buying house that failed section 8, with exisitng tenant ?

8 Replies

So here is a quick run down of a property I am looking at.  Its in a C neighborhood, but not in the war zone, mostly families on section 8 rentals in that area of town. I  purchased another rental on that street a few weeks ago and I am in the process of getting it ready to rent.   Then I found this next house just down the street and started looking into it.

Tenant has lived in house for 5yrs, on Section 8.   

Recently Louisville Section 8 has been awful, and investors are fleeing the program, as they fail you for everything.

This house failed inspection in February, (its now late June) and owner has not received payment since Feb.  Rather than fix the minor problems, or get off the section 8 program and have her move, he has decided to just sell the property.  

My biggest concern is that he said the tenant is on a month to month lease, (and he has not been exactly truthful on several statements) and the tenant says she is on a 1yr lease and wants to stay.  Tenant told me she cannot afford the rent herself,  she relies on section 8.

If I purchase the property, What would be the process to move her out and how hard would it be?  I am researching the S8 program here, but I really dont think I am interested in getting into that program. 

@Micah Mcarthur I would start by asking for a copy of the signed lease as part of your upfront due diligence. This should clear up the issue of he said she said. Then decide from there how to proceed.

I would be leery of trying to evict a section 8 tenant on a year lease even if the program isn't paying. I can just see a judge saying "its not the tenants fault the property owner didn't comply with section 8". 

@Micah Mcarthur

I would get a copy of the failed section 8 report. It might be a few stupid thing that can easily be fixed. From my experience these inspectors are trying to justify their salary and always find something.

Contact the section 8 office and see if you fix these things they will start paying again as the new owner.

This might be your path of least resistance.

Section 8 will pay up to 110% of market rents. I really like the program and having free inspectors check the property.

Get a copy of the lease, if there isn’t one get an estoppel agreement w tenant, verify previous rents to current owner via bank statement. Also make sure they haven’t pocketed security deposit. I just went through that and tenant wrecked the place on her way out somehow thinking they were getting back at previous owner? See if property will rent outside section 8 and figure out what failed the section 8 inspection. If it’s easy fixes and the previous owner was just a slumlord then fix it and keep the tenant in place.

I’d be willing to bet it would cost less than a 1000 to get that place up to code . They are pretty basic in what they want to see . Most of the stuff is just run of mill maintenance things you’d do to a unit to get it rentable anyways . Smoke detectors , working toilet working sink , good working outlets , functional doorknobs no trip hazards .. simple stuff !

I agree with Dennis.  Section 8 wants to provide the tenant with a clean, safe home.  If that is also your goal you will find more stable tenants and consistent rent.  Landlords who maximize profit by neglecting maintenance find issue with them.  You likely have many years of deferred maintenance right now but it will get easier and you need to do that stuff anyway. 

And as an aside,  The tenants do not want to violate their lease because doing so jeopardizes their section 8. I have a much easier time with those tenants than class c tenants not on section 8

I am in the process of trying to get a copy of the lease.   

@Greg Smith   I do not personally have experience with the local Sec 8 housing dept.   I have been researching it for awhile now, and it is not the same as it once was, or is everywhere else in the country.   Do you currently have Sec 8 housing, what has your experience been here in Louisville?

I have 3 houses with section 8 in 40210 and one in 40212.  In my experience they are most thorough in their initial inspection and less so in their annuals.  Usually they ask for little things that are not expensive.  

Pros: I have never had to evict a section 8 tenant.  Now admittedly I had a small sample size over just a few years but tenant relations are generally much better.

I get paid on time every month.

If a tenant breaks something, they have to fix it or  lose their section 8.

There is a lack of supply it seems so tenants jump on vacancy's and stay put.  Even if they want to move, they renew because there’s not another house in their price range.

Cons: sec 8 always sides with the tenant.  

They can fail you at any time and withhold payment (though I have always received back pay when the issue is resolved)

They tend to find something every time (more like 2 out of 3 times). Always on an initial inspection.  I’m tempted to leave a couple obvious things so they can get some easy wins.

Sometimes they find dumb things like tree limbs or moles(!) in the yard.

Section 8 reevaluates tenants periodically and adjusts their contribution amount.  I had them do this retroactively on a tenant increasing her portion $150 / month.  This put her in a hard spot for months.  That has been my biggest problem.  Without sec 8 they cant afford to live there.  If something goes wrong the person can enter a bad spiral.  I waived late fees and was patient and things worked out but it was hard. I was still in the black without the $150 so it was hard knowing the best move

Micah,

Been there done that.

In retrospect I should have tried much harder to get a copy of the inspection report. Section 8 won’t give you a copy because you don’t own the property yet but you should get it from the owner, they send them a copy. It could be something as small as a hole in the wall (or many small things) or something as big as a hole in the roof.

As far as the inspector that came out he was fairly nice and VERY fair. The tenant was complaining about many issues most of which he replied “although it’d be nice of him to fix those things those aren’t required per section 8”.

The inspection takes forever to schedule and forever for the inspector to come out, however section 8 will back pay from when you schedule the inspection so I would schedule it ASAP and then get all of the repairs done.

Shoot me a message if you’ve got anymore questions.

Thanks,
Sheref