Professional · Anaheim, CA · Member since 2017 · 1k+ posts · 686 votes
With all the talk of a recession or down trending economy, which type of tenant would be better, Section 8 vs. Normal rent paying tenant. First, these are for area C neighborhoods, lower economic, typical 2 bed 2 bath apartment. I would like to make the case for choosing section 8 based upon the below points.
1, Rent paid first of month by Section 8 not matter the economy.
2. In recession, layoffs or business closure, would result in missed rent payments
3. No eviction due to section 8 vs. possible and eventual eviction due to no job.
4. The great recession of 2008 resulted in many foreclosures due to tenant losing job, and still stay in apartment. The eviction process resulted in no rent, time to get tenant out, and without cash flow, property eventually went back to bank.
Which would you choose, section 8 vs. normal paying tenant?
Property Manager · Virginia Beach, VA · Member since 2016 · 2k+ posts · 2k+ votes
7y
In my opinion having 100ish SEC 8 leases and 150ish leases, in low income neighborhoods, I’d rather have a SEC 8 tenant in any economy. We have very few SEC 8 tenants who don’t pay their portion. When we do have them that get behind, we give them a list of all the charities in our market that help people at risk of homelessness. If we have to take them to court to get a judgment in order for them to qualify for assistance, that’s what we do. It is a very rare occurrence that we don’t eventually get paid, even for repairs.
Take this example. Let's say you and I both have side by side rentals, and both of our tenants work for the shipyard. Mine is a SEC 8 tenant, and yours is not. Last time we had a government furllow our shipyard workers were all laid off. (This time thankfully they were not.) Upon layoff, both of our tenants will march down to the unemployment office and will end up getting 60% of their pay. Mine will the march to the SEC 8 office to report their change of income, and SEC 8 will adjust their payment to 100% until the tenant secures another job or gets called back to work. No where is there insurance like this for a landlord, outside of HUD voucher programs and similar grant programs.
Rental Property Investor · Oconomowoc, WI · Member since 2016 · 996 posts · 431 votes
7y
This is a good question. It really makes you think. My first thought is Section 8 would be nice for the guaranteed income but I also think about the extra administration that I incur on Section 8 tenants. If there rent isnt fully paid by Section 8 their desirability is decreased because you still may end up evicting. Really a mind bender...
My experience is actual as I have 2 bed 2 bath rentals in Las Vegas. I have both section 8 and regular paying. In answer to your question, most section 8 pay 100%, the remainder have section 8 paying 80-90%. If rent for $800, then 20% is like $160, and I never ran into a situation where tenant did not pay $160.
For regular $800 paying tenant, I found that once they get behind, very difficult to catch up. If they are charged $25 a day late fee, then more than likely not. In my case, tenant just gave up and had to evict.
Also, If a section 8 tenant does not pay, then it would jeopardize their entire subsidy.
Rental Property Investor · Oconomowoc, WI · Member since 2016 · 996 posts · 431 votes
7y
I have actual experience too and of my 20 section 8 that are not full housing less than half pay their full portion every month. I have better luck with normal tenants getting caught up because they usually have the means to avoid eviction (i.e. 2nd job, relatives, etc). Very very few on Section 8 get caught up because they don't have the ability to get a 2nd job (it would ruin their housing voucher) and they don't the same fiscal resources.
That all being said I'm sure our experiences vary based on the how the state runs the program. Screening, tenancy policies once on the program, etc. I know just between Wisconsin & Illinois they are vast differences in how they run their programs.
Rental Property Investor · Janesville, WI · Member since 2016 · 87 posts · 42 votes
7y
Hi Terry -
We have both Section 8 and non Section 8 as well. @Corina Eufinger makes a good point that the Section 8 program varies greatly between states. If tenants don't pay rent, at least you still get the Section 8 portion... I'd rather get 70% or 80% than 0% any day.
On the other hand, our section 8 experience in south central WI is that the sec 8 tenants are used to being offered "cash for keys" from the landlord to avoid eviction, and as such, don't take the threat of eviction seriously, but that is due to the many "slumlords" and larger issue of bad management with the local landlords. Beyond rent not getting paid, we've seen the effects this has had on tenant upkeep of the properties as well.
Rental Property Investor · Elgin, IL · Member since 2016 · 326 posts · 270 votes
7y
In Illinois the amount a tenant pays varies by some formula that Section 8 uses based on the tenants earnings. I know that if a tenant doesn't pay their portion, regardless of how much or little, that not only can a landlord start the eviction process for rent not being paid in full but the tenant is actually kicked off the Section 8 program. I would suspect its very similar in other states since its a Federal program but I can not speak from experience other then here in Illinois. The risk of not only eviction but loosing all housing assistance gives the tenant an extra incentive to keeping up with there obligation of the portion of the rent. At least that has been my experience however proper vetting goes a long way toward getting a stable tenant to begin with.
Property Manager · Virginia Beach, VA · Member since 2016 · 2k+ posts · 2k+ votes
7y
In my opinion having 100ish SEC 8 leases and 150ish leases, in low income neighborhoods, I’d rather have a SEC 8 tenant in any economy. We have very few SEC 8 tenants who don’t pay their portion. When we do have them that get behind, we give them a list of all the charities in our market that help people at risk of homelessness. If we have to take them to court to get a judgment in order for them to qualify for assistance, that’s what we do. It is a very rare occurrence that we don’t eventually get paid, even for repairs.
Take this example. Let's say you and I both have side by side rentals, and both of our tenants work for the shipyard. Mine is a SEC 8 tenant, and yours is not. Last time we had a government furllow our shipyard workers were all laid off. (This time thankfully they were not.) Upon layoff, both of our tenants will march down to the unemployment office and will end up getting 60% of their pay. Mine will the march to the SEC 8 office to report their change of income, and SEC 8 will adjust their payment to 100% until the tenant secures another job or gets called back to work. No where is there insurance like this for a landlord, outside of HUD voucher programs and similar grant programs.
Your thinking and example is along the lines of my thinking. In a good economy or bad economy, the section 8 tenant will get the rent paid because of the government. There is a greater chance that a private company will go bankrupt before the government.
Professional · Anaheim, CA · Member since 2017 · 1k+ posts · 686 votes
7y
Here's another way to view the difference between section 8 and regular paying tenant. Every first of the month, I get rent direct deposited into my bank account..........like clock work. Can you say the same for your regular paying tenant? Does it cross your mind if tenant will pay on time?
Professional · Anaheim, CA · Member since 2017 · 1k+ posts · 686 votes
7y
Here's one I heard from a long time section 8 tenant. When tenant decides to move, and gives 30 day notice, you should insist on 3rd or 4th day of the month because Section 8 will give you full 30 days even though end is 3rd or 4th day of the month.
Here's one I heard from a long time section 8 tenant. When tenant decides to move, and gives 30 day notice, you should insist on 3rd or 4th day of the month because Section 8 will give you full 30 days even though end is 3rd or 4th day of the month.
Rental Property Investor · York Haven, PA · Member since 2018 · 49 posts · 39 votes
7y
@Terry Lao. That was the case for New Orleans, but they also had some stipulation that you could not start marketing your property during that time. A difficult thing to monitor, especially in a place like New Orleans. However, they have recently changed to pro-rating the rent. I have not yet experienced that, my guess is that they subtract it from their next payment to you.
Perhaps other Housing Authorities will adopt something similar.
I also heard, and hopefully someone will weigh in on this, that in Baltimore they increased the quantity of vouchers without additional funding. Anyone know if that's true?
Rental Property Investor · Oconomowoc, WI · Member since 2016 · 996 posts · 431 votes
7y
@Terry Lao Assuming all other factors are equal (credit report, background, etc) I would take 100% housing over partial. Once people get 100% housing they very rarely do anything that would change their portion so it does become guaranteed rent at that point.
There's more to a tenant than just paying rent. My mentor did all section 8 (made a TON!) and he got utilities/electricity included to, and he would get angry that it'd be 10 degrees outside, or raining, and they'd have all the windows open-- why? because they didn't care because it wasn't their cost.
You gotta factor in lifestyle, and how they would treat the place, smoking vs. nonsmokers... visitors...etc.. I'm not against section 8, but we tend to prefer M2M leases now in case anything doesn't work out, you have an easy out vs. full evictions/paperwork, no thanks. Most of the time if we terminate a lease, it's because of treatment of the home or another lease violation-- not unpaid rent... section 8 would make it a lot more complicated.
Property Manager · Virginia Beach, VA · Member since 2016 · 2k+ posts · 2k+ votes
7y
@Terry Lao - HUD dictates the initial lease term and that must be 12 months, plus the partial month if the move-in date is not the first of a month. They will require the lease ending date always be a last day of the month, HOWEVER, upon moving, SOME (not all), Housing Authorities will allow a tenant to start a new lease in the middle of the last month they are in their former unit. This means there is a some overlap where they actually pay for two units for the same time frame. Some Housing Authorities will only allow a lease to start of the first of the month, to avoid double paying. This is one of those areas where, like bedroom calculation and % of market rent, that the local HA has authority to dictate.
I have a situation right now where a SEC 8 tenant requested an early lease termination, which we agreed to approve as soon as we secured a replacement tenant. Our current tenant was supposed to move out on the 7th of this month, and the new, non-SEC 8 tenant is ready to move in as soon as we get the locks changed, do the move-out inspection, and have the unit ready, which will only take us a day. My SEC 8 tenant TOLD us she would be out by the 7th, but called on that day and asked if she could stay longer since SEC 8 paid the rent for the entire month. UGH! We explained that once we can get him moved in, any prorated rent left for this month will be added to her deposit to try to entice her to get the heck out of dodge like she promised she would!
I can relate to the section 8 tenant requested early lease termination, which I also granted. Then when approach the agreed upon date, said that needed to extend date. However, I already secured new tenant and just waiting for section 8 tenant to move out. Things happen, but when a person initiates the request, then reneges, it just make you say UGH!
Rental Property Investor · Sacramento, CA · Member since 2011 · 2k+ posts · 1k+ votes
7y
I prefer non-section 8 because I can quickly modify the rental home to take advantage of the changing market place. I can create temp furnished housing or long term furnished housing to accommodate people who are losing their homes and still make larger margins.