Section 8 Tenants for first deal? Yes or No?

Question

Hello Everyone,

I found what seems to be a great deal on a duplex with a 17% cap rate and seller is offering to provide section 8 tenants before closing.

Since this is my first time investing and first home purchase ever. Is dealing with section 8 something I should do? Anyone have any experience? Pros or Cons?

Henry Lazerow · Answer

Some things to factor in that the people selling sec 8 properties won't tell you.....

Sometimes sec 8 tenants don't leave on time. This makes it so you have to wait for them to leave to sign a new tenant in a lease = creates significant vacancy. With market rate tenants (in a good area) you market the units 2 months before a lease ends and typically have 0 gap days.

There will be lots of inspections. These little repairs can add up crazy high if you are using a property manager. Lots of stuff you would not have to pay for with market rate tenants.

Kenneth Garrett · Answer

@Angelica Lopez

Everything about tenants is screening.  You must screen your tenants.  As as section 8 it’s a mixed bag.  Some are fantastic and keep the unit in great condition while others are terrible.  I would not let the seller fill the units.  I know it sounds like a great deal because it will be cash flowing when you buy it.  What if they fill it with terrible tenants.  I would fill the units with new tenants myself.  Most properties I have bought with existing tenants were not of the highest quality.  Had to evict a few.  Small percentage were just fine.

Patti Robertson · Answer

If you search BP for SEC 8 you will find hundreds of thousands of posts.  The topic comes up ALOT.  My poor fingers got tired of typing the same thing over and over, so I put my tips and tricks in a blog post. Here’s a link if you want to check it out.

https://www.biggerpockets.com/blogs/9232/55313-intro-to-section-8---your-perceptions-vs-my-realities

Earline Caudle · Answer

@Angelica Lopez

Hi with over 20 experience in affordable housing. I would say Yes! But ensure your PM really screens your tenant! The upside is if they become unemployed or experience a loss in income you are still going to receive rent. The downside is you must have a good PM to manage what is going on with your asset!

Best wishes

Phillip Rogers · Answer

@Angelica Lopez

10+ years of SF investing and lots of experience with section 8 in the Atlanta market.

The best approach to evaluating this opportunity is to assume your tenant leaves a month after you close on the duplex. Whether this is probable with a section 8 tenant or not, viewing the transaction from this perspective makes you re-evaluate what you’re REALLY buying. Is the property in a condition to easily attract a open market tenant? What is the comparable rent rate if you go non-section 8 and do the numbers still work? How easily can you replace the section 8 tenant with another? Have you gone through owner training with the housing authority to quickly replace a section 8 tenant? Etc.....

The best thing you have going for you is you’re curious and not afraid to ask questions before jumping into a transaction. Good for you!!!

Happy to offer additional help or answer any specific questions.

Steve Morris · Answer

"section 8 sounds super attractive as far as cash flow goes"

Well, they're like any tenant and you still need to screen them.  However, the local H/A may put a limit on how much they'll allow for total rent (it's prob close to market since they want to place the voucher recipient in a place).

I'd also make sure, if accepted, your tenant gives you the contact of their case-worker.  In case the tenant goes sideways on you, their caseworker (be aware they're over-worked) can pull their voucher since there's 10* (maybe exaggerating) the demand as supply.

Bryan Noth · Answer

@Angelica Lopez not to mention section 8 tenants can lose their voucher for an extended period before they can reapply for benefits if they violate the program.  Such as breaking a lease.  Many can be great tenants because they protect that voucher.

Angelica Lopez · Answer

@Bryan Noth

@Steve Morris

Y’all are making me exciting about this on-time, every time deal. Lol

I talked to the listing agent about how screening works for these tenants (advice from @Kenneth Garrett) he said that the county I’m buying in is very good about screening and he personally has been a section 8 land for 20 yrs. Hoping he’s correct!

Bryan Noth · Answer

@Steve Morris and spot on about the housing authority checks, on time every time.

Bryan Noth · Answer

@Angelica Lopez anytime you inherit tenants there is cause for concern.  I have inherited section 8 tenants and placed some and have had generally good experiences overall.  Do read the lease, make sure they are not one sided stacked lease when you commit to honoring the lease terms.

Section 8 Tenants for first deal? Yes or No?

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