Lease option for a section 8 tenant

7 Replies

I am in the chicago are suburbs and have a potenential tenant that has section 8. They are interested in a lease option (rent to own) on a single famIly home. From what I’m reading, it is difficult. Has anyone had any experience with this?
Why would you hold the mortgage for someone who can't even pay their own rent? the government is not going to pay their "rent", interest, and lease option principal. Not mention, most lease options have a deposit and if they can afford a deposit they should not be eligible for section 8. They can't pay their rent and they aren't eligible for a mortgage, don't put yourself in that kind of position. Rent to own is an excellent strategy but it's not for individuals in the situations your tenants are in.

I tried Section 8 in Phoenix but it was a typical government nightmare. They are administered locally so things may be different there. I had heard that the government will subsidize above market rents which seemed to make up for the hoops you have to jump through. I checked their rate sheets and it showed that my size/bedrooms home would indeed bring better than market rent. 

The government has to approve the lease and inspect the property, but you are allowed to screen tenants as normal, and I would do thorough background checks! I could not believe some of the human debris showing up to look at the house. 

I have heard the horror stories about Section 8 tenants destroying property, and the flipside that the vouchers are difficult to get and a recipient would lose their voucher for an eviction, so they take care of the house. But also consider that many Section 8 tenants work little to none, some haven't worked in years, and they will be home all day every day causing a lot more wear on a home than someone at work forty plus hours a week.

I finally found a decent person who actually had a job, seemed fairly responsible, and was trying to get off of the government feedbag. I waited for weeks while going through the process, and at the last minute, they sent me a low-ball rent approval amount that was below market. I told them to pound sand. This wasted weeks of the prime rental season and cost me vacancy expense. Never again.

@Ronald Starusnak While vetting section 8 tenants, I’ve learned not to put them all in the same basket. Of course their are tenants that, you would never want to work with, and that’s when you hear horror stories. What’s happening now is an incredible amount of reform with section 8. The government is assessing a lot of current vouchers and reducing them. This couple’s situation is, wife does not work, and the husband does. They have bad credit, but the husband has now worked an ok job for a solid amount of time. Their voucher was re assessed with his current income and was reduced in half and will probably be cut completely in the future. A lease option would give them the opportunity to lock in a property price, and give them 3 to 5 years to work on their credit. The voucher covers a big chunk of rent, and theIr is down payment assIstance. As far as down payment, I work with properties in the Midwest ranging from 70k to 100k. Lease option is 3 to 6k upfront. USUALLY CAN PAY WITH TAX REFUND AND ASSISTANCE PROGRAM HELPS WITH 1000 OF IT. WORST CASE IS I HAVE TO EVICT, FIX DAMAGES AND KEEP THE NON REFUNDABLE LEASE OPTION.
@Matt Shields Matt and Ronald thanks for the reply, Matt you do make a good point it is very front end heavy with inspections and for someone to transfer their voucher can take 2 to 3 months. In my properties my 1 section 8 tenant I never worry about, government pays on time and their portion of a few hunred comes on time. My cash tenants are usually good accept for around Christmas lol. I KNOW SECTION 8 HAS A HOME PURCHASE PROGRAM, JUST LOOKING TO SEE IF LEASE OPTION IS VIABLE. OR IS IT TOO MUCH RED TAPE.
@Jeremy Harris Dodd frank and safe act laws have changed the rent to own strategy in the kast few years in such a way that it isn’t even a good option these days atleast if you do it legally . So many nuances now and You have to qualify the person . well part of that is income and debt to income ratios have to be within a guideline or its considered predatory . If the person is getting assistance I would think it would be extremely unlikely they could even legally do a lease option / rent to own . And obviously this is why these laws were passed because of people who knowingly locked people into a home they couldn’t afford long term and therefore lost their deposit and all theIr lease payment money . The government has strict rules on rent to own and the irs has changed the game

Jeremy, is your property in a condition where you can not rent it to anyone else or sell it to anyone else? If not, why do you want to help these people? You're here to make money, not give charity and create a head-ache. The lease option or rent to own model is excellent if you have a property that wouldn't necessarily qualify for a typical mortgage. 

The only benefit to a lease option, really, is that you can charge them rent plus additional for the principal balance, force them to pay the taxes, and take care of the property. Lease option holders generally do take better care of the property, and of course you get a larger down payment and hopefully if you have a 5-7 year balloon, you can sell the house at an inflated price or they move out and you start over. 

You're also locking yourself into a single rent rate for 7 years. I guess for anyone here to properly assist you and give you advice, we'd need to know what your intentions are. Are you really just trying to help them build credit? What are the chances that after they build credit, they buy your house or find a better one now that they have more options? 

@Ronald Starusnak You can no longer legally charge tenant buyers “ rent credits” you can longer structure the deal so the tenant pays down the loan amount over time . Such as charging 800 toward rent and another 200 toward the principle of the loan ( rent credits) paying down the debt . You must qualify the tenant buyer and they must income requirements . Dodd frank pretty much screwed up this strategy . The government now views rent to own as predatory lending and watches these deals