Pros and cons of section 8?

Question

Hi all,

I'm looking for you pros and cons for section 8. What did you wish you knew before you got section 8 tenants?

Ben Smalley · Answer

Overall I like Section 8 and think they are good.

Pros:

• "guaranteed' rent though this is subject to government funding (currently funded through HUD) but we did receive payments still during gov't shut down
• deposited to bank accounts
• tenants are generally better than cash tenants because their payouts demand it.
• See my con but because the process is difficult for tenants they are generally committed once they find a place and are settled.

Cons:

• It takes awhile to move in a new tenant. If you purchase a building with an existing Section 8 tenant the paperwork is pretty easy and they can do it within the same month generally. For a new tenant you want to rent to, it requires you to complete paperwork and have tenant sign it and then submit to housing office. It can take a month or 2 to be approved so there is some lost rent but generally the stability offsets this.

I also want to correct some things someone else said:

• "of course, a class you'll need to take." - I never had to take a class as this is not required.
• The annual inspections ding things like: peeling paint, windows won't open, leaks, etc. All very simple that you or PM will keep in good order anyway. 
• "Section 8 requires that you accept a "median market rent" - which equated to 70% of true market." - also not true. We get the exact same with Section 8 as Cash tenants in some areas and in C neighborhoods get MORE than the market.

Tim Rostro · Answer

I inherited a Section 8 tenant when I bought my duplex in Cleveland.  A fellow real estate investor had a bad experience with Section 8 tenants and refused to ever deal with them so I was a bit apprehensive about it.  However, the lady (Section 8) had been living in that unit for 8 years and been a great tenant for the two years I've had the place.  I have a property manager who does all this and they usually don't take Section 8 tenants but they made an exception for my property.  She has never been a problem for the property manager or me.  Just make sure you screen your tenants thoroughly.

Pros: I get an amount not equal to the full rental amount but it's there at the beginning of the month.  This has helped me immensely in paying off my mortgage as my other tenant is always behind on rent.  Could it be higher, absolutely.  I raised the rent this year to reflect rising rental rates in the area.

Cons: The initial paperwork which I thought was a bit excessive.  Then, the yearly inspection which might cost a couple hundred dollars to fix the deficiencies they find.  They were repaired last year so now, it's not to their standards again?  SMH.  Whatever, I fixed them and I don't see them for another year.  Raising the rents, again, is more paperwork.  It's a hassle, but once it's over, it's over.

Thomas S. · Answer

Pros: I can not think of any that would be better than any properly screen applicant.

Cons: you are renting to the government. In particular a individual that is not self sufficient or responsible.

Patricia Steiner · Answer

I recently looked at an investment property for one of my clients to learn that it had a section 8 tenant.  The owner stated that it had been a great experience and that his tenant had been there for 7 years and wanted to stay.  So, I looked into the pros and cons like you're doing now and here's what I discovered:

Pros

1. Rent will be paid and on time - deposited into your bank account.

2. You'll have a lot of prospective tenants to choose from.  In a downturn or slow rental market, section 8 status will keep you rented.

3. If you're in a "not so great/hasn't transitioned yet" neighborhood, section 8 is the right choice.  Again, you'll get your rent paid each month.

The not-so-good

1.  You have to be approved as a Section 8 Owner/Landlord; paperwork as only the government can manufacture it and, of course, a class you'll need to take.

2.  Regular inspections.  Your property will undergo inspections to make sure that it meets their minimum requirements. Having said that, the property I was considering for a client was one that we would have spent a lot of money improving (roof, ac, cosmetic) - yet it passed a recent inspection.  You'll want to know their criteria to see if you're willing to have them tell you what investment you need to make.

3. Section 8 requires that you accept a "median market rent" - which equated to 70% of true market.  That wasn't okay with us...and we weren't willing to seek approval for rent increases either.

4.  Section 8 tenants are a lot like non-8 tenants in that some will respect your property and some won't. If you're taking less rent, subjecting yourself to inspections, while the tenant is destroying the place, it really is just too much of a not-so-good thing.

5. You have a better chance of being sued by a section 8 tenant because they qualify for no-cost/low-cost legal assistance.  Of course, you don't so expect it to be costly.

My client and I decided to pass but, again, it had been a worthwhile experience for the owner/seller with his 7 year tenant.  Can't wait to see what other investors discovered...