What are the issues when we invest in Section 8 properties?

Question

Hi All, I am looking to buy a 6 unit property in Marietta, GA. And couple of units are section 8. Is it a red flag? What do you recommend?

Also anyone has knowledge on Marietta, GA market?

Thanks for help,

Rama

Robert Gilstrap · Answer

@Rama Krishna I manage hundreds of properties in Cobb County, GA where Marietta is located and I'm always amused when people think section 8 is a great program. It usually tells me they don't have a lot of experience with the program.

Reasons why section 8 sucks:fault

1. You are co-managing the property with both the federal and state government. If you don't understand what the implication of that is then you need to before jumping in. LOTS more rules, regulations, etc.

2. The HAP addendum supersedes and essentially takes all the teeth out of your pro-landlord lease putting both the tenant and section 8 in control not you.

3.  Get ready to jump through hoops now and in the future. Inspections, unwarranted repair requests, etc.

4. Dealing with deadbeats; (both government section 8 staff and tenants) I'm sure lots of people on section 8 are well deserving and need the program to survive but in my 24 years I just haven't met any. What I have met are people who are gaming a government system which is a colossal handout of taxpayer money.  ** I will say that if you do section 8 the Marietta Housing Authority is the best of the bad by far.

5. The money is NOT guaranteed like everyone seems to think it is. At any time they can stop payments, payments are NOT always on time and by the way when payments stop for a reason that isn't the tenants fault you can't just evict like normal (check the HAP addendum).

6. You don't need section 8 in the Atlanta rental market and if you need the program to get interest in your property then you are buying in the wrong area. Atlanta has a fantastic rental market right now and Cobb County is my #1 pick to invest in but you just don't need section 8. Not saying don't buy a property with section 8 tenants because if the deal is good then buy it but as the tenants move out there is no way I bring on new section 8's.

I could go on but I'm tired of typing.

Karl B. · Answer

When you buy a property with Section 8 tenants already living there, in my experience,  IT'S AWESOME.

Personally speaking, much of the headache with accepting Section 8 is dealing with the Section 8 office when a voucher-holder wants to move in - in my experience, waiting three weeks for an inspection, dealing with a delusional inspector who low-balls comp rents and isn't consistent with the rules (nor a nice person), etc.

Of course, different areas have different  Housing Authority offices with different people so some are  worse than others.

But once you deal with the B.S. and delays and the tenant is finally moved in (or you purchase properties where a Section 8 tenant is already living there) it's typically a good experience.

My inherited Section 8 tenant is solid. She keeps the place clean, has pride in the property, sweeps the porch and front steps and pays on time. I politely told her to stop smoking in the property (prior owners didn't care) and she did, which I appreciate. I haven't raised her rent and I'll replace her kitchen flooring and no doubt she will be appreciative.

Most Section 8 tenants play by the rules because they don't want to lose their voucher for in many areas after applying to the program Section 8 tenants often wait many months to receive a voucher. And Section 8 tenants are much less likely to move after a year or two - and as we know, vacancies eat up cash flow.

Of course, some landlords have had nightmare Section 8 experiences - it helps to be prepared by reading all literature from your local Section 8 office and knowing the timeline of the Section 8 rental process.

Thomas S. · Answer

Section 8 requires more hands on management. They do often tend to have lower personal standards and this will tend to be reflected in their actions and decissions. This is common with all class C/D properties in most cases. Watch for them moving in pets, relatives, boy friends etc.

Charles H. · Answer

I have seen the deal you are talking about. Ended up not pursuing for some reasons, but one advice I read/heard from a BP member (can't remember) is that if you choose to take Section8 people, the person was asking that the people give a proof of job/income. He was not recommending a stay-at-home Section8 for some reasons like for example less wear in the unit since the tenant would not be staying at home all day, etc...

Michael Guzik · Answer

@Rama Krishna I'm assuming this is an out of state investment which in that case IMO would be a huge mistake especially since part of it is section 8. Always ask yourself what kind of class and culture of people are you going to be renting to? Do you want low class people who aren't paying for where they live so they don't care about anything or do you want people who work hard for their money and give 1/4 of what they make to live where they are? Normally from my experience people who are taking hand outs don't know the value of the things they are given and don't take care of it. They act entitled and they really do control you because the Government and Sextion 8 housing basically bosses you around and can and will stop payments unless you fix something or meet a request. Save yourself the headache, time and money. IMO you shouldn't even be thinking about investing in a market until you have done your due diligence and know everything about it. Don't fit into and contribute to the negative view on ignorant California investors! Do your research and know and have someone you can trust in the market!

Parker Stiles · Answer

I think section 8 is great as long as you can screen the tenets. I would be slightly weary of accepting section 8 tenants that I was not able to screen. If they are month-to-month then you can always get rid of them and exchange with new. Otherwise you would need to wait until the end of the lease. Section 8 vouchers are hard to get right now, so most section 8 tenants will follow the rules in order to keep their voucher valid. Not 100% though.

We are heavily renovating a quadruplex in Mableton, and we will be filling it with new section 8 tenants. Section 8 is actually renting higher than traditional low income renters right now.

Account Closed · Answer

Section 8' s can be a good deal if you have a run down property, or your own property in a area that is in less desirable area, another advantage is they tend to move less than other tenants. Having said all that, a lot of horror stories about property destruction and tenants not paying their portion of the rent particularly from less sophisticated landlords. I always purchase in more upscale areas and  charge more rent than section 8 considers market rent, so renting to section 8's never works out and just wastes lots of time.

Rama Krishna · Answer

Great points on section 8 tenants @Karl B. and Account Closed

All practical information from real experiences - Priceless !

What are the issues when we invest in Section 8 properties?

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