I just finished a two family rennovation and it came out beautiful (granite counters, SS appliances, back splash, the works), lots of interest from prospective tenants at the rents I have listed ($1850, and $1650- first and second units, respectively).
99% of these tenants are section 8. I know from dealing with section 8 in the past that they set what’s called a “fair market rent”. Out of this fair market rent the government pays a portion and the tenant pays a portion.
The problem is that I know from dealing with section 8 in the past is that they are going to be a few hundred dollars off from what I am asking for rent and their “fair market rent”.
I have lots of interest in the property, and all the tenants I have screened have offered to me that they will pay their portion of the voucher and the additional difference of what section 8 doesn’t cover, in order to get to the rents I’m asking.
I’ve heard of people doing this all the time, but Could this potentially land me in trouble with the government/section 8?
For my location, Section 8 pays 110% of market rents.
Given that you are only getting section 8 tenants you may have over improved for your area.
The section 8 office will identify how much of the rent they will pay and how much the tenant pays. Don't make any side deals for more money from the tenant as this will get you in hot water and you are definitely breaking the rules maybe the law?
Your best bet may be to hold out for a non section 8 tenant that will pay for how nice you have rehabbed the house.
My understanding of Section 8 is the same as @John Underwood describes. The local HUD office will set what the rent is and assign the portion the tenant is to pay and what the office will pay. I don't believe hey allow side deals to cover costs over and above that. Best case is that it all works out. Worst case is that the tenant doesn't pay, you need to evict, the entire side deal things comes out and you get banned from utilizing the program. If Section 8 doesn't cover the costs you want the best bet is to rent it via open market and get tenants in place who aren't part of the program.
@Frank Maratta - Don't do it! Both landlord and tenant sign separate contracts with HUD agreeing that the rent is what is stated on the HAP agreement (contract with HUD) and you cannot collect any rent over an above this amount. Doing so would be a criminal offense.
That said, you can influence the rent that is approved by helping the case working with comps when you submit the paperwork. They want comps that are not SEC 8, within 5 miles of the property (the closer the better), same city, similar age and size, same style (single family, vs something with shared walls). Just make sure the comps you submit are at or above your requested rent, they are legit compatible, and they are within the HUD budget for that bedroom size for your county.
These guys have given you good advice. I would also pick up Section 8 bible 1 and 2. I also suggest Section 8 is great by John Russell. Good luck.