly, but firm. It also helps on evictions, late fees... I have tried the I'm the owner thing and it was a terrible experience. People will be a lot nicer to you....

Originally posted by @Perry Ivy :

If your just a poor employee doing your job vs a rich landlord who can afford to be taken advantage of.

 Totally makes sense.  I'll approach it from the onsite manager role.  Thanks Perry!

Originally posted by @Ken Powell :

I like house hacking but Remember to maintain a professional relationship with the tenants. Always address them as miss or mr tenant. Bring them to your office or use a realtor office to sign all documents.

 I'm curious:  why do documents need to be signed at an office? Is there a legal reason or just an image thing? 

Hi Mark. I am a property manager for an apartment complex in Oregon. First, you should check your state landlord-tenant laws. Take a few classes if you can; some situations are very, very tricky and some tenants are very savvy and will work it as best they can to bend the laws.

In Oregon, we are able to give tenants a 60 day no cause notice for termination of their tenancy and it can be issued 60 days before their lease is up so that they have to move out on the day their lease ends. If you would like to get them out and start fresh, see if your state has a similar type of notice that you could issue.

You may be stuck with them for a while until the lease is up, but then you could get new people. I recommend thorough screening criteria! Credit, criminal, employment & residency history. Set the # of late pays you will accept in a rental history. (Ex: no more than 3 late pays in a 12-month period).

Originally posted by @Maureen Healy :

Hi Mark. I am a property manager for an apartment complex in Oregon. First, you should check your state landlord-tenant laws. Take a few classes if you can; some situations are very, very tricky and some tenants are very savvy and will work it as best they can to bend the laws.

In Oregon, we are able to give tenants a 60 day no cause notice for termination of their tenancy and it can be issued 60 days before their lease is up so that they have to move out on the day their lease ends. If you would like to get them out and start fresh, see if your state has a similar type of notice that you could issue.

You may be stuck with them for a while until the lease is up, but then you could get new people. I recommend thorough screening criteria! Credit, criminal, employment & residency history. Set the # of late pays you will accept in a rental history. (Ex: no more than 3 late pays in a 12-month period).

 In "section 8" situations the government pays the rent (a portion or all of it). For that reason, credit worthiness may not weigh heavily in your screening process.

 The risk of damage is something to really look out for tho. Regular inspections may be a good idea. More so if there are multiple kids in the family or multiple partying type friends that come over and hangout.

To the minimum, get ready with buckets of paint if they move out. That's been my experience and that of others I know.

Originally posted by @Lauren Baker :

I'm new to REI and I'm curious what is a section 8 tenant? Also, what are the options for having tenants move out when there is a new owner? Are there any good reasons for keeping the existing tenants in small multifamily homes?

Hi Laure, that innocence is priceless, lol. Welcome to Bigger Pockets, REI and something extra on where some of your tax $ go. Wish you all your aspirations in 2016

Originally posted by @Maureen Healy :

Hi Mark. I am a property manager for an apartment complex in Oregon. First, you should check your state landlord-tenant laws. Take a few classes if you can; some situations are very, very tricky and some tenants are very savvy and will work it as best they can to bend the laws.

In Oregon, we are able to give tenants a 60 day no cause notice for termination of their tenancy and it can be issued 60 days before their lease is up so that they have to move out on the day their lease ends. If you would like to get them out and start fresh, see if your state has a similar type of notice that you could issue.

You may be stuck with them for a while until the lease is up, but then you could get new people. I recommend thorough screening criteria! Credit, criminal, employment & residency history. Set the # of late pays you will accept in a rental history. (Ex: no more than 3 late pays in a 12-month period).

 Thanks, I'll have to look into that.  A "no cause" termination could be really helpful if, for instance, when I'm doing my walkthrough/home inspection before purchasing, I notice the units are in pretty bad condition, but they still have 6 or 8 months in the lease.

You should do some research to see how long that current lease is. If its only a few months left then stick with that tenant. If thinks don't pan out well then you can cancel the lease down the road. Better yet if its month to month.

I would suggest that as soon as possible you inform the tenant that its company policy that all tenants meet their requirements and thus you'd put them through a screening process (at your cost). If they don't meet your criteria then you simply end their lease when possible. If they meet it then you've done your screening process and you'll sleep better at night knowing you've got a qualified tenant.

The reason why it is recommended to use an office to sign documents is that it is more professional.  Your tenant see you as someone representing a company and not as friend or neighbor.  

Mark: A couple of other things to consider. I DEFINITELY agree with those who say do not let them know you are the owner. Always best to be friendly, but never friends, with residents. 

Also, interior inspections are crucial!!! We do them at least annually before offering lease renewal, and if it is a unit that we know has had issues in the past, or we discover a serious housekeeping issue, we will issue a housekeeping violation, take pictures, document it and reinspect in a few weeks, then reinspect again 3-4 months later to make sure they are keeping it decently clean and not too cluttered so as to cause ingress/egress hazards or fire hazards. You just have to be careful not to go in tooooo often to where they think you are harassing them.

We often find unreported maintenance issues on inspection as well, and some residents will never tell you just because they'd rather not have anyone in their unit. WE have seen mold, leaks and other issues that needed immediate attention but went unfixed for months because the resident never reported it to us. 

Never underestimate the power of interior inspections.

Originally posted by @Maureen Healy :

Mark: A couple of other things to consider. I DEFINITELY agree with those who say do not let them know you are the owner. Always best to be friendly, but never friends, with residents. 

Also, interior inspections are crucial!!! We do them at least annually before offering lease renewal, and if it is a unit that we know has had issues in the past, or we discover a serious housekeeping issue, we will issue a housekeeping violation, take pictures, document it and reinspect in a few weeks, then reinspect again 3-4 months later to make sure they are keeping it decently clean and not too cluttered so as to cause ingress/egress hazards or fire hazards. You just have to be careful not to go in tooooo often to where they think you are harassing them.

We often find unreported maintenance issues on inspection as well, and some residents will never tell you just because they'd rather not have anyone in their unit. WE have seen mold, leaks and other issues that needed immediate attention but went unfixed for months because the resident never reported it to us. 

Never underestimate the power of interior inspections.

 Thanks so much, that's great advice.  Maybe a quarterly inspection, so it's just every few months, which seems reasonable..?  

Also, I found out there's currently a PM company in place, so I suppose it couldn't hurt to leave them in place for awhile.  If it doesn't seem like things are under control, I'll step in.  

Thanks!