Section 8
Real Estate Investor · Glendale, AZ · Member since 2014 · 17 posts · 3 votes
Hello so an interesting subject always in my head is should I rent to section 8 or some other form of government housing? I know its a guaranteed rental income, but it is worth the hoops you have to jump through can someone educate me on this?
Hi all,
While I'm a newbie to BP and pursuing my own investments, please allow me to comment on Section 8 and related programs as someone who's day job involves housing veterans in the VA version of Section 8, HUDVASH, and formerly was to house homeless folks at a local shelter who had just received Section 8 vouchers.
I can certainly vouch for the general notion that Section 8 renters, and low income renters in general, require a bit of a different approach to management than your average middle or high income renters. They are, as a whole, tougher on rentals, tend to move more frequently, and generally lack the social grace we expect in fellow people. This DEFINITELY does not mean that, in the right circumstances, you can't still make a great cashflow on your rentals catering to the low income or subsidized renter niche. Podcast #79 talks about this, the challenges, and the benefits. As with any rental, you do need to be educated about your market. Section 8, and subsidies in general, is a different market than than the middle class renters the majority of rental advice is designed for.
Now the landlords I work with on a daily basis have generally devoted a major portion of, or their entire portfolio to, rentals that fit under the Fair Market Rent (FMR) rates with an aim to capture that niche. They've adopted many of the same strategies to make their cashflow work that are advocated in the Section 8 Bible (the portions I've read at least) and BP Podcast #79, basically outfitting their rentals with the aim of simple and durable. They advertise their rentals at the local PHA, get plenty of referrals from current tenants, and have been willing to network with local community agencies that provide assistance, financial and otherwise, to people likely to have vouchers (read: services for poor people). They charge a high to maximum allowable deposit, either screen stringently or basically don't screen at all, and have very low vacancy rates.
This strategy seems to work best where A) the FMR is high enough for you to have good cashflow B) you have a rental where someone actually wants to live (ie not a War Zone) and C) the market is tight enough where your rentals are in demand (ie there aren't an abundance of nicer looking units under the FMR that will accept Section 8). THIS IS NOT ALL MARKETS. FMRs are calculated using a complicated rolling 3 year calculation of rents in an area buy HUD, so places where rents have risen rapidly (San Francisco, for instance) is not someplace to use this strategy, because FMR isn't close to what you could get in the market for rent.
Now on to addressing @Gail K. 's issues. I always hesitate to counter individual examples of anything as single examples aren't rules, but I feel a lot of excellent investors and landlords run into the same issues, simply because the system of Section 8 isn't easy to understand though it sounds like it should be. Please don't see this as a personal criticism, Gail, but just an illustration of what I see as some common misconceptions.
#1 Excellent, most tenants, including Section 8 tenants, are normal renters who pay rent on time.
#2 Section 8 tenants fall into 3 categories: The Working Poor, The Fixed Income Poor, and The No-Income folks. In broad generalities, those who have steady low income jobs or quiet folks on retirement or disability seem to be the most attractive, consistent, and best tenants. Other than some potentially poor decisions in the family planning dept., it sounds like these are pretty good tenants thus far.
#3 A good relationship with your local inspector(s) is key. Be at the rental for EVERY initial inspection, get to know him or her, show that you are proactive in maintaining your units, and you will generally be given some leeway. Perhaps you forgot to swap out a 9V in the smoke detector after the last moveout, or perhaps that pesky drain pan went missing. If the inspector knows you and trusts you they will often let things slide with a promise that you'll be right back with that battery or they'll offer to swing back by in an hour or two to check that you found a drain pan and pass you. They don't want to have to come back to re-inspect, as protocol dictates that he/she notify you in writing of the repairs necessary (which must be mailed if you're not present), schedule a re-inspection (which could be a week or two down the road) and then have to drive to your place to do said inspection for 2 minutes. The best landlords I work with have earned the local inspector's cell #, as have I, which understandably is a great way to cut through red tape. Like any relationship though, it takes time and good will.
Now, as for the yearly re-inspections, I would use those as an opportunity to lay eyes on the unit yourself a week or two prior. I know its time and hassle to walk through your own units while rented, but for renters of any income level, its a good idea. You'll notice the cat that the rich lady moved in, or that the middle income techies fresh out of college haven't cleaned their shower in months and its starting to stain the tile, or that your low income folks have an extra family member or two staying over that aren't on the lease. In all of those situations, you now have the ability to give notice to those tenants that they need to correct their behavior or get out, because you were proactive. At that point, you can also educate your Section 8 tenant on exactly what needs to happen before they get inspected. Letter of the law states that the tenant have the carpets cleaned, the house clean, and that either the landlord or tenant be present. You can decide for yourself ahead of time whether the little repairs that become toss ups or responsibility (like that broken handle) are worth your trouble to keep the tenant, or are left totally up to them. You can also educate them that if they do not take care of their responsibilities and lose their voucher, you will move to terminate their rental agreement, per the laws of wherever you are. Remember, if Section 8 is confusing for you, the savvy investor, its usually pure Greek to the folks with the vouchers. There are exceptions, but usually people that have their vouchers terminated had no clue about what could happen to them if they did/didn't do X. They simply haven't been educated to know better. I'm guessing your stay-at-home mom either didn't get a letter about the re-inspection date (PHAs are generally poor at sending out all the required notices), or didn't have any concept that they would lose their voucher if she missed the appt.
#4 This is where being knowledgeable about the program is key. The FMR for an area is a maximum allowable amount of rent and basic utilities that the PHA will subsidize a tenant for. There are all sorts of reasons why your rental doesn't rent closer to the full FMR rate. Your rental could be located in an area of the county where the average rental rate is lower. If the PHA determines that your rent is $200 higher than everyone else on your block, they likely will reject your tenant's request to rent, even if your rent is well under the FMR. That FMR also includes the PHA's determination of what average utility costs are. If you include no utilities in your rent, the amount you may charge for rent will be lower than if you include all utilities. It is really up to you as a landlord to decide whether the calculated utility rates for your area are advantageous to you to include in your rent (water, sewer and sometimes garbage often are) or aren't (power and gas usually are not). Your tenant's income actually affects your maximum allowable rent, despite what you may have heard. Without going into painful detail, a person making $1000 a month will be approved to rent your unit at a higher rate than someone making $500 a month, due to how PHA's are required to calculate the subsidy based on the non-included utilities. Finally, as a landlord, I would hound the HUD website every January and February to make sure I knew the new FMRs for the new year. Usually, they go up if rents in your area are increasing, thus allowing you to potentially raise the rents for your tenants. If, by chance, they go down and place your tenants over their allowable limits, HUD WILL NEVER TELL YOU TO LOWER THE RENT OR RESCIND THE VOUCHER. They will simply expect the tenant to cover the new difference in subsidy and rent. This will affect how much you can charge new tenants, however. Bottom line, have a firm grasp on the math that will go into your tenant's rent before you start, and not just expect to achieve the full FMR with each rental.
#5 The PHA will never lower their payments to landlords due to budget cuts, with one exception. They will cease to issue as many vouchers, lay off staff, stop allowing exceptions to the FMR for tenants with special needs, etc. but the rules governing payments and their calculation are in stone. The one exception is that if a PHA issues 1 Bedroom rate vouchers to 1 person households, they may elect at some point to move those vouchers to studio rate vouchers (0 bedroom rate), which could serious impact the rate that new tenants could rent at, but again would not change the total amount of rent collected by you for tenants currently under a rental agreement. In theory, a gov't shutdown could cause problems as well, but I didn't hear of a single PHA missing rent payments during the most recent (and longest) one.
Whew! I hope I've been somewhat informative, as subsidized rentals require a good knowledge base to execute well, but in the right market, can be a conveyor belt of good tenants and great cash flow.
I stay away from section 8 tenants. In my experience people who aren't paying out of their own pocket for something don't take the best care of it. On top of that now you have to deal with a govt agency. I know someone who actually rents exclusively to section 8 tenants and has it built into his business model but he is obviously doing things a different way.
I'm in the same position being so new to this. There are a lot of people doing well with Section 8 tenants. Even though I am very new and have no tenants, my thinking is its not worth it (to me). There is something I keep running into about the "entitlement mentality" of Sections 8 tenants and I would rather just have nice place with a different quality of tenants that will treat it well.
It also seems as if there are quite a few hoops to jump through to get the higher than market guaranteed rents, but of course if you are asking this question, you have an idea about Section 8. Please don't get me wrong, they are more than likely just people doing the best they know how. But, with my limited knowledge, I plan to stay away from them. I have heard of a book called the Section 8 Bible that may be a good reference for you on this subject.
And to agree with@Chris Vacek , people normally don't respect anything they don't have to pay for. Exactly the same reason you will see plenty of hot dogs on the ground when they are free, but nothing but hot dog wrappers when they cost a few bucks.
Good luck in what ever you do!
Even though I am very new and have no tenants, my thinking is its not worth it (to me). There is something I keep running into about the "entitlement mentality" of Sections 8 tenants.
I'd love to hear more about this "entitlement mentality" of Section 8 tenants lol.
Is the bigger question whether you should have low income rentals, or whether to accept Section 8? Even if you reject Section 8, if you are in low income, you will get applicants and tenants who don't take care of things and who do not get their income stream from a traditional job (and avoiding those situations is discriminatory). There are many programs out there that pay the rent for those in need but do not have an inspection process like Section 8 does. We focus on that niche. I see the programs as another hammer or tool to help the landlord; another resource to help you resolve issues. Ironically, the agencies can be our slower payers, but we keep faith that the check will come during the grace period.
Even though I am very new and have no tenants, my thinking is its not worth it (to me). There is something I keep running into about the "entitlement mentality" of Sections 8 tenants.
I'd love to hear more about this "entitlement mentality" of Section 8 tenants lol.
It's nothing more than something I read or watched online when considering renting to Section 8 tenants. Since I have a voucher that is worth more than what you would normally rent for, if there is the smallest problem - I need you to fix it quick.
I have no tenants and the moment so my opinion on the subject is worth about the same.
Besides my own rentals, run handyman business and repair lots of rentals. Of those some "were" section 8. The tenants seemed to have more repair requests and more damage occured in them. Now it may be that many were single parents and were tending to an avg of 3 kids so more issues came to light, but know the tenants seemed to care less about the property and demanded repairs or would work the system against the landlord. Well, long story short, owner would lose payments because the condition of the units deteriorated to the point they failed inspections and each time repairs were made and a reinspection took place more repairs were needed, so came to a point the properties were let go... Heard about many that cater to section 8 and do well, but have also seen and heard many horrible stories. Side note, have had possible tenants ask if I take section 8, usually say I have not gone through the process to have my homes inspected for the program to which about half try to school me in how to get on the gravy train as a landlord. Red flag, if they know the system that well then they may try to work the system against me... No thanks!
The bottom line here is section 8 obviously does not automatically mean bad tenants. It really has a lot to do with your area and your business model. I know for a fact there are many around here making good money renting exclusively to section 8. They are familiar with the system and know the in's and out's well enough to be confident in that market.
That being said there are areas here in NY that through a mixture of bad lawmaking and poor financial planning have created a situation where a good portion of the population relies heavily on social programs. This leads to certain individuals learning how to "game" the system and running into one of these characters is a real fear for landlords.
As with anything a strong screening process and due diligence on the part of your lawyer can usually keep you safe but for someone inexperienced in the inner workings of Sect 8 it presents a real challange.
We have one Section 8 house. Tenants initially were not on this program but received their voucher shortly after moving in and asked us to accept this program. We did and they've been there for the past six years. Our experience:
1. They have faithfully paid their share of the rent every month.
2. This is an older couple; the father is still employed in maintenance through the school system. Their children appear fertile and pop out grandkids like a PEZ dispenser; many of whom are dropped off to be raised by grandma and grandpa.
3. Each time we pick up the rent we ask if there are any problems with the house. We are told no. The most recent yearly inspections have shown differently. Initially the inspector appeared to be someone nearing retirement; would come in, ask how things were, took the tenants word and left. The new one is a royal pain in a low spot. Last year the unit failed because there were no drip pans under the stove. The year because the handle on the storm door was broken on the bottom and the bathtub had mildew that the tenants failed to clean. Guess who had to address these "repairs". Not the tenant. Us. After doing so, the unit again failed because the tenants were not home for the final inspection. When we asked why they weren't home for the final inspection (mom is a stay at home mom) they just gave us the deer in the headlights look.
4. Forget what you might read up about Fair Market Rent on Section 8 reimbursement. Ask your local housing authority what they would actually reimburse based on number of bedrooms. FMR in my county (by HUD's own determination) for a 3 bedroom is $993. Our program pays $675 for the same number of bedrooms. After five years we "managed" to increase this all of $25 to $700 a month. Last year some programs across the country reduced the amount to landlords.
If one wishes to participate in this program, choose a family where at least someone is working. Avoid the possum women as much as possible (possum women are those who date someone and end up immediately pregnant by them, carrying a number of children around like possums carry their babies hanging off their...anatomy). Avoid those whose ENTIRE rent is paid by the housing authority; these tenants have little vested in the upkeep of the place. Understand that you may never really know how many people are living in your rental unit. Keep in mind that sometimes those who are poor will attempt to save EVERYTHING and thus issues with hoarding may become a problem. Realize that the housing authority may, in times of budget cuts, decrease the amount of rent they pay and it's tough noogies for you. Understand you may get a reasonable inspector or one whose shoes are too tight and who is going to go by the book on everything and who will simply drive you insane failing you for unbelievable stupid things.
Then decide if all of this is worth it.
Gail
Hi all,
While I'm a newbie to BP and pursuing my own investments, please allow me to comment on Section 8 and related programs as someone who's day job involves housing veterans in the VA version of Section 8, HUDVASH, and formerly was to house homeless folks at a local shelter who had just received Section 8 vouchers.
I can certainly vouch for the general notion that Section 8 renters, and low income renters in general, require a bit of a different approach to management than your average middle or high income renters. They are, as a whole, tougher on rentals, tend to move more frequently, and generally lack the social grace we expect in fellow people. This DEFINITELY does not mean that, in the right circumstances, you can't still make a great cashflow on your rentals catering to the low income or subsidized renter niche. Podcast #79 talks about this, the challenges, and the benefits. As with any rental, you do need to be educated about your market. Section 8, and subsidies in general, is a different market than than the middle class renters the majority of rental advice is designed for.
Now the landlords I work with on a daily basis have generally devoted a major portion of, or their entire portfolio to, rentals that fit under the Fair Market Rent (FMR) rates with an aim to capture that niche. They've adopted many of the same strategies to make their cashflow work that are advocated in the Section 8 Bible (the portions I've read at least) and BP Podcast #79, basically outfitting their rentals with the aim of simple and durable. They advertise their rentals at the local PHA, get plenty of referrals from current tenants, and have been willing to network with local community agencies that provide assistance, financial and otherwise, to people likely to have vouchers (read: services for poor people). They charge a high to maximum allowable deposit, either screen stringently or basically don't screen at all, and have very low vacancy rates.
This strategy seems to work best where A) the FMR is high enough for you to have good cashflow B) you have a rental where someone actually wants to live (ie not a War Zone) and C) the market is tight enough where your rentals are in demand (ie there aren't an abundance of nicer looking units under the FMR that will accept Section 8). THIS IS NOT ALL MARKETS. FMRs are calculated using a complicated rolling 3 year calculation of rents in an area buy HUD, so places where rents have risen rapidly (San Francisco, for instance) is not someplace to use this strategy, because FMR isn't close to what you could get in the market for rent.
Now on to addressing @Gail K. 's issues. I always hesitate to counter individual examples of anything as single examples aren't rules, but I feel a lot of excellent investors and landlords run into the same issues, simply because the system of Section 8 isn't easy to understand though it sounds like it should be. Please don't see this as a personal criticism, Gail, but just an illustration of what I see as some common misconceptions.
#1 Excellent, most tenants, including Section 8 tenants, are normal renters who pay rent on time.
#2 Section 8 tenants fall into 3 categories: The Working Poor, The Fixed Income Poor, and The No-Income folks. In broad generalities, those who have steady low income jobs or quiet folks on retirement or disability seem to be the most attractive, consistent, and best tenants. Other than some potentially poor decisions in the family planning dept., it sounds like these are pretty good tenants thus far.
#3 A good relationship with your local inspector(s) is key. Be at the rental for EVERY initial inspection, get to know him or her, show that you are proactive in maintaining your units, and you will generally be given some leeway. Perhaps you forgot to swap out a 9V in the smoke detector after the last moveout, or perhaps that pesky drain pan went missing. If the inspector knows you and trusts you they will often let things slide with a promise that you'll be right back with that battery or they'll offer to swing back by in an hour or two to check that you found a drain pan and pass you. They don't want to have to come back to re-inspect, as protocol dictates that he/she notify you in writing of the repairs necessary (which must be mailed if you're not present), schedule a re-inspection (which could be a week or two down the road) and then have to drive to your place to do said inspection for 2 minutes. The best landlords I work with have earned the local inspector's cell #, as have I, which understandably is a great way to cut through red tape. Like any relationship though, it takes time and good will.
Now, as for the yearly re-inspections, I would use those as an opportunity to lay eyes on the unit yourself a week or two prior. I know its time and hassle to walk through your own units while rented, but for renters of any income level, its a good idea. You'll notice the cat that the rich lady moved in, or that the middle income techies fresh out of college haven't cleaned their shower in months and its starting to stain the tile, or that your low income folks have an extra family member or two staying over that aren't on the lease. In all of those situations, you now have the ability to give notice to those tenants that they need to correct their behavior or get out, because you were proactive. At that point, you can also educate your Section 8 tenant on exactly what needs to happen before they get inspected. Letter of the law states that the tenant have the carpets cleaned, the house clean, and that either the landlord or tenant be present. You can decide for yourself ahead of time whether the little repairs that become toss ups or responsibility (like that broken handle) are worth your trouble to keep the tenant, or are left totally up to them. You can also educate them that if they do not take care of their responsibilities and lose their voucher, you will move to terminate their rental agreement, per the laws of wherever you are. Remember, if Section 8 is confusing for you, the savvy investor, its usually pure Greek to the folks with the vouchers. There are exceptions, but usually people that have their vouchers terminated had no clue about what could happen to them if they did/didn't do X. They simply haven't been educated to know better. I'm guessing your stay-at-home mom either didn't get a letter about the re-inspection date (PHAs are generally poor at sending out all the required notices), or didn't have any concept that they would lose their voucher if she missed the appt.
#4 This is where being knowledgeable about the program is key. The FMR for an area is a maximum allowable amount of rent and basic utilities that the PHA will subsidize a tenant for. There are all sorts of reasons why your rental doesn't rent closer to the full FMR rate. Your rental could be located in an area of the county where the average rental rate is lower. If the PHA determines that your rent is $200 higher than everyone else on your block, they likely will reject your tenant's request to rent, even if your rent is well under the FMR. That FMR also includes the PHA's determination of what average utility costs are. If you include no utilities in your rent, the amount you may charge for rent will be lower than if you include all utilities. It is really up to you as a landlord to decide whether the calculated utility rates for your area are advantageous to you to include in your rent (water, sewer and sometimes garbage often are) or aren't (power and gas usually are not). Your tenant's income actually affects your maximum allowable rent, despite what you may have heard. Without going into painful detail, a person making $1000 a month will be approved to rent your unit at a higher rate than someone making $500 a month, due to how PHA's are required to calculate the subsidy based on the non-included utilities. Finally, as a landlord, I would hound the HUD website every January and February to make sure I knew the new FMRs for the new year. Usually, they go up if rents in your area are increasing, thus allowing you to potentially raise the rents for your tenants. If, by chance, they go down and place your tenants over their allowable limits, HUD WILL NEVER TELL YOU TO LOWER THE RENT OR RESCIND THE VOUCHER. They will simply expect the tenant to cover the new difference in subsidy and rent. This will affect how much you can charge new tenants, however. Bottom line, have a firm grasp on the math that will go into your tenant's rent before you start, and not just expect to achieve the full FMR with each rental.
#5 The PHA will never lower their payments to landlords due to budget cuts, with one exception. They will cease to issue as many vouchers, lay off staff, stop allowing exceptions to the FMR for tenants with special needs, etc. but the rules governing payments and their calculation are in stone. The one exception is that if a PHA issues 1 Bedroom rate vouchers to 1 person households, they may elect at some point to move those vouchers to studio rate vouchers (0 bedroom rate), which could serious impact the rate that new tenants could rent at, but again would not change the total amount of rent collected by you for tenants currently under a rental agreement. In theory, a gov't shutdown could cause problems as well, but I didn't hear of a single PHA missing rent payments during the most recent (and longest) one.
Whew! I hope I've been somewhat informative, as subsidized rentals require a good knowledge base to execute well, but in the right market, can be a conveyor belt of good tenants and great cash flow.
Thanks for the break down, this is very helpful for someone like me thinking of getting into section 8 renting universe.
Sam
Disclaimer: We have about 100 S-8 lease-years(*) of Section 8 experience, but with only 2 Housing Authorities in NC.
There are a few misconceptions posted here. Each HA is different.
Regarding "If, by chance, they go down and place your tenants over their allowable limits, HUD WILL NEVER TELL YOU TO LOWER THE RENT OR RESCIND THE VOUCHER. They will simply expect the tenant to cover the new difference in subsidy and rent." and "#5 The PHA will never lower their payments to landlords due to budget cuts..." are incorrect. Each HA can implement their own budget, and some choose landlord un-friendly methods. See also http://www.rhaonline.com/SEQUESTRTION-REDUCINGHAPC... for one example of HAP contract rent reduction. Over about 12 months, 100% of our S-8 properties went through this process. We have reduced our S-8 participation by over 80% based on Contract Rent. With only 4 rentals in the program, S-8 revenue is not material to our business.
My only real point is that you need to read, understand, and follow every detail in the HAP Contract and Voucher Program handbook and thoroughly screen your tenants. If you don't, you get what you get.
Also knowing your local HA quirks helps. Some HAs have an economic incentive to fail inspections because some now charge for re-inspections. For how a local HA implement their programs, it's not a one-size fits all game.
See also: http://www.biggerpockets.com/forums/52/topics/162713-section-8-tenant-is-breaking-lease-and-housing-is-helping-her
(*) lease-year - 1 property leased for 12 months with a S-8 payment under a HAP contract.
Not trying to argue with you, but our case wasn't the "sole instance." You can believe what you want. There was a post about is on BP somewhere. I remember 8 HAs with a similar implementation from some HUD analysis, but I don't have time to track it down. Here's another HA that talks about "Payment Standards reduced... "
http://www.slha.org/wp-content/uploads/2014/05/Own...
I'm not trying to piss in your Cheerios but contract rent amounts can go down and do... and each HA has to determine what is best for their locality. I would bet that rent pressure will continue as HAs deal with staff reductions vs. voucher count/type reductions vs. Contract rent concessions.
Another misconception on this thread is the assumption Section 8 is guaranteed income. There are no guarantees in this business. Get put in abatement for any number of reasons, and many beyond the landlord's control, and you'll find how "guaranteed" this income is. The tenant can also be kicked off the program which also eliminates the payments. Each landlord needs to decide on his or her own whether S8 works in their business model.
I wish we could distinguish between those who ACTUALLY HAVE section 8 experience from those who have POLITICAL BIAS that they want to share. This man asked a reasonable and practical question and he gets dogma as a response. Not fair, folks! We newbies need real practical answers. If I want political bias I'll ask my Grandfather.
Not trying to argue with you, but our case wasn't the "sole instance." You can believe what you want. There was a post about is on BP somewhere. I remember 8 HAs with a similar implementation from some HUD analysis, but I don't have time to track it down. Here's another HA that talks about "Payment Standards reduced... "
http://www.slha.org/wp-content/uploads/2014/05/Own...
I'm not trying to piss in your Cheerios but contract rent amounts can go down and do... and each HA has to determine what is best for their locality. I would bet that rent pressure will continue as HAs deal with staff reductions vs. voucher count/type reductions vs. Contract rent concessions.
Payment standards were reduced for new lease ups, if you read your linked newsletter closely. Existing contracts were honored as written. As I stated before, Raleigh is the only one I'm aware of that has reduced payments to landlords with current contracts, and I have looked extensively for others as its very relevant to my day job. Adjusting the payment standards happens on an at least yearly basis, and if market rents go down or the government no longer chooses to fund the program/chooses not to pass a budget, then yes, obviously rents can go down, but the first risk is universal no matter who you rent to, and the others are seriously problematic even if you don't have anyone on a voucher, provided funding is cut, reduced, not passed, for something related to your tenants. There is risk in every form of investment.
As for staff reductions, voucher reductions, etc. section 8 was funded at a noticeably higher level this year than years previous. While your particular PHA is, I agree, a pretty sorry one, the program as a whole isn't at all in a place of doom and gloom in most places.
I wish we could distinguish between those who ACTUALLY HAVE section 8 experience from those who have POLITICAL BIAS that they want to share. This man asked a reasonable and practical question and he gets dogma as a response. Not fair, folks! We newbies need real practical answers. If I want political bias I'll ask my Grandfather.
I don't see anyone trying to impose political views here. @Chris Martin appears to have significant experience in two markets, and he is making you aware of the potential issues. I happen to be in the same market and I have extensively researched the topic - I'd love to be in section 8, but for me, and in this market, it doesn't make sense. Yes, perhaps the Raleigh authorities are particularly challenging to work with, but I think it minimally serves as an example for what CAN (and in fact sometimes DOES) happen with section 8. If your market is different or you choose to accept/ignore those concerns, then more power to you. You should obviously forge ahead and play.
for the investors of ours who choose to rent, we recommend section 8 in our city. It has worked well overall over the years. I would reckon that your experience with section 8 with vary by city and the clientele?
section 8 is one of the longest running social programs in our country... and it is running out of money.
my mentor always used to tell me... "do you really want to be in the same position as your tenant... the only difference is your name is on the deed but you are just as reliant on the government as the tenant you rent to"
i dont know about you Phillip but i would rather rent to someone who HAS to get out of bed each day and go to work just like i do.
section 8 like any social program was created with good intentions and has become totally screwed up along the way.
good luck,
sky-mikesell
section 8 is one of the longest running social programs in our country... and it is running out of money.
my mentor always used to tell me... "do you really want to be in the same position as your tenant... the only difference is your name is on the deed but you are just as reliant on the government as the tenant you rent to"
i dont know about you Phillip but i would rather rent to someone who HAS to get out of bed each day and go to work just like i do.
section 8 like any social program was created with good intentions and has become totally screwed up along the way.
good luck,
sky-mikesell
Not to pick on you Sky, but this year's funding levels for Section 8 were higher than last fiscal year. That seems to indicate the opposite of what you're asserting. Your opinions on the program are your opinions, but funding levels aren't.
Funding for Section 8 has remained relatively constant as a proportion of HUD funding over the last 15-20 years, obviously there is always a risk that that will not continue, as there is a risk the gov't will no longer back mortgages, etc. The most accurate pictorial representation I can find is here: http://www.cbpp.org/cms/?fa=view&id=3544
As mentioned above, put your politics to the side when deciding on an investment strategy. Here is my summary of section 8 from experience:
- loss of income during inspection process
- additional monies spent due to section 8 repairs that cash tenant would not require
- range of experience with section 8 tenants similar to cash tenants that rent houses in the same types of neighborhoods
- section 8 only pays a portion of rent, and ironically, pays less for those that have income compared against those that do not work at all, ie, no income means 100% section 8 payment, so all vouchers are not created equally
- have to satisfy 2 different entities, both section 8 and the tenant, and risk that either does not make payment (section 8 does stop payments for various reasons)
Currently, I rent my lesser desirable properties section 8 as I am able to attract great cash tenants for the better ones.
Be careful @Phillip Gonzales
I'm not a lawyer, but I can read. In my state (Connecticut) I understand it to be illegal to discriminate against a tenant based upon their legal source of income. So, if someone otherwise meets rental qualifications here they can't be turned down simply on the basis of the fact they're Section 8 recipients because it's legally obtained income.
You may want to have a conversation with a Real Estate lawyer in your home state prior to declining a tenant on the basis that they're a Section 8 recipient.
Here is a link to a short but relevant article: Connecticut landlord pays $9,000 for violating state law against source of income discrimination.
All that said, I've heard horror stories too. I can sympathize with your hesitance.
As a landlord who has worked with S8 for over 20 years in two counties I have no major issues. As has been stated, know your office and their particular temperament toward operating the program. Our office, inspectors and staff are professional and courteous. We have been receiving flyers in our payment envelopes the past few months asking us to advertise available units as they have additional funding and new people looking for space. Something we haven't seen in several years! I advertised with them and just moved a mom and adult son in this afternoon for top-of-market rent: in the middle of the winter! (I get $890 for a 2 bed, 1 bth. We pay w/s/g).
I have never seen a reduction in current clientele. But I have had to reduce rent to get someone moved in and then turned around and give (60 day) notice of an increase and had it honored. I usually keep our S8 to about 30%, utilizing them when other tenants are 'off season'.
Like you, I pay a LOT in taxes. This is one way to get some back!!
I have Section 8 and Non Section 8 tenants. Some of the points made by others are valid and some are overblown. I will worry about Section 8 ending when it ends. When it does end, I will rent to Non Section 8 tenants (don't buy into fear mongering). I think people make the gap between Section 8 tenants and your regular working class Non Section 8 tenant seem so large but it is not in my opinion. In my opinion if you screen hard and seriously regardless of status, do what is right lawfully, ethically, stay in line with your local market, etc, and manage like a real business, you should be fine. It is true that Section 8 processing and paperwork can be drawn out in the beginning but I have never had any issue or negative dealings with Section 8 after that even when they inspect the property annually. Their payment just shows up every month. In my opinion, that is a result of good property management. Funny thing is, people jump through more hoops for government agencies that take money from them, lol.
Section 8 tenants are not aliens or people seeking lesser treatment, lol. Most do not want to be in the hood or an undesirable area just like you and I don't. Is their profile slightly different and has to be looked at and accessed a little different? Yes it does, but every low income person is not a bum, dead beat, or has some desire to just tear up sh*t for no reason, lol. We live in a society that loves to place labels.