Section 8 Tenants? Worth it?

[Andrew Michaud]

I am looking at a 38 unit property. It seems to cash flow well and cap rate is at 13%. Good condition buildings, good location. 

But, most of the tenants are section 8. They could still be good tenants, but I often hear stories about these lower income tenants. I like the idea of having government direct deposits every month, and less work gathering rents, etc. But does it come with a price?

Are these tenants a pain, calling the owner often, damaging property, etc, or is it case by case where it strictly depends on that tenant. Section 8 could mean a sweetheart mother in her 60s who is 5 days early on rent and don't hear a peer from her, or it could mean a teenager blasting music and children painting the walls with chef boyardee.

[Bryan Hartlen]

I would echo what @Andrew Syrios says and make sure you are every bit as thorough when screening and to the best of your ability scope out your housing authority’s process to see if you have a good one or a PITA. 

A couple other points to consider.  

- Sec8 payment is only ‘guaranteed’ if your housing authority is paying the full rent… if rent is split between the authority and the tenant and something changes with your tenant’s situation you can find yourself with a tenant that is no longer current.  There are processes for the tenant to request a change in rent through Sec8 but it’s a process they need to initiate and manage.  

- There is a regular property review by the Sec8 inspectors. In Birmingham where we have our properties this is an annual review and a cynical man might say that the inspectors try to justify their positions by finding something that needs repairing with every review and their criteria appears to be more personal than repeatable.  

- In times of rising rents, we’ve found rent increases are slower to implement (again because of the bureaucracy). When approved, the increase has been retroactive.  Setting rents for new tenants is pretty fast with the authority but getting an increase for a renewing tenant is slower. 

- Finally, it’s been our experience (which isn’t vast) that Sec8 tenants tend to be long term tenants. This may be because of the process required on their end to move or it may be that they are grateful to have a home. But it is nice to have most roll over from year to year.