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?

[Patti Robertson]

@Nana Osei - Welcome.  I have some additional SEC 8 tools on my website from workshops I have taught.  I can't post the web address in the BP post, but it's in my profile.  Just go to Resources, Owners, then look in the documents section.  

[Nana Osei]

Thank you @Patti Robertson

[Linh Pham]

Quote from @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. 

[Linh Pham]

@Josh Skyer You mentioned you posted a listing and got 100 applicants within a week. Would you mind sharing where you post your listings for section 8? I’m new to investing and would like to provide housing assistance to section 8 tenants in the Houston TX. However, I posted on affordable housing website for about a few weeks and only received 1 inquiry. I’m starting to think that there’s not a need here.

[Cody Smith]

Quote from @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.

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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.

Hey Todd I know I am super late to the thread, but I was super curious what market you are getting that kind of cash flow in.