Did you know that there are grants that can help real estate investors with the acquisition of investment property?
Did you know there are programs that will pay above market rent for your investment property?
Sure you do… but there are so many misconception about using government funds, they may be deterring you from maximizing your investments.
There are numerous government sources to assist you in your real estate endeavors: to name a few, there’s the HOME Investment Partnership Program, local and federal block grants, and the Housing and Urban Development.
The governmental assistance program that is most well known is Section 8. Immediately when you think of Section 8 housing what comes to mind might be slums, ghettos, unemployment, substance abuse, and dysfunctional families. This may not be the perception of some, but many do believe this.
The association between the above descriptions and Section 8 is so strong that these images immediately come to mind when thinking of government assistance. I would like to inform you that the majority of the time, it is not the individuals on government assistance that diminish a community, but the investor, the property managers, and the slumlord.
This article is to inform investors about some of the commonly believed misconceptions about Section 8 housing that are causing you to lose thousands of dollars and diminish your returns.
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8 Common Misconceptions About Section 8, Corrected
1. All Section 8 Recipients Are Terrible Tenants
This is the biggest fallacy. Although there are many Section 8 recipients that are bad tenants, the majority of the tenants are cooperative with the rules given from the landlord. Section 8 tenants must abide by the lease set forth by the landlord, and if they are not abiding by the lease, there are two courses of action that can be taken versus just one in a traditional rental.
According to Section 8 rules and regulations, if a tenant is not adhering to the lease, you can contact the tenant’s Section 8 social worker. The worker will inform the tenant that if they do not abide by the lease, they can lose the section 8 voucher. Normally in this case, the tenant immediately complies with the lease. The loss of the voucher will result in them paying 100% of the rent versus the difference between the voucher amount and the rent. So this is a big plus because it minimizes the likelihood of evictions.
2. The Landlord Has to Accept Anyone
This is not the case; actually, there is another layer of protection similar to lease compliance. The tenants are heavily screened by the Section 8 workers prior to them being awarded the voucher; they cannot have an extensive criminal background or issues of substance abuse, and only the voucher recipient and those named on the voucher can have tenancy in the property. Once the recipient is awarded the voucher, they still can be screened by the landlord. If the individual does not meet your requirements, you do not have to rent the property to them.
3. Tenant Turnover is High
I have found this perception to be incorrect as well; there are only a few reasons tenants move — they purchase a home, they find something better or more affordable, a family member moves from the neighborhood, they need to downsize, or they have problems with the landlord. The majority of the time, these are the five reasons a tenant voluntarily moves. In most cases those awarded section 8 have kids, and kids have to go to school, and the kids make friends at school, so they become attached to the neighborhood. This limits the family’s ability to continuously move.
4. The Rent is Inconsistent
Investors love to talk money, and with Section 8 tenants, you can get a premium for your property. The biggest complaint everyone states about the government is the fiscal policies and how out of touch the bureaucrats are. You are exactly right; the government pays a premium for everything. So why not have them pay the premium for your rental?
In most cases Section 8 is willing to pay above the market rent depending on the area. For example I have a small 3-bed, 1-bath SFR, and the market rent is $850. Section 8 is willing to pay a minimum of $1150, and that increases my cap rate on my investment. Again, not only will there be a increase in rental payment, but there will be extra layers of protection per Section 8 policies.
5. It is Difficult to Get Your Property Approved
This may not be so in every city, but the process to get a property Section 8 approved is simple — the property must not have evidence of mold, heat or running water, and it must be in livable condition. Sounds simple enough, right?
There is a check done on the landlord to ensure that there is not a criminal history of theft, drugs, or abuse of any kind. This process is easy, and as long as your property meets county/city code, your home will qualify.
6. Section 8 Housing is Only in Low Income Neighborhoods
There was an article in Crain’s Chicago Business by Alby Gallun called “Poor Families Use ‘Supervouchers’ to Rent in City’s Priciest Buildings.” This article disproves that notion that Section 8 is only for blighted areas of your city. One individual in the article was paying $3,000 a month for a one-bedroom apartment at 500 N. Lake Shore Drive (yes, if you know Chicago, that’s not too far from the Gold Coast & Mag Mile). I’m pointing this out to say: not all families or rental units that are Section 8 approved have to be in the worst neighborhoods in America.
7. My Property Will Be Destroyed
Again, with the extra layer of protection, it helps if your tenant does damage to the property. In the event the tenant does damage to the property, you can notify the tenant’s worker, and Section 8 will pay for the damages, and the tenant has to reimburse the worker.
The tenant can lose the voucher if they destroy the property and do not pay. So this is a benefit to the landlord to ensure the property is maintained. This extra layer of protection limits the possibility of litigation and losses due to damages. As with any rental, you should conduct a walk through with the tenant and document any defects.
8. The Rent Will Not Be on Time
This happens to be one of the best benefits: not only do you receive higher than market rent, but your payment will come directly from those that administer the program. The rental payment will come on time and without fail.
These are the 8 misconceptions about dealing with Section 8 Tenants and the program. Although I have outlined the benefits, there are always downsides when dealing with people. I have been fortunate to have a wonderful experience with Section 8, but I have heard some of the horror stories as well. Remember, you are the landlord, and your tenants can only do what you allow.
Please feel free to chime in with your experiences dealing with government programs in your real estate investing career.
Leave me a comment below, and let’s discuss!