Does Section 8 acceptance affect income standards

9 Replies

I am converting a Townhome I own and lived in for the last 2 years into a rental. I have had several potential tenants ask if I accepted Section 8. I have told them that I am not set up to do so yet; however, I am considering looking into it. I have one major concern though. If I accept Section 8 tenants would I have to lower my income standards for non-Section 8 applicants in order to maintain compliance with Fair Housing Standards?  

Here in wonderful Cook County, Illinois (Chicago area), "legal source of income" is a protected class, so we can't exclude section 8 applicants. The way they look at income standards is based only on the tenant-paid portion. So if the tenant is responsible for $100/mo with the housing authority covering the rest, and your qualification is 3x income to rent ratio, then the tenant would qualify if they make $300/mo in income.

"Source of income" is not a protected class federally, so unless you have specific state/local laws saying otherwise, I wouldn't worry about it. Now if you are a mass-provider of housing with 1000s of units, maybe someone could bring a suit against you stating that your income standards disproportionately exclude section 8 applicants, and the majority of them are of a certain protected class, and your real intent in doing so is to exclude that protected class. But don't worry about that if you are just renting a handful of units.

If you don't want to accept Section 8 you are not required to, you would not be denying anyone because they are on the program however both the property and the landlord have to be approved by the program. With that said if you, or the property, is not listed as an HUD Section 8 property you have no requirement to do so.

I have 2 SFR properties that I have put on the program and both tenants take excellent care of the house and are happy and feel blessed not to be in a dump. Likewise Section 8, starting in Jan 2019 now pays rent based on the fair market rent for the area by zip code, in th 2 that I have on the program they do pay more than I would have expected to get as market rent. There are other properties that I have that the particular zip code the houses are in pays lower then what I can and do get for a rental so I just don't put those properties on the program.

In our area, you can look up your property by zip code and bedroom and see what they will pay, I will also say that one of my houses they do pay even more then what is listed on the FMR, not sure why but I'll take it. I do see the website gives to option to select state and then county but I once posted the link on another thread here and it didn't work for whatever area that investor was in but here in Chicagoland area I know it works.

Mark

  https://www.huduser.gov/portal/datasets/fmr/fmrs/FY2019_code/select_geography_sa.odnhttps://www.huduser.gov/portal/datasets/fmr/fmrs/FY2019_code/select_geography_sa.odn

I'd recommend talking to your real estate attorney on this matter. As stated, you can't discriminate section 8 income in some areas. Even if you are not part of the program, if the tenant otherwise qualifies, you may be obliged to apply for and even make flagged repairs for section 8 readiness. 

@Mark Faustrum thanks for the link to the HUD FMR. It looks like the guaranteed portion would be $950/mo. Since I am asking $1200/mo a Section 8 tenant would have to chip in the remaining $250/mo.

@Matthew Olszak your explanation on how to calculate income for qualification purposes is really helpful. In this example, since the tenant portion of rent would be $250/mo you are saying that they only have to make $750/mo to meet my 3x income requirement correct?

Originally posted by @Jeshua Patrick :

@Mark Faustrum thanks for the link to the HUD FMR. It looks like the guaranteed portion would be $950/mo. Since I am asking $1200/mo a Section 8 tenant would have to chip in the remaining $250/mo.

@Matthew Olszak your explanation on how to calculate income for qualification purposes is really helpful. In this example, since the tenant portion of rent would be $250/mo you are saying that they only have to make $750/mo to meet my 3x income requirement correct?

 2.5-3x income. They will still need a background check done though, the screening doesn't stop at income verification. That will shake out a lot of applicants but you need to sift through the numbers and figure out why their score was low. If they have serious crimes or evictions, then obviously you can use your own judgement there.

I have been a section 8 landlord for decades. We signed the contracts in December of 1993 and rented our first ever rental Section 8 on Jan 1st, 1994. There are NO REGRETS as far as accepting Section 8 goes. If there was any problem it was me being a newbie.

Most of our Section 8 tenants stayed over 10 years. The ones that didn't we non renewed because they were not following the rules. One of my Section 8 Tenants has been with me 22 years.

What I have leared from Section 8 is that their income level is NOTHING to depend on. What matters is your due dilligence in checking out where they are coming from.

Check back three landlords or 10 years. If one landlord shows for 10 years CHECK OUT THE LANDLORD.

Key phrases to listen for.

"She wasn't the cleanest." = Expect a roach infested Pig Sty. See my article about "Annie the Cockroach Queen" on the Illinois REIA web site blog.

"Almost always on time with the rent." = They still owe me money.

"Her boyfiend was really nice". = He is not on the lease and lives there anyway.

"I am sorry we don't discuss current or prior residents". = I am not getting sued over this.

Section 8 residents are just like every other resident. There are great ones, most are decent and there always a couple of rotten apples.

Always be on the look out for non declared family members who are getting out of prison soon. Pretty sure you cannot ask this question. However, your application should ask for all children to contact in case of an emergency. Social Media and state incarceration websites will do the rest. The problem occurs when the relative is realeased from the care of the state.  The move in and the Section 8 contract goes bye bye. No Felons allowed. You will be paying for an eviction since Section 8 stops paying and they have no place to go. 

So I reccomend renting Section 8 but these are my low end properties. Steel doors and tile floors valued at under $50,000. Make they clean, indestructible and low maintenance and you will be sitting in the cat bird's seat.

Oh by the way 22 years at 650 per month average = $171,600 in rent before expenses!  Not bad for a home we paid $7,000 for and spent $23,000 rehabbing. in 1997. Also she has been a model tenant. We have replaced the water heater, refrigerator and the bathroom vanity. I literally love commercial grade floor tile on a concrete slab.

Good Luck and Good Investing!

Originally posted by @Jeshua Patrick :

I am converting a Townhome I own and lived in for the last 2 years into a rental. I have had several potential tenants ask if I accepted Section 8. I have told them that I am not set up to do so yet; however, I am considering looking into it. I have one major concern though. If I accept Section 8 tenants would I have to lower my income standards for non-Section 8 applicants in order to maintain compliance with Fair Housing Standards?  

You don’t have to change your requirements.   It is based on their portion of the rent. So if you rent it for 900 a month and they have to pay 1/3 of it.  So they would only have to meet your income requirement based on the 300 a month they are responsible for   The government  pays the other 600.   So if you require 3 times the income they only need to make 900 a month.

Account Closed - Just a slight clarification.  SEC 8 requires the tenant spend 30% (in some rare instances 40%) of their income on housing, which is rent PLUS utilities. 

My income requirement for SEC 8 is that the tenant have at least 1 times the rent in income that is counted by SEC 8 at the time we put the RFTA in.  If they are “between jobs” for any reason, I don’t accept them.  Whatever income they have reported at the time you turn in the RFTA will affect your rent amount for an entire year.