Section 8... take it or leave it?

4 Replies

@Celeste Nadal there is a recent thread on the pros and cons of Section 8 (S8) that will give you some good insight on how to proceed and what to look for as well but here are a couple things to consider:

Screen S8 tenants like any other tenant. 

Consider in most cases a 50-90% of rent will be paid on time every month by the program. Each participant gets a different level of assistance.

The things to look out for: 

Ensure the housing authority that manages the program holds the tenant responsible for their end of the bargain i.e. tenant has to make repairs to damage they caused, and that they pay their portion of the rent on time. 

In our area if a tenant doesn't pay their end we can evict although a portion of the rent was paid. If a tenant on S8 is evicted they lose their benefit which is a huge help to ensure compliance. 

Take a look at the thread it's beneficial.

https://www.biggerpockets.com/forums/52/topics/823505-section-8-housing-great-idea-or-dangerous-in-the-current-market 

Oh boy- these types of investments are so tempting, especially for new investors. They're not all bad, but people need to go in to them with their eyes wide open. Good property management is absolutely paramount for section 8 targeted rentals. 

Pros: Low barrier to entry, high cash flow. 

Cons: low or no appreciation, expensive turn overs, generally not in neighborhoods where you are going to want to do a casual drive by inspection.

I get calls from investors constantly who jumped in to one or ten of these properties and they need help. They've had great cash flow, but it's been eaten up by frequent turnover repairs and costs. Once they spend a few years breaking even after their expenses, they want out, but they property is worth the same or less than they paid and demand isn't terribly high. 

It's so important that you invest in an area that appreciates, that's growing in some way. Somewhere that people are living because they want to, not because they HAVE to. I am not saying you have to spend a million dollars on a rental, but those $50k rentals are cheap for a reason. This board is teeming with people who consider appreciation a "bonus," but ask anyone who's been at this for more than 10 years and they will confirm that appreciation and equity is what creates freedom, wealth and passivity in the long run, cash flow is just a tool to get you there.

Please forgive my tangent- best of luck!

@Celeste Nadal check the state & local muninciple statutes as some no longer allow income discrimination - meaning you MUST accept S8 income.

Overall, in our experience, you want to screen them like all other tenants.

The biggest challenges:

1) Rent is paid on time, but they trash the home
2) S8 provider is SLOOOOWWWW to do anything.
3) S8 provider won't hold tenants accountable for lease violations: damages, extra occupants, pets, etc.

You may be surprised at how entitled some S8 tenants are.