Section 8 - Pros & Cons

[Allen Moore]

I am thinking that providing section 8 housing may be a more affordable and recession proof way to get started in real estate for rental income. There is more inventory for single family homes than multi and I've done research on the allowable rent payments based on bedrooms. My local counties provide assistance to battered women, elderly, disabled and low income; its a great way to give back to the community and there's always a waiting list. You are subjected to regular section 8 inspections, but as a good landlord you'd want to keep your properties up to standard anyway. I'm still leery of investing in high crime areas, but there are decent blocks and streets. 

Does anyone have experience on section 8? What are your experiences and thoughts on this investment strategy?

[Jennifer Donley]

@Allen Moore -Hi - I'm surprised no one has responded.  People usually have very strong opinions about Section 8.

I only take Section 8 and have a portfolio of 27 doors.  I obviously really love the program.  I love it for the guaranteed rent, tenant stability, additional accountability with the housing authority and large demand for Section 8 housing without enough supply.

With strong screening, I'm able to find great tenants and Im not owed any rent.

Cons you will often hear is that the tenants are harder on your properties (doesnt have to be the case in my experience if you screen really well), the Housing Authority is a pain to deal with (this depends on a couple things - how well run your local PHA is and how good you are at handling process & details) and the extra inspections/red tape make the niche unprofitable (see what I said above about Housing Authorities).

Done right, I believe Section 8 is one of the most stable & profitable.  I especially think this is true if you're in C areas (and maybe D areas but I'm not in the those areas). But it's not for everyone.  

If you're thinking of going that route, there is a learning curve.  I answer a lot of uestions here on BP about Section 8 so check out my Forum responses if you want.  I suspect there will be a lot of answeres to questions you didn't know to ask yet!

Good luck.

[Allen Moore]

@Jennifer Donley thank you for your reply! It’s good to hear that your portfolio is mostly section 8 and you have not encountered major drawbacks.

I will surely check out that forum.

[Jay Hinrichs]

Originally posted by @Jennifer Donley:

@Allen Moore -Hi - I'm surprised no one has responded.  People usually have very strong opinions about Section 8.

I only take Section 8 and have a portfolio of 27 doors.  I obviously really love the program.  I love it for the guaranteed rent, tenant stability, additional accountability with the housing authority and large demand for Section 8 housing without enough supply.

With strong screening, I'm able to find great tenants and Im not owed any rent.

Cons you will often hear is that the tenants are harder on your properties (doesnt have to be the case in my experience if you screen really well), the Housing Authority is a pain to deal with (this depends on a couple things - how well run your local PHA is and how good you are at handling process & details) and the extra inspections/red tape make the niche unprofitable (see what I said above about Housing Authorities).

Done right, I believe Section 8 is one of the most stable & profitable.  I especially think this is true if you're in C areas (and maybe D areas but I'm not in the those areas). But it's not for everyone.  

If you're thinking of going that route, there is a learning curve.  I answer a lot of uestions here on BP about Section 8 so check out my Forum responses if you want.  I suspect there will be a lot of answeres to questions you didn't know to ask yet!

Good luck.

If your very choosy ( as long as the law allows you to be) Section 8 can be just fine.. their are risks though.

As we know 90% or more of section 8 is single mothers.. And you risk the boy friends and baby daddy's.. that's your risk.

And of course kids are rough on houses I don't care what environment they are raised in..  a toddler is going to grab a sharpie and have at your walls LOL..  I would not look at it as altruistic though you can donate time money and houses to charities  for that .. 

[Steve Morris]

Well, what drives you?  Unless you have a LURA recorded on the property you can take Sec 8 tenants at any time, your choice.  Matter of fact, in Portland, you cannot disqualify someone if they want to use a Sec 8 voucher as income.

In any case, you'll get close to market rent and need to do the inspections, so you, on average, won't make as much as a market-rate.  Add in, that you'll prob have to collect a co-pay from lower income people.

Not seeing a big advantage (nor dis-advantage) either way.

[James G.]

@Jennifer Donley

What screening requirements do you use? What would you say you had to change in your requirements to try and take the most precautions? I have 1 section 8 tenant who was there when I purchased the property and it's been a load off my mind knowing he's paying the mortgage while I search for another tenant. Definitely want to keep him.

[Jay Hinrichs]

Originally posted by @Steve Morris:

Well, what drives you?  Unless you have a LURA recorded on the property you can take Sec 8 tenants at any time, your choice.  Matter of fact, in Portland, you cannot disqualify someone if they want to use a Sec 8 voucher as income.

In any case, you'll get close to market rent and need to do the inspections, so you, on average, won't make as much as a market-rate.  Add in, that you'll prob have to collect a co-pay from lower income people.

Not seeing a big advantage (nor dis-advantage) either way.

Steve, back east in the mid west deep south and rust belt  Section 8 pays SUBSTANTIALLY higher than market rents.. I know its the opposite here and Section 8 is FAR larger in those markets than it is in the PDX market .. U can have apartment complex's that are 100% subsidized and those are free market properties NOT low income govie bond issue type deals like we see here.

[Allen Moore]

@Jay Hinrichs I can truly relate as I have a 2 year old toddler. Although single moms may be the majority, I plan on partnering with local organizations and non-profits that may market my rentals to individuals using their services. Even so, I cannot be discriminatory and will rely heavily on prescreening. I’m confident there are many section 8 candidates who’d make great tenants. Thanks again!

[Allen Moore]

@Steve Morris I’m motivated to provide safe and affordable housing to those in need. I also have a passion to help others. One of my target markets has many large single family - 4 units at lower price points and I think it’ll be a good entry for rental income. These are mostly C class areas where I am using the buy and hold strategy.

[Jennifer Donley]

Jay's not wrong.  Kids are hard on houses.  Hell, my kids are hard on my house.  And sometimes you do get additional significant others.  That's the case in any segment but I think we tend to find it more offensive in Section 8 bc the government's paying.

In any segment, I recommend checking social media and the like of all applicants.  If there's clearly someone they hang out with a lot, check their social too.  

I don't generally have problems with significant others. They may be living there but as long as the rent is paid, the house is taken care and the lease is followed, I don't worry about it.

To answer a few other items that came up - some of my rents are higher than market, some are even with market and a couple are lower.  In general, I think I get about 6% more in total rents than I would if I were renting to market tenants in my area.  I've learned where I can get higher than market rents and maximize my buying to take advantage of this.

I am not driven to do Section 8 to give back.  I do it because it makes business sense. It's an added benefit that it helps people but not a motivator to me.

@James G., I screen meticulously and would for market tenants too.  The only things I change are that I require a copy of their housing voucher (which tells me which agency they're with, how many bedrooms they're qualified for and if their voucher is still active) and I require only 1 months rent in income instead of 3.

The rest is the same - I call every landlord they've had for the last 5 years, I check their background, credit, etc.  I require a $1,000 security deposit, no exceptions and I let them know they will be paying all utilities, mowing the lawn, keeping up the landscaping and cleaning the gutter.  I ask if BY TEXT during the screening if they can handle of that (the money and the maintenance).

And last and most important, I do a home visit at their current residence.

This isn't everything - my screening checklist is nearly 4 pages long - but it's the big stuff.

[Ronan Donnelly]

Hi @Allen Moore, I'm my experience with renting SFH's in the Chicago suburbs, section 8 tenants have worked out way better for me than market rate tenants in terms of the duration of the tenancy, the rent level and the collections. Good luck!

[Ken Naim]

@Allen Moore In New York City, section 8 is awful, the tenants play the system masterfully and the courts are in bed with the city. I'd avoid at all costs in NYC. I've heard good stories in other cities/states so check locally for landlords with experience in this area.

[Josh Skyer]

@Allen Moore I really enjoy section 8 or as we call them in NYC programs.  I have props in Section 8 , vacation rental, cash rentals, and commercial.  I would say that the section 8 experience has been overall the most rewarding on a deeper level.  

Yes, above-market rents and guaranteed payments are super great BUT for me they are second to actually being able to help and make a positive impact for people in need.  It's desperate out there and in my experience, most landlords ( with nicer and higher end units) will not accept programs.  Being able to accept a family in a program into a nice, renovated, and well cared for unit is an incredible feeling.  

Happy to go deeper into any questions you may have.  Holler at me anytime.  Below are some quick tips. 

1. Screen them hard for your safety and for theirs.  Certain families don't fit well in certain units.  

2. Research all the programs in your area.  Section 8 , HASA, Feps, Vash -- There are a lot.  Some good and some not so good. Do your homework.  There are some that even give landlords 4K incentives for accepting. 

3.  Believe it or not, there are many programs for which the tenants do not have a portion to pay.  These are great and I encourage you to try and find these people. I do this not only to guarantee the full amount BUT to protect the relationship with the Tennant over the long ARC.  It's a much cleaner relationship if you can put yourself in a position to be 100% giving as opposed to collecting.  

4.  Be straight forward with tenants.  In my experience, 1 unit goes up and within a week I have 100 applicants.  Sadly I can only pick one family so I try to not give the other 99 any BS.  Some of them are trying to get themselves and their kids out of covid infested homeless shelters -- The last thing I want to do is BS them.  I try not to ghost them and always tell all applicants when someone is selected so they can continue their search.  

Hope it helps. 

[Aigo Pyles]

I'm not a section 8 landlord, though, I think one of the cons of being a section 8 landlord, the potentially challenging tenants - property damage, headaches, etc. Though this can be minimized by careful screening. 

[Todd Groom]

@Allen Moore pretty much your questions have been answered. You sometimes will get a bad one. But they can be dealt with easier than straight pay. While you can get back on HUD it's hard if kicked off for something like non payment or damages. So they tend to be good about that stuff.

Screening is the same as non section 8. Look for evictions, felonies, past evictions for damages etc. When you call the last landlord look up who the owner is of the building. This way when you call the person you can ask them a few things kinda see if they may be faking it. It’s not uncommon for a tenant to lie and use a friend. They may have been kicked out for some other reason. There’s a myth that once you’re kicked off section 8 you can’t get back on. while yes it’s very very hard they can in some cases get back on. We have a tenant who’s been kicked off but managed to get back on. So just always do you do diligence.

A good thing is If they don’t pay you just send a late notice to both them and their case worker. Your payment magically appears pretty quick. But that portion is small so even if they don’t pay and you do have to evict it’s not a huge loss. Some landlords are strict when it comes to late payments. We have dealt with tenants in the in these neighborhoods for a while. I also grew up in the projects and know how it is. We do have hefty late penalties so if they are late then they pay a $100 late fee. We have a credit system where the sooner they pay the bigger a credit they get off the $100. So say they pay on the 7th then they would get a $50 discount and only pay $50. But if they paid on the 12 then it’s $100. But we don’t evict at day 10 like everyone else. If they call and say hey I can’t pay until the 15th then we set it up as an agreement. As long as they get it paid before the end of the month or call and work it out we usually are understanding. We tried the per day late fee thing and it’s hard to track that so we got rid of it. It’s up to you on how hard you want to be with your tenants but remember they are on Section 8 for a reason so they will not always be able to pay on time. And you’re going to have agencies sending you stuff to help them pay rent especially during covid.

.

We have only had damages so far by one HUD tenant. Of course she lied and said she locked herself out and had to kick in the door. Rumor on the street was her boyfriend kicked it in. But is what it is. We are allowing her to find someone to replace it and save money as long as they are licensed and we approve it. Again this goes to how willing you are to work with your tenants to help them when they screw up.

HUD inspectors can be a hard sometimes. A small chip in the bathtub and that's a fail, window doesn't open good enough that's a fail, bedroom door lock doesn't lock properly that's a fail. Even if you're a good landlord and try to be perfect you won't always pass so don't take it personal it's just how some are.

We are leaning towards 100% HUD tenants just because everyone who's not paying are straight pay. As mentioned above it's nice knowing at least 70-80% of your money will be there every month.

DO A GOOD BACKGROUND CHECK. I can not emphasize this enough. A lot of them will have criminal backgrounds. Don’t get in trouble discriminating. A drug conviction can’t be denied unless it’s selling because using can be an addiction and that can be seen as an illness which is protected. So just be careful for stuff like that. All of ours have some sort of criminal background. Same with credit all pretty bad. We look for drug sales, assault, theft stuff like that for denial.

Good luck though. Can be good money in these neighborhoods you’re talking about because investors are scared of them. Our properties (duplexes and triplexes) cash flow $500-$1000 a month with 12-15% some higher. This is cash in our pockets it’s great. I hear people excited over $150-200 a month and think man am I doing the math wrong lol. One property we purchased in March we raised rents $800 a month out of 3 units in 10 months 2 out of 3 section 8. So money is there.

[Jaquetta T Ragland]

@Allen Moore I rented to a section 8 tenant for 4 years. Not the best experience but I believe that was the person ...not the section 8 program. One thing to look out for is how much rent the tenant will be responsible for versus how much section 8 is responsible for...although that can quickly change if the tenant gets a new job. You definitely want to do a full tenant screening because at any moment that tenant can lose their voucher.

[Steve Morris]

Originally posted by @Jay Hinrichs:

Section 8 pays SUBSTANTIALLY higher than market rents.. I know its the opposite here and Section 8 is FAR larger in those markets than it is in the PDX market .. U can have apartment complex's that are 100% subsidized and those are free market properties NOT low income govie bond issue type deals like we see here.

I don't know enough otherwise, so I agree.  I know people at the H/As locally and I think the decision here is they get fixed amount from OHCS (and local funds) and think more vouchers at lower rates is better than fewer vouchers for more.  PLus they can get too far behind market rate since then landlords won't take them in market-rate units.

Which I get since when HomeForward had open app days, the line would go around the block twice.

Anyways, even at higher amounts, (totally anecdotal) higher percentage of single mothers with kids.  The kids can wreak havoc in a unit so more damage than the avg market-rate tenant.

[Jay Hinrichs]

Originally posted by @Steve Morris:

Originally posted by @Jay Hinrichs:

Section 8 pays SUBSTANTIALLY higher than market rents.. I know its the opposite here and Section 8 is FAR larger in those markets than it is in the PDX market .. U can have apartment complex's that are 100% subsidized and those are free market properties NOT low income govie bond issue type deals like we see here.

I don't know enough otherwise, so I agree.  I know people at the H/As locally and I think the decision here is they get fixed amount from OHCS (and local funds) and think more vouchers at lower rates is better than fewer vouchers for more.  PLus they can get too far behind market rate since then landlords won't take them in market-rate units.

Which I get since when HomeForward had open app days, the line would go around the block twice.

Anyways, even at higher amounts, (totally anecdotal) higher percentage of single mothers with kids.  The kids can wreak havoc in a unit so more damage than the avg market-rate tenant.

where I worked in Jackson ms and owned a few hundred section 8 houses.. the statistics for the amount of local residents on some sort of assistants is staggering.. Section 8 in C class to D class would be 10 to 30% higher than market rent.. And so a lot of the section 8 folks understand their value in their voucher.. As so many local landlords get burned by market rate renters.. they then go to section 8.. or whatever other Jackson housing authority subsidy. leases are for one year.. so you have your inspections every year and wear and tear is an issue.  Along with constant moving.. many of these tenants at least in that market will simply move annually they know the landlords will bend over backwards for a 100% voucher so they just pack up the few things they have an move to a freshly renovated house and leave their old house behind.. Although to be fair I had some that stayed for years ..  But for us turnover was constant at least 10 to 15% of the units were turning at the 12 month lease expiration.. and you cannot write longer leases at least in that market.  

I get the appeal and for those investors that want to own and manage C D class SFR's then well that's an option and a good one .. But as the lady above said you still have to screen them very thoroughly. The idea that they can semi trash a unit and get kicked off of Section 8 ( at least in that market ) simply is not true based on my personal experience .. But with all things your mileage may vary.

[Allen Moore]

@Ronan Donnelly thanks for sharing. I love Chicago! What suburbs or areas have you found are good for that?

[Allen Moore]

@Josh Skyer very insightful! I’ll start looking into local agencies. Thank you

[Ola Dantis]

I couldn't agree more with @Jennifer Donley. If you are able to do it and do it well going in knowing full well what you are taking on I think you can do it. 

A friend of mine only rents to Sec 8 tenants and he is killing it (I have zero interest in this niche). So, it all depends on what you are comfortable with and your investment strategy. 

Sec 8 shouldn't have to mean bad. 

[Patti Robertson]

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/...

[Stephen Predmore]

@Patti Robertson Fantastic blog post! Thanks for sharing.

[Brandon DeVega]

This is definitely the best option. The pros outweigh the cons. The only real con is the fact that section 8 has very strict rules and regulations when it comes to inspections for renting to a section 8 tenant. The other con would be getting a bad tenant. But that is not really a con because, that just depends on who you choose ti rent to. If you properly screen your potential tenants, you can choose the one that suits your unit best. Other than that, the money is guaranteed, and you would be helping, and doing a family a great service by renting to them. @Allen Moore

[Brandon DeVega]

Also don’t do the high crime areas. Get really nice neighborhoods, and rent to family’s and mothers, that would love to get their children out of those types of environments. You can be that bridge for them to get to better and safer living. @Allen Moore

[Nana Osei]

@Patti Robertson that was excellent blog post. Thank you for sharing.