Section 8 rentals in Low-income areas. Is it worth it?

[Leroy K. Williams]

There are many people who stand on the mountain top and warn against investing in the core neighborhoods of the inner-city. But why?? A basic Zillow search shows a listing for a 3 bedroom 2 bath brick home on Detroit's westside for $45,000. From the photos it looks like a $30k renovation. based on what I know about the area it will ARV at roughly $115-$120k. So it is a candidate for those using the BRRRR strategy. The rent for a Section 8 tenant will be roughly $1450.00 so this will definitely cashflow. There are plenty of such deals here but investors are often reluctant. Why?

Here are the typical caveats:

1. Shady contractors and Property Managers will run off or take your money and fail to deliver the home with a Section 8 tenant.

Yes, this can be an issue, however there is nothing specifically shady about inner city real estate professionals that isn't equally true everywhere. I think a simple conversation will weed out a good portion of those who can't or won't deliver.  

2. Low income tenants will destroy your property 

As a Property Manager currently managing many Section 8 rentals I can confirm that there are tenants who will be rough on the properties they live in, that said this can be mitigated by using materials during the renovation which are durable like certain LVT, cabinets, and paint finishes.  

3. Homes are often vandalized or broken into during and after renovation:  

There are proven ways around this. We have very few break-ins using methods that any experienced management company will know

4. The inner City is not landlord friendly- Not necessarily true.  Most forward thinking City halls in the USA have come to understand the importance of attractijng and retaining investors who want to add value to the neighborhoods. Detroit is no exception. There are those who come into the core neighborhoods with the thinking that they can exploit Section 8 and other programs aimed at fighting homelessness and for those sorts there will be obstacles. plenty of them. For those who truly want to come into the communities and improve the neighborhood  they find that urban governments are rolling out the red carpet.

I would love to know what others think on this topic?  

[Drew Sygit]

Real problem is not matter how hard you try to properly set their expectations, owners freak out over anything negative!

Tenant breaks something - why'd the PMC let that happen?

Tenant didn't pay their portion of the rent -  why can't PMC go over to property and threaten tenant to get the rent?

Tenant breaks lease early - how did the PMC allow that?

Tenant gets a dog or moves in a boyfriend - why was that allowed?

And on and on and on...