Section 8 Tenants Are Great for Landlords

Real estate investors have a love/hate relationship with Section 8 housing, the largest rental assistance program for low-income renters. Section 8 tenants receive housing vouchers, which help afford rental costs—and despite the myths, these tenants are fantastic.

The program is managed by the U.S. Department of Housing and Urban Development (HUD), as well as hundreds of regional public housing authorities (PHAs) across the country, who administer the program at the local level.

Busting Section 8 Myths

You’ve heard them. We’ve all heard them. Stereotypes about Section 8 tenants abound. Among the most common warnings:

They won’t care for your property (i.e., they will trash your house)
They’re unstable and won’t pay their portion of the rent
They’ll attract drama and crime.

Sure, there will be cases where these hold true (especially if you don’t screen well—more on this later). But most of the time, myths are just that—myths.

They won’t care for your property

Bad tenants come in all shapes, sizes, income groups, and professions. Wealthy people and college students trash homes. Don’t kid yourself: Just because somebody has a good job or makes a decent income doesn’t mean they will take care of your house.

One strategy is purposefully not buying in any places commonly perceived as “Section 8 neighborhoods”—i.e. high crime and blighted areas. And the voucher holders you want to attract prefer not to live there, either.

Proper screening is essential for Section 8 success. Consider asking your applicants—all your applicants, not just Section 8—if you can visit their current residence. That will tell you all you need to know about how well they maintain their home. And their kids: The majority of voucher participants are families with children. We know that some kids, especially younger ones, can be a bit harder on the property. But that is not always the case, especially if the parents train them appropriately.

Either way, considering Section 8 renters stay for five, 10, 15, or even 20 years, a little extra wear and tear doesn’t necessarily hurt my bottom line because I deal with so little turnover.

They’re unstable and won’t pay their rent

It’s tempting to think someone on government assistance is likely to move around a lot. This isn’t necessarily true. Often, a housing voucher is a tenant’s golden ticket to a neighborhood free from drugs, gangs, and other negative influences. A gateway to a better quality of life for the entire family. So when they move into one of my houses, they usually stay for many, many years.

If you rent a property to a couple making a combined $200,000 per year income—common in larger, more expensive cities—here’s what’s likely to happen: They’ll stay for one, maybe two, or possibly three years, then leave to buy their own house.

For buy and hold investors, turnover and vacancy is by far the biggest expense—especially if not carefully managed and controlled. When Section 8 tenants stay for a very long time, your turnover and vacancy costs are minimized. Cash flow goes directly to your bottom line.

Plus, they’re motivated to stay on top of rent. Not doing so might mean that golden-ticket voucher is taken away—spoiling their chance to keep their family in a safe, more prosperous neighborhood.

They attract drama and crime

Most people—especially parents—living in underserved, low-income neighborhoods are no different than you or me. They want to put their kids in good schools and live near desirable amenities, such as shops, public transportation, parks and rec centers, just like anyone else.

A large number of Section 8 tenants have absolutely no criminal history or onerous red flags, like evictions, complaints, or housing violations. They just want their family to live in a quality house in a nice area and to rent from a good landlord. This is not rocket science.

HUD Promises On-time Payments

With Section 8 tenants, landlords receive my rents—either in full or a large percentage—via HUD or local PHAs. Payments come on time every single month via direct deposit into your business checking account.

HUD doesn’t give excuses about late rent. The money is there. In fact, their housing assistance payments have been consistently funded in full for decades and hold billions of dollars in reserves.

However, there are important differences between HUD’s two main fair housing programs.

Housing choice vouchers

Housing choice vouchers allow a tenant to live anywhere that accepts vouchers. This makes up the bulk of the Section 8 program. Only households with a monthly income less than 50 percent of the median income for the area in which they reside can apply for the program.

HUD sets and maintains median income values for each region of the country, and the data can be accessed on HUD’s Office of Policy Development and Research website. Vouchers can be used for multiple-unit housing, single-family homes, or townhouses. The median family incomes for each region are used to calculate HUD’s 50 percent income limits for the Section 8 housing choice voucher program.

Project-based vouchers

Receiving a housing choice voucher can take between three and six years in some areas. While an applicant waits, they can utilize a project-based voucher (PBV). A PBV is only good for a specific rental unit. Landlords can apply with state or municipal governments to be eligible for the PBV program.

With a project-based voucher, the tenant will pay 30 percent of their household’s gross monthly income, and the public housing authority will cover the rest. (Do not confuse project-based vouchers with “housing projects” and the stigma associated with the phrase. PBVs can be as simple as a duplex!)

Landlords Receive Protection from Tenants’ Financial Hardships

If a tenant goes on an unpaid leave of absence from work—say, due to maternity or health issues—HUD covers the payment while they recover. That’s a great for tenants and landlords. After all, you would likely need to evict non-Section 8 tenants dealing with similar circumstances due to non-payment of rent. You’d be faced with a short-term vacancy.

HUD protects your near-term cash-flow—and the housing assistance payments help tenants through a tough time without disrupting their living arrangements.

Section 8 Rents Can Be Higher

Not only are rent payments guaranteed and stable despite a tenant’s hardship, but HUD is sometimes the best in town when it comes to rental rates. Section 8 tenants pay a fixed percentage of their income, and the government or Section 8 program pays the difference. That means that tenants can apply to more expensive properties than they might otherwise. For example, you may be able to get $1,200 to $1,600 per month in lower-income neighborhoods where the purchase prices are less than $75,000.

In higher-end areas, you would pay at least twice as much for the property—but still get the same amount in rent. Yes, nicer areas appreciate more quickly, but appreciation is icing on the cake anyway.

HUD and local public housing authorities calculate a fair market rent (FMR) for each geographic area of the United States, which determines the maximum rent a landlord can charge to the Section 8 tenant. FMRs include the cost of basic utilities like heating/air and electric, regardless of whether the tenant or the landlord pays those expenses. FMRs also take into account family size and rental unit size.

Here’s an example: If a Section 8 tenant makes $2,000 per month, they will only pay about 40 percent of their income for rent—about $800 in this case. If this person rents a house that costs $1,000, then the government will pay $200, and if they rent a house that costs $10,000, the government will pay $9,200. The tenant pays $800 in both scenarios.

You can look up the FMRs in your area through HUD’s documentation system.

Section 8 Marketing Is Free or Low-Cost

On GoSection8.com, you can list properties and review tenant profiles. For a small fee, property owners can create a premium listing.

Yes, some low-income applicants don’t have internet access. However, HUD also provides paper listings in the local PHA offices for those without internet access.

Long Section 8 Waiting Lists = Short Vacancies

Perhaps not every city has a mile-long list of Section 8 participants with vouchers seeking housing, but many do. There are also famously long waiting lists of low-income families seeking to become eligible for a housing voucher.

Filling a vacancy is a pretty quick process once your property is inspected and approved for the program by HUD Real Estate Assessment Center (REAC) employees.

With careful screening, landlord references, and respect for your tenants—as well as pride in your property—you will vastly reduce the probability of experiencing your own Section 8 horror story.

Keep in mind that public housing authority social workers also conduct thorough screening of all waiting list candidates. And it doesn’t stop there—if you have an issue with a tenant or family member, you have extra recourse outside of eviction. In addition, you can contact the social workers directly to mediate any issues with a tenant who’s stepping outside of the lease agreement.

Would you consider renting to Section 8 tenants? Why or why not?

Weigh in with a comment!

Note By BiggerPockets: These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.