All Forum Posts by: Shane Moore

@Shane Moore

Great question about Section 8 tenants and their "character."

In my previous career as a Director of Operations (now an Investomen Realtor), overseeing about 9,000 single-family homes based out of Atlanta, I saw the good, the bad, and the ugly when it came to Section 8. I'll share some of the hard KPI data we tracked, as well as a few softer, more anecdotal observations:

Hard Facts:

1. Higher Turnover Costs, Longer Tenancy: Property turns (make-ready costs) tend to be higher after a Section 8 tenant moves out. However, the upside is that their tenancy is usually longer, often because it's one of their few stable housing options. A tenant who stays 10 years can be far more profitable than three market-rate tenants who each stay three years and require three separate costly turns.

2. Higher Cash Flow, Lower Appreciation: Generally, properties with Section 8 tenants will have higher gross incomes, cap rates, and cash flow. The trade-off is often lower property appreciation, due to the demographic and economic trends in lower-income areas.

3. Vacancy Risk on Turnover: When a Section 8 tenant moves out, there isn't always a "line out the door" of new voucher holders ready to move in. Vacancy losses can sometimes be longer compared to traditional rentals.

4. Payment Delays: Depending on the housing authority, voucher payments can be delayed, sometimes significantly. For example, Fulton County (GA) could take months to process initial payments, eventually paying several months at once after a tenant moved in. Make sure you factor that cash flow timing into your projections.

Softer Observations:

1. Relationship Matters: Building a good relationship with your Section 8 tenants can go a long way. Many of these tenants have faced tough circumstances and simply want to be treated fairly and with dignity, not just as another "unit number." Tenants who feel respected tend to take better care of the property and stay longer.

It sounds like you're already on the right track by building relationships and establishing a pipeline before vacancies arise. Being proactive is critical, especially because waiting on the government side of the process can take time.

I'd also recommend checking with local housing authorities. I’ve had good experiences working with the Marietta Housing Authority , very professional and helpful. There may be a similar resource in Houston County that can assist you.

Best of luck, and feel free to reach out if you’d like to discuss further. Happy to help if I can!

Mark Faulkner

 Absolutely! I think its super useful to share the books that have had the biggest impacts or "ah ha" moments among each other! Hope you grab it sooner than later! 

@Shane Moore Many of our Section 8 tenants have been single mothers with 2 different gender kids, which requires them to have a 3 br unit. Many have full time or part time jobs. One was a low paid state worker, another was a LPN, while another worked at a day care. 3 people in a 3 br unit is the least number of tenants possible and therefore least wear and tear. Most of our Section 8 tenants get partial rent payment and only few have gotten near full rent payments. We have had section 8 tenants who were single elderly tenants, and we have also rented 4 and 5 bedroom section 8 tenants. They 4 br house was rented to a family with 2 parents and 8 sons. They could not find many places that would rent to a family with 8 boys. They ended up staying 12 years, and were very organized and good tenants. The 5 br house was rented to a 3 generational family, who came from another housing program for homeless, and the housing authority was housing them in a hotel. They stayed 8 years. The housing authority does yearly inspections, and sometimes spot inspections if there are some problems. One of our tenants had monthly inspections due to poor "housekeeping" issues; until they corrected the problem. Inspection items are pretty standard, no peeling paint, no cracked glass, railings on stairs (inside and outside including basements and attics), heat and electric to every room, and a range. The HUD approved rents for the entire country is on the HUD website.

@Shane Moore That is tremendous! That bank must be VERY comfortable with real estate lending. Is it based in ATL? Are you buying the properties in an LLC or in your personal name?

@Shane Moore That's what I figured (being a pastor), but I didn't want to assume. Is your local bank doing DSCR loans at 1.25x with a 70% LTV?

I have done either section 8 or low income the majority of my run at this. I see a lot of valuable information in this thread. However, I do caution you there are several in BP who have no idea what they are talking about in regard to this and give you some of the most azzz backwards advice on this. Please be selective on who you get this info from, and your best bet is to pay close attention to those who have made this work for years successfully. Number one, you have to know and understand the environment you will be investing in. Two, it's great to have some understanding of the culture. Three, you emphatically have to know how to screen. You can't just put anyone there because they have a voucher. Four, treat them with decency and respect, and build some kind of mutually, grounded relationship. It's a few more, but these are some fundamentals that go a very long way. 

@Shane Moore How do you finance your properties? Local banks/credit unions that see the CRA (Community Reinvestment Act) type of work you're doing, or perhaps a CDFI that lends to mission oriented organizations like yours?

Also, what is an Astor?

@Shane Moore It differs by area but I think many go into Section 8 because when renting to a low income tenant they feel safer with a S8 tenant than with a working tenant paying all their own rent. The perception and it may be true is that the tenant paying all their own rent is one crisis shy of failing to pay. I take who is qualified and I think you are still doing a service for people.  I have blue collar workers who I know were grateful for the chance to get a unit because they had less rental history and while they qualify aren't the highest earning or credit score.  They are not S8 but construction and local business employees. I have had some S8 applicants but they just take too long and that is one of the issues with S8, if you have lead time to fill a unit it is fine but if you don't it can take too long. Also they won't inspect until you have a tenant so for a fresh rehab ok but an older building they could have issues.  Make sure your local inspectors are reasonable.

Section 8 investments offer pros like guaranteed rent payments from the government, high demand in low-income areas, and long-term tenants, but cons include strict property inspections, potential for higher maintenance due to tenant wear, and bureaucratic delays in approvals or payments.

@Shane Moore I'm not sure why you can't do both at the same time. On a separate note, are you personally connected/invested in the community for a specific reason? Most of my clients look to give back to communities through their real estate development skills and generally have 1 of 3 things involved, 1) They grew up in the community, 2) They still go to church in the area, and 3) They have family members that still live in the area. Do any of these resonate with you?