My Sec. 8 Investing Plan.... Suggestions or Opinions?

General Landlording & Rental Properties
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My Sec. 8 Investing Plan.... Suggestions or Opinions?

Tyler H.
Santa Clarita, CA · Member since 2012 · 53 posts · 11 votes

Quick history: I currently own 2 homes. 1 S8 rental, and 1 primary residence. Both purchased pre RE collapse as pre-construction with 100% financing (irrelevant)...

I see a large disparity with the prices of certain homes Im looking at, and the potential Section 8 Income. For example, I see houses all day (even through MLS) for less than 100K. These same houses will rent for $1500-1900. Some have CAPs over 20% and cash flows over 1K each!

Seeing this, my instinct is to buy as many as I can! I have a sec8 rental now and I am aware of the pros and cons (thats another topic). I have checked with the S8 department to verify market rents. I am currently in a good position to buy because I have reserves, the credit, and SOME cash to work with. My Q's are this...

1. Thoughts or opinions from experienced investors?
2. What might I be overlooking here?
3. What would be the fastest way to acquire as many houses as possible?... I can probably get 2-3 single handedly, but will need CREATIVITY going from there.

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Bill Gulley
Investor, Entrepreneur, Educator · Springfield, MO · Member since 2009 · 21k+ posts · 12k+ votes
14y

The best way is to name the tenant on the lease and add "and all those in possession" so when the sheriff comes he can throw anyone out....

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  • Daniel Fisher
    Real Estate investor · Atglen, PA · Member since 2011 · 90 posts · 21 votes
    14y

    Beware of high advertised cap rates. Why isn't everyone else jumping all over these?

    0Reply
  • Tyler H.
    OP
    Santa Clarita, CA · Member since 2012 · 53 posts · 11 votes
    14y

    These are not advertised CAPs, these are my calculations. The area I am looking at is receiving higher S8 rents than the private market... And from some research I have done, I see many people (companies) buying and renting out S8's in the same manner as I have planned...

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  • Ken Latchers
    Hatfield, PA · Member since 2012 · 1k+ posts · 629 votes
    14y
    Originally posted by Tyler H.:

    I have a sec8 rental now and I am aware of the pros and cons

    Some have CAPs over 20% and cash flows over 1K each!

    What would be the fastest way to acquire as many houses as possible?

    there seems to be a serious lack of wisdom emanating from this post, which is a little disturbing...

    0Reply
  • Tyler H.
    OP
    Santa Clarita, CA · Member since 2012 · 53 posts · 11 votes
    14y

    Please elaborate rather than take the time to post a negative comment......

    1Reply
  • Jon Klaus
    Developer · Garland, TX · Member since 2008 · 8k+ posts · 4k+ votes
    14y

    Ken, what do you recommend? BP is here to help all of us learn and obtain REI wisdom....

    0Reply
  • Justin Hill
    Real Estate Investor · Provo, UT · Member since 2012 · 4 posts · 1 vote
    14y

    Where do you want to start your investing. The market area will make all the difference as to how much leverage you an use with your resources.

    0Reply
  • Tyler H.
    OP
    Santa Clarita, CA · Member since 2012 · 53 posts · 11 votes
    14y

    As previously mentioned, I already have 1 S8 in the same area. It is break even for me because I bought it at the peak of the market. Prices have plummeted and S8 still has high rent prices. I want to take advantage of this opportunity, and hopefully to the fullest extent. I figured I would bounce my plan of of BP, in case I was missing something, or maybe someone had something that would give me a better edge....

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  • Bill Gulley
    Investor, Entrepreneur, Educator · Springfield, MO · Member since 2009 · 21k+ posts · 12k+ votes
    14y

    Tyler, you have a good way of thinking and your "plan" is fine. That said, you need to understand that I'm not saying your due diligence was correct and I don't know what Sec. 8 allowances are in your area. That 20% cap rate would be very difficult in my area.

    IMO, save your money for future purchases and leverage the initial deals the best you can. Gee, there's a hundred or more ways to do deals.

    Make it known to your PHA that you are willing to strictly abide by the rules, keep properties in very good condition and begin as well as maintain a good relationship with your PHA or Sec. 8 adminsitrator. They will be very helpful for you if you fall in favor with them and it will be worth the efforts I assure you.

    Good luck...

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  • Jeff S.
    Specialist · Portland, OR · Member since 2010 · 3k+ posts · 1k+ votes
    14y

    If you have had a taste of s8 and like what you see then by all means dive in.

    Having a business like this could be a little intense because some of these people have some very real drama in their lives.

    If you aren't scared of some extra work and associated risk then be prepared financially.

    One little story for you. Never looked for s8 but had a great tenant moving out that referred me to a lady as a potential tenant. Met with her and she seemed great. Had a legit story of some bad luck and was in recovery for alcoholism. She was well dressed and had a nice car, was very articulate and looked like a great candidate for success.

    She relapsed, ended back in treatment, and gave the keys to my place to a lady leaving treatment who remained nameless. She was subletting the place (illegal) and lost sec 8 funding.

    Since I didn't know who was living there it was difficult to evict her. Ever try to evict someone without a name? Of course she had a boyfriend too.

    Needless to say I was glad I could afford to carry this thing.

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  • Bill Gulley
    Investor, Entrepreneur, Educator · Springfield, MO · Member since 2009 · 21k+ posts · 12k+ votes
    14y

    The best way is to name the tenant on the lease and add "and all those in possession" so when the sheriff comes he can throw anyone out....

    1Reply
  • Joel OwensBusiness Member
    Moderator
    Real Estate Broker · Canton, GA · Member since 2010 · 15k+ posts · 11k+ votes
    14y

    Yes here in Georgia when you file for eviction you list the people named on the lease and then and separate filing for "and all others" which covers ANYONE in the property at the time the eviction is carried out.

    The subletting would just be a violation of your lease and have nothing to with the eviction.The tenant would have to take any money owed or agreement up with that person they subletted from (good luck with that! LOL)

    Be careful on the section 8 payments.They might be high now but can have a readjustment monthly rate for the area come down the pike.

    I have seen this happen in a few areas.In those cases the section 8 tenants can never make up the difference so the landlords get them out to rent to regular tenants at market rate.If section 8 payout is at market rate or higher it is good but if below you have to have a real low basis in the property to rent out and make any money.

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  • Just Don
    Member since 2009 · 499 posts · 117 votes
    14y

    here it is called "Jane Doe and John Doe and all parties in actual possesion" adding 's if necessary

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  • Ed O.
    Investor · Statewide, MO · Member since 2011 · 823 posts · 428 votes
    14y

    I'd suggest posting your numbers for some potential deals and having the crowd look at them. If you blow a number, your cap rate is blown.
    You said you have one rental in S8. I'd look deeper into it. Perhaps you snagged a Gem tenant the first go around. It's not always that way. You'll need to expect a much higher repair budget, have you factored that in?

    On the subject of acquiring as many as possible, look into creative financing approaches on BP - sub2, owner financing, etc and learn like crazy.

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  • Jeff S.
    Specialist · Portland, OR · Member since 2010 · 3k+ posts · 1k+ votes
    14y

    The new subletter had a lease with my tenant. While my lease did not allow subletting the new tenant kept insisting she had a valid claim to the property through the lease she had with my tenant. It was a scam and worked for a while but they eventually disappeared.

    0Reply
  • Stephen Masek
    Investor · Mission Viejo, CA · Member since 2012 · 627 posts · 204 votes
    14y

    You experess a desire for high leverage, so please remeeber that the lever in "leverage" pries both ways.

    What is you plan for dealing with unexpected events, vacencies, and so forth?

    Leveraged up to your eyeballs, an event which is a minor inconvenience to an owner (100% equity) may becomes a calamity.

    We've currently got just one Section 8 tenant, in Memphis. They have an incentive to be good tenants to keep the voucher, but that assuems they are smart enough to do so. We had one in Idaho, widow with four kids, who skipped after causing damage all because she had to pay a $75 late rent fee. Goodbye voucher!

    The state of CA and many counties in CA are broke, and will probably have to go Chapter 9. What becomes of Section 8 when that happens?

    0Reply
  • Bill Gulley
    Investor, Entrepreneur, Educator · Springfield, MO · Member since 2009 · 21k+ posts · 12k+ votes
    14y

    Joel, Sec 8 tenants can make up a difference over the entitlement to market rates but it can not exceed a third of their income.

    And Joel is correct in that FMR can be adjusted and less can be allocated for your property, but you can also opt out of Sec 8 before such rate changes take effect as they will be paid to the end of the lease term.

    There is a trade off, you get generally decent tenants for a qualifying property (who else would be renting, do you expect to be a LL and never have issues with tenants?), you get timely payments but you may not get the highest rents possible. + & - weigh them out.

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  • Joel OwensBusiness Member
    Moderator
    Real Estate Broker · Canton, GA · Member since 2010 · 15k+ posts · 11k+ votes
    14y

    Posted by Jeff:

    "The new subletter had a lease with my tenant. While my lease did not allow subletting the new tenant kept insisting she had a valid claim to the property through the lease she had with my tenant. It was a scam and worked for a while but they eventually disappeared. "

    Your area might be different but in mine the subletting wouldn't matter.If you do not allow subletting then it is a violation of your lease with the tenant that signed with you.

    In that case you simply file for eviction based on that premise and list all others.The eviction would proceed as normal.Here in Georgia the judge could give them a maximum of 2 weeks before the writ is issued if they feel sorry for them.

    How things go down depends on what judge you get and when your case is heard beginning of the day when they are fresh and in a good mode or end of the day when the judge doesn't want to listen to anyone and wants to go home.

    Bill as far section 8 yes I know they can make up the difference but my experience is it is like pulling teeth to get the money so I don't count on it.I want the voucher to cover the full rent payment.

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  • Tyler H.
    OP
    Santa Clarita, CA · Member since 2012 · 53 posts · 11 votes
    14y

    Yes some of the major cons with S8 is the possibility of bad tenants. Like mentioned many other places on BP, tenant screening and selection is crucial. One thing I have seemed to notice is because S8 is currently CLOSED to new applicants, the current voucher holders seem more motivated to stay in line. Some of the repair costs will be limited as I am looking at newer tract homes. Many of the other cons are the same as all rentals.

    How many other places do you all know about where a 4 bdrm can be purchased for 90K and rented for 1,800???

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  • Stephen Masek
    Investor · Mission Viejo, CA · Member since 2012 · 627 posts · 204 votes
    14y

    It that $1,800 rent market or Section 8? Where? When we had new houses in the high desert (Apple Valley), we were getting $1,500. We bought those houses for $150,000 and sold them for $300,000 at the peak. They are probably down to $90,000 to $100,000, if they are still standing, but I can't imagine the rent would be $1,800. I see you are in Newhall, which is LA County, but am unaware of anything selling that low in LA County.

    0Reply
  • Tyler H.
    OP
    Santa Clarita, CA · Member since 2012 · 53 posts · 11 votes
    14y

    The S8 seems to be above market. The area is not too far from apple valley, Antelope Valley. S8 Max's are

    3 BDRM $1775 -- 4 BDRM $2430

    Right now you can easily find 4 BDRMs for 100K or less. I would not expect $2400, but right now my 3 BDRM is getting $1600. I would think $1800 shouldnt be a problem, and at those numbers, thats a pretty great rate of return!

    0Reply
  • Ken Latchers
    Hatfield, PA · Member since 2012 · 1k+ posts · 629 votes
    14y

    The major thing that keeps me from Section 8, is that they often tend to be people who would rarely qualify as a regular tenant, and not just for financial reasons. I have had my share of tenants coming through rehab of narcotics, alcohol, divorce, losing their kids and other things. It is very wearing on the landlord. I had a soft heart in the beginning and helped some people in the above categories. I had drug DISTRIBUTORS (a level above dealing), a murdered tenant, etc. Since then I decided to treat it as a business. There is a huge direct relationship between income level and tenant issues.

    Secondary considerations are things like losing control to govt agencies.

    0Reply
  • Jeff S.
    Specialist · Portland, OR · Member since 2010 · 3k+ posts · 1k+ votes
    14y

    The whole subletting thing was just a smokescreen. In Portland the process to get someone out takes a while. People like this know how long they can stay.

    The point is it is a different kind of business and if you are a novice you could get your head handed to you. They say rent is guaranteed. In 2 out of 2 tenants w/ sec 8 they both were kicked out of the program. When they are out of the program you have some dead weight on your hands.

    0Reply
  • Steve Babiak
    Real Estate Investor · Audubon, PA · Member since 2009 · 13k+ posts · 8k+ votes
    14y

    some good related reading:

    http://www.biggerpockets.com/forums/52/topics/73627-setting-rent-price-for-section-8

    http://www.biggerpockets.com/forums/52/topics/62388-section-8-basics

    The adjustment to market rent is what would concern me, since the Housing Authority will make these adjustments periodically, and that could lead to a reduction in your expected rents. If these deals are good at market rent, then it makes sense to buy them - because your higher Sec8 rents would make them even better deals.

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  • Stephen Masek
    Investor · Mission Viejo, CA · Member since 2012 · 627 posts · 204 votes
    14y

    Are there any areas there with good schools? That will be a major factor in potential appreciation. I looked in Lancaster, and found bad to very bad schools.

    0Reply
  • Brooks Conkle
    Flipper/Rehabber · Mobile, AL · Member since 2010 · 138 posts · 55 votes
    14y

    Lots of opinions and ideas on Section 8 --- we do a lot of it in Mobile, AL --- it's actually the preferred method for most of my colleagues and clients.
    How did most of you get your start in Section 8?
    How did you first learn? Through friends? Online?
    Are there any great resources out there?
    If so, what are they?

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