Section 8 and Investment Property

[Ardian Muriqi]

Hello all, I am currently a westchestor county resident and I have been taking a look at investing into properties in Rochester due to the cost. I am looking at investing in properties mainly in the 70-130k range and am looking at investing solely into properties that would house section 8 tenants. I am mainly wondering if people are actually getting tenants into these homes for the rates seen on hud. I am also wondering how the process goes, and how long generally speaking it would take to house a tenant. I am also wondering how refinancing works regarding GRM and how a bank would potentially view a property of that nature regarding a refinance. I have no experience with this area specifically but do with areas near NYC and within NYC but due to the high cost am being nudged out. Thank you to all who answer I know this is a loaded question but any help would be amazing!

[Mackenzie Grate]

Section 8 can be tricky. While legally a landlord cannot discriminate against that type of income when someone applies for a property, note that if you are looking to target that sector directly it's most likely not going to be truly "passive" income. These properties do require a lot more management.

Additionally these properties tend to require a lot more maintenance. Why? Because they tend to already be properties that are usually bought at a lower price point, thus already needing major updates and repairs from the beginning. Pair that with the fact that they tend to have more people living in them per unit, thus more wear and tear. With long term rentals you could find your cash flow being wiped out regularly by maintenance if you do not run the numbers right from the beginning or have a tenant who does significant damage (although any tenant can do signficant damage if not vetted right... not just Section 8 tenants). 

When it comes to refinancing a property, you generally have to increase the value. There are a few ways to do this, but ultimately a multifamily's value is going to be based off the income the property generates. So you will need to force equity. How you do that is by improving the place and raising rents. That isn't always possible in a Section 8 purchase. So unless you get something well below market, and raise it to market, it's unlikely you will be able to get much out if you were to refinance.

So food for thought. There is definitely a need for more Section 8 housing. But know that it tends to be a lot more labor intensive if you are a landlord managing it and it can be a lot harder to increase the value of the property over time.

Hope this helps a little bit. Good luck! I'm excited to hear how your journey goes! :)