Should I Accept Section 8 Tenants — Or Run the Other Way?

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If you’re a property investor and you’re looking to get into Section 8 properties, there are plenty of gurus online who will happily tell you to RUN! Section 8 tenants are too unreliable, too desperate, too disrespectful, too, well, poor to be good tenants.

In the most respectful way possible, we’d like to tell those gurus to take a short walk over a long cliff. One of the Metro Detroit cities we do business in, the City of Detroit itself, is one of the most desperate urban areas of America, and we almost have to accept Section 8 there to find tenants. After dealing with Section 8 for almost 20 years, we can attest that it’s not nearly as bad as the gurus make it out to be.

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The Bad News

Section 8 requires a lot of work — specifically, you have to deal with Section 8 applicants who never seem to understand the program, even after being on it for years. Also, housing counselors who are overworked and underpaid (and almost absurdly hard to get ahold of) must be constantly nudged to move their process forward. Then there’s annual property inspections and, oh yes, even more paperwork to get the rent payments coming in.

The Upside

If you can handle the paperwork and have a good followup reminder system, the extra time and effort can pay off, with government payments coming in like clockwork. If you screen the applicants correctly, you can also avoid some of the pitfalls associated with Section 8. Let’s go over some of those pitfalls we listed a bit more closely, so you have a better understanding of them.

rent to section 8

How Much Will Section 8 Cover?

The problems start when they call on your ad for a 3-bedroom you’re asking $1,000 a month for. You need to ask how much their voucher is for — and understand they really don’t know or care what it is! They’ll tell you with complete confidence that their voucher will cover the rent amount when it really doesn’t. YOU have to understand the Section 8 program so YOU can ask the right questions!

Related: 8 Myths About Section 8, Corrected: Here’s the Profitable Truth

For the record, the (most important) “right question” is, “What is the HUD-determined Fair Market Rent (FMR) for a unit with ‘X’ bedrooms in my area?” The answers are available here — if the applicant wants to pay more than the FMR, they’ll have to make up the difference, and either way, they’ll pay 30% of their monthly income as rent, with Section 8 paying the difference between that amount and the FMR.

But! There’s a hitch. Because FMR isn’t intended to cover “rent,” it’s intended to cover “total costs of housing (TCH),” which includes electricity, gas, water, sewer, garbage, and recycling costs. So if the FMR for a 2-bedroom is, say, $911 (which it is in the Metro Detroit area for 2017), and the tenant has $281 in utility bills and is paying $750 in actual rent, the TCH for them comes to $1,031. But because Section 8 only covers 70% of the TCH up to $911, the most it can contribute is $638, meaning that regardless of their income, the tenant must pay the remaining $393. Of course, because your tenant is virtually guaranteed not to understand that, it’s up to you to either explain it to them up front or risk having the tenant vanish on you when they fail to pay (because failure to pay means they’re booted off of Section 8).

Section 8 Applicants

Telling everyone that they need to be better at tenant screening is probably one of our favorite pastimes. But if you’re going Section 8, you have to take that warning as though your life depends on it. Master your tenant screening process, make no exceptions, and dot every single “i” and “j” and “ö” you come across.

Here’s the simple logic: If everyone is complaining that Section 8 tenants are low-quality, be picky! Choose only the tenants who meet the “strict version” of whatever your standing requirements are and delve deep into every one of them. If you avoid the “bad” tenants, you avoid most of what people’s Section 8 nightmare stories are all about — so screen like you’ve never screened before!

good-real-estate-note-deal

Related: How to Profit Big & Help Those in Need by Renting to Section 8 Tenants

Certification

You have to get certified by the HUD, and you have to re-certify every year. That means inspections, paperwork, and doggedness in the face of mindless bureaucracy. We’re not going to lie: It can suck. Filling out the forms and waiting for them to call you back is the easy part — the hard part is dealing with the Housing Quality Standards (HQS) inspections that happen every year. There’s a pleasant little booklet called “A Good Place to Live!” put out by the HUD that explains everything you need to do or have to pass the inspection, but it’s 20 pages long.

Here’s the short version:

  • All windows must be present and undamaged; ground floor windows must have working locks.
  • All exterior doors must have deadbolts and locks.
  • The floor, walls, and ceilings must not have any serious defects such as would indicate structural problems or present a danger to the tenants.
  • The ceiling and roof must not leak.
  • The paint on the interior walls must not be chipped or peeling.
  • A fixed water basin, flushing toilet, and shower are necessary in every unit.
  • No water leaks are permitted.
  • The kitchen and bathroom must have hot and cold running water and a hard-wired light.
  • The bathroom must have a window or fan that exhausts outside.
  • All electrical outlets must have cover plates (and function!).
  • Every unit must have independent heat.
  • Every floor of every unit must have a smoke detector.
  • All stairs and railings must be secure.
  • All common areas must be maintained and free of dangers to the tenants.

Most of this is pretty obvious, but the inspectors are very meticulous — a 1/4″ crack in a window you never knew existed (like one of those tiny ones at the top of a basement wall that happens to be hiding behind an armoire), and you’re kaput. Then you have to reschedule, pay for a new inspection, and get the problem fixed.

What’s more, these inspections happen whether the property has a tenant in it or not, and the inspectors don’t particularly care if a particular problem was caused by the tenant or not — you still have to deal with it, and fast. But seriously, guys — that list basically amounts to “you can only rent out units that are safe to live in.” If you can’t handle that, you shouldn’t be a landlord in the first place.

Benefits

So, is Section 8 worth it? If you’re discerning, patient, able to follow rules to the T, and willing to put in a little extra time elbow greasing the red tape until it gleams, absolutely! The benefits boil down to four items:

  • Section 8 isn’t easy to qualify for — so (to a degree), anyone offering you a voucher has been pre-screened (but that’s no excuse to skip your own screening — ever!).
  • There is never a shortage of Section 8 applicants, so vacancies are limited.
  • You can advertise on SocialServe.com and at your local Public Housing Authority to fill vacancies even faster.
  • And the big momma of them all: Rent comes in on time, every month, like clockwork. The government pays part of it (sometimes all of it), and the tenant is well aware that any violation of their lease — including a late payment — will result in a loss of their Section 8 status. Now, this obviously doesn’t keep emergencies from happening occasionally, but by and large, the reliability and timeliness of Section 8 rental income is the big draw.

Investors: Do YOU accept Section 8 applicants? Why or why not?

Let me know your experiences with a comment!

About Author

Drew Sygit

Drew is the manager of Royal Rose Property Management, a fairly high-tech solution for Detroit Metro area property owners & investors.

37 Comments

  1. Dawn Anastasi

    I had one inspection fail on a S8 tenant because the register cover in the bathroom was dented. Not missing, not broken, just dented. The reasoning was that it could restrict air flow. So yeah, they can be nit-picky. The new register cover was $10 but it was like c’mon give me a break.

    • Drew Sygit

      @DAWN ANASTASI: yea we’ve seen some of them do the same. Just wait to the frustration of a tenant denting that vent cover again and you have to address it again, when tenant should be held responsible.

      Overall, S8 is a good program, but just like anything else there are the occasional challenges!

  2. Jeff Rabinowitz

    If the housing counselors are now “almost absurdly hard to get ahold of ” the service has improved dramatically. When I last accepted Section 8 (over a decade ago) the Detroit workers were virtually impossible to get ahold of. Not that it mattered much because if one did manage to reach a worker they rarely knew their own rules nor had even the slightest desire to help resolve any issues.

    You didn’t mention my favorite downside. The voucher recipient would be subject to periodic reviews of their income. If the review revealed that the recipient received an hourly raise of as little as 10 cents an hour their voucher could be reduced by 100’s of dollars monthly. The landlord was required to sign an annual lease and they were held to every line. If the income review came only two months into the lease the voucher would be reduced immediately. The landlord still had to honor the lease even though they may not have considered the applicant with the new, much smaller voucher. What happened if the tenant (predictably) had trouble coming up with their new required payment? If they had a voucher from the DHC (Detroit Housing Commission)–not much. The worker, if one could reach them about any issue, would rarely be helpful.

    When one accepts Section 8 one enters into a very unequal partnership with Government. The landlord is likely to lose every dispute and will have little recourse short of suing the housing commission or the State. I will never participate in the program again.

    • sharon r.

      very true. I had the same experience. my sec8 tenant got a rais from his veteran
      program he was in and sec8 just stopped paying his voucher,
      he tried to appeal but they said no. i ended up getting paid for two months
      before I knew about it. (he didn’t tell me right away and for some reason
      it “didn’t come in the mail” obviously I waited a while till he paid it.
      but what if he couldn’t?
      they don’t really give you a guarantee for a full year, so if the tenant’s situation
      is changed, like Jeff wrote here, even for the better, if can actually be worse for the both of you. stupid system.

    • Drew Sygit

      @JEFF RABINOWITZ: a very good point about the lease and income changes. You forgot to leave out the part that a landlord’s only recourse is to evict the tenant if they don’t pay and then S8 takes their legal position that they didn’t sign the lease so aren’t responsible for anything.

  3. Paul M.

    One can’t just decide not to take section 8, without risking a ‘fair housing” lawsuit. The only legal way to get out of it is to make the condition and features of the apt good enough so market rent prices program participants out, even with subsidy.

  4. I rent to section 8 tenants all the time. Your right the money comes in like clock work. Sometimes the paperwork is mountainous but well worth it. For you LAZY landlords that visit your properties when there’s a problem this isn’t for you. For the true business owner that protects their assets making sure a $10 part doesn’t become a $1,000 fix its perfect. Your business doesn’t run it self why do you think your real estate holding will ? When you rent to section 8 folk’s you have to teach and educate them as to what you expect and are willing to allow. Last but not least. We will not except section 8 tenants that do not contribute to their families or society . I refuse to pay taxes so someone can sit on my front porch smoke pot and drink beer all day.
    I leave you with one last tip. To truly understand the new tenant your getting. Go visit the current apartment that will show you a lot about someone.

  5. Tim Sabo

    Decent article, but I would like to add the following:
    Violations of the lease DOES NOT result in a loss of Section 8 status for the tenant UNLESS you, the landlord, evict the tenant through the judicial process (local magistrate). The Section 8 office will tell you that the lease is between you and the tenant, they only pay the rent: if there is a lease violation it is your responsibility as the landlord to act to correct the issue or evict the tenant, but eviction must go through the judicial process in order for the tenant to be disqualified from the Section 8 program (for up to five years).
    Additionally, inspections can be a royal pain. Doors and windows must operate as designed, with security latches and all functioning properly. Inside doors must latch also, even if they are only for a closet.
    For electrical issues, recent national code must be followed. Any electrical outlet within 6 feet of a water source must be a GFCI. (And you must have an outlet in the bathroom). If you have un-grounded three-prong outlets, they won’t pass either. Our local inspector encourages us to change the three-prong un-grounded receptacles to the old two-prong style, which I find ridiculous, because then the tenant has to use the three-to-two adapters.
    Smoke detectors must be in every bedroom and common areas, as well as carbon monoxide detectors, altogether adding great costs to your rental. And each floor requires one fire extinguisher now.
    Plumbing code must be followed also; no lead lines, no drips, handles must shut off water and toilets must not run or leak. Tubs can not have mold or mildew growth.
    Let’s not forget outside. Shingles can not be loose, curling or even in poor condition (subjective). No peeling paint outside either: if you are renting one side of a duplex via Section 8, the roof and paint on BOTH sides must meet this standard.
    Section 8 tenants need to be managed by a qualified landlord just like non-Section 8 tenants: being in a government-sponsored program won’t get people to behave if they want to act like heathens. We have had great Section 8 tenants and not-so-great Section 8 tenants. We have had great non-Section 8 tenants and not-so-great non-Section 8 tenants. Finding and keeping good tenants is the primary role of the qualified landlord; failing to perform this function correctly will lead to disaster regardless who is paying the rent.

  6. Tim Sabo

    One more thing: your unit must pass inspection prior to the tenant moving in. Sometimes this can cost you a bit of coin and some work to do these things, but you do it. Section 8 also requires you prove that all taxes and municipal utilities are working and paid up BEFORE the tenant moves in. You figure, wow that’s strict, but I’ll have some protection, right? WRONG!
    At the end of the year, you decide not to rent to the tenant again, and you inform Section 8. Are they going to verify that the tenant has paid up all the utilities prior to giving them a new voucher for the next place? No! Is Section 8 going to inspect the property-the one you worked long and hard and spent money to meet their standards-prior to the tenant moving out and getting a voucher for the next place? NO!
    Section 8 places great requirements on the landlord at the outset (and periodically if the contract is re-newed) but never places this same burden on the tenant. They simply let the tenant move on and you get stuck with the unpaid water and sewer bills and their junk left in your unit.
    Be sure to take a lot of pictures before you rent and after the tenant moves out. Also, if the utilities aren’t paid in full each month, you may have to threaten to evict them to get them to pay their bills. Be sure the Section 8 tenant pays their utilities each month in full. The Section 8 office leaves you with ALL the responsibility, so don’t expect anything but a rent check from them.
    I will never understand how a government-run program can give a taxpayer-supported voucher to a tenant who left behind a mess of junk and unpaid utility bills for a landlord: to me, that is the number one reason landlords don’t want to participate in the program: in the end, they get screwed by the tenant AND Uncle Sam.

  7. Todd Krzeminski

    Thank you for this article. I’m looking into transitioning at least one of my rentals to Section 8 in the future. Lots of information I did not know (and some I did).

    Sound like Section 8 tenants may be preferable if/when the economy goes south since rents are covered by the government.

  8. Robert Gilstrap

    Let’s see; extra requirements, extra rigorous screening, extra inspections, extra maintenance, extra frustration, extra headache, extra paperwork, yep that sounds wonderful…
    Section 8 is only a good deal when you have no other options due to the location of your property or the demographic for a particular property. Section 8 means taking everything thats written into your lease and throwing that out the window since the HAP addendum controls and basically partnering with the US Government. Does any rational person think it’s a good idea to “partner” with HUD?

  9. David Repka

    As exclusive financial advisor to a family owned and operated investment firm we recently placed a $8.9 million loan secured by a portfolio of scattered site houses and apartments rented via the Section 8 program.

    Sponsor signed a non-recourse loan and walked from the closing table with close to $5 million cash out to buy more stuff. Loan featured a fixed rate for 10 years with payments based on a 30 year amortization schedule.

    Section 8 program has been a wealth creation machine for this family.
    David

  10. Sylvia B.

    A friend of mine is the manager of the low income apartments in our small town. She recently had the yearly HUD inspection and had some interesting things to tell me.

    The inspector cited her for the following:
    1. Non-working refrigerator – It was a mini fridge, the personal property of the tenant, and stored in a closet.
    2. Broken glass – Again, the personal property of the tenant, a picture hanging on the wall with a crack in the glass.
    3. Poor seals on refrigerator doors – No objective test, the inspector just didn’t think the door “felt right” when opened.
    4. Use of caulk – (This one blew me away) Apparently they are not allowing the use of caulk or spray foam to seal cracks. No clue what one is supposed to use instead.

    Several of the tenants were quite annoyed because the inspector opened every closet and cabinet door and drawer, and rummaged through their stuff, looking for who knows what.

    My response – “And people ask us why we don’t accept HUD!”

    Accept Section 8 tenants or run the other way? My advice is, run fast, run far!

    • Drew Sygit

      @SYLVIA B.: sounds like a rogue inspector to us. Did you try to escalate the issue? There may have also been a situation where that S8 office/inspector wanted to get rid of this specific tenant. They will never admit to this, but it happens.

  11. Brian Walsh

    Great article. We own a property management company in Greenville, S.C. and have attempted to work with Section 8 tenants several times. Each time we experienced similar results to the examples given in this article. In short, we will never try to work with Section 8 again. The “system” they have in place just does not work. We have found that we are able to rent our houses much quicker on our own.

  12. Karl B.

    Never dealt with Section 8 in any of our single families but am likely buying a 4-unit (my first multi). I agreed on a price a week ago with the seller and am waiting to hear back from his slow lawyer.

    Anyways, when I looked at the property with my dad (we did a drive-by and stopped) a woman on the first floor saw us outside and after I said I was a potential buyer she invited us inside to check out her unit.

    I later learned she’s Section 8 – she’s been there a few years. I’m told of the four units, only two qualify for Section 8. Some properties cater toward Section 8 and some don’t. The unit I saw was pretty small – nice, though. The former owner and his PM took good care of the place.

    I look forward to learning more about Section 8. Like every tenant class/group/whatever, I’m sure some are problematic and some are a joy to rent to.

    I’m not opposed to renting to Section 8 – as long as it’s not a major paperwork/inspector hassle. I will find out.

      • Karl B.

        The seller told me they caseworkers can be SUPER picky and nothing can be at all damaged.

        But the one Section 8 lady seems awesome and she’s been there for years and so I’m open to having another. Of the two units that qualify for Section 8 one is vacant and I will rent it to Section 8 or not – no matter as long as the prospective tenant passes the requirements.

        The other vacant unit is considered a studio and doesn’t qualify for Section 8. I feel like there’s a big Section 8 stigma on BP – the trick is finding high-quality tenants, Section 8 or not.

        You wrote a great article – super informative with lots of facts/info I didn’t know – and I hope to see more articles from you. Thank you!

  13. I recommend consulting with an attorney who knows the Housing Choice Voucher Program and its interaction with state and local laws. I have been on both sides–I have represented voucher-assisted tenants as well as the residential property management company (I am a housing lawyer). Important factors include but are not limited to the local housing authority’s responsiveness, how robust your applicant screening program is, how much time you want to commit to management, & understanding that when voucher-assisted tenants change or lose jobs or experience income changes, there can be volatility in payments to the landlord. Overall, I have seen the HCV program work for the educated and compliant landlord.

    • Drew Sygit

      @THERESA MORELLI: great input. A landlord has to be organized and have time to deal with S8 when a lease starts and then on annual renewals and lastly for tenant changes in status.

      If you don’t have the proper amount of time or organization, it may be best to avoid S8.

  14. Chinedu Michael Onuoha

    Thanks for this post. I was contemplating buying a section 8 unit recently passed inspection at Cleveland. However, I am not really on ground, so I think I’ll just pass. Unless I get an awesome PM..

    Quick question @DREW SYGIT: If I buy this property, can I just rent it out to anyone else…is it compulsory I rent to a Section 8 tenant. Am asking because am thinking since property just passed Section 8 inspection, it must be in great shape… and therefore probably a good deal in terms of property quality. I am relatively new to REI.

    • Drew Sygit

      @CHINEDU MICHAEL ONUOHA: We’re not aware of any Section 8 single-family homes that are limited to accepting Section 8 tenants, but check to confirm.

      Regarding the condition of the property, Section 8 inspections only look for specific issues, so you should not rely on a Section 8 inspection to replace your own pre-purchase inspection.

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