Property with Rent paid by the government?

Question

Hello,

I am researching to purchase my first real estate investment property. An agent suggested a property in the 70-80k$ range, currently occupied by tenants. Apparently, the renters are of low-income earners and the rent is being paid by the government, which continued to come through the entire lockdown period. Is that a good investment? The agent calculated a 13% ROI and said such properties are the best to look for as the govt will keep paying, and no need of any improvements as that will not increase rent. I would appreciate thoughts on this

Corey Hawkinson · Answer

@Nitish Gupta I agree with Dan. Research the program. It might be Section 8. It could be a variety of other programs. I use a program specific to my state that I’m very happy with, although success depends upon knowing the details of the program.

Dan Schwartz · Answer

@Nitish Gupta learn about the government program, and if it's a) long-term and sustainable and b) you can operate within its rules, go for it.  We had a 4-plex in a low income neighborhood and sold to someone who told me he was going to put all of the tenants on a government program that would pay him double what I was collecting.  A few years later, he sold the 4-plex for about 3 times what he paid us for it.  I don't know what the program is, but it was successful for him!

Nitish Gupta · Answer

I see. That's very interesting. I am surprised I haven't come across that information before. I need to figure out the drawbacks of such an investment

Nitish Gupta · Answer

Thanks for the suggestion. I will ask the agent more details about the program. He made it sound like a very smart deal.

Poem Turner · Answer

This is probably what is commonly known as "Section 8" or the "Housing Choice Voucher". And yes, the government pays the bulk of the rent while the tenant pays a (usually very minor) portion. And yes, the local government program that operates the program pays no matter what. There are certain criteria to get a house to qualify but in general they amount to "don't be a slum lord"; windows that open, electrical outlets that operate, appliances that operate (dishwashers are optional depending on your state/region), etc. I have houses in this program and work with clients who do as well; technically a client convinced me to go this route in the first place. The rent is usually much higher than it would be in the private market because they are comparing based on size, not age and finishes.

Property with Rent paid by the government?

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