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Updated almost 8 years ago on . Most recent reply

User Stats

152
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122
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Stephanie Cabral
  • Rental Property Investor
  • Wethersfield, CT
122
Votes |
152
Posts

Section 8 Rents and Valuing a MF deal

Stephanie Cabral
  • Rental Property Investor
  • Wethersfield, CT
Posted

Hi all, I'm reviewing a potential MF deal and looked at the rent roll. 100% of the units are affordable housing of various programs, including Section 8. I was surprised to see that all of the rents are substantially less than the FMR that HUD would allow for this city. Is the FMR the number that all landlords to section 8 tenants could collect or is the FMR a MAXIMUM amount of rent you could collect, meaning the program would establish the rents for each individual apartment based on the condition? Also, if someone could point me towards a resource for getting a Section 8 contract for the entire building, I'd appreciate the early-stage guidance.

Best,

Stephanie

  • Stephanie Cabral
  • Podcast Guest on Show #360
  • Most Popular Reply

    User Stats

    33
    Posts
    13
    Votes
    Vitaly Lunev
    • Rental Property Investor
    • Dallas
    13
    Votes |
    33
    Posts
    Vitaly Lunev
    • Rental Property Investor
    • Dallas
    Replied

    There are two distinct Section 8 programs. The first one is a voucher program, where a tenant can go anywhere they choose to. Those are typically for a year and the rent is determined based on the FMR and property condition (you have an annual inspection, which is typically a good time to point out the items that justify higher rents). The second type is the Project Based Section 8, when you have a HAP contract covering a certain number of units (or the entire property) and it requires tenants to stay in that Project in order to pay only 30% of their income. As part of the governmental push not to create high concentrations of underprivileged households in one location, which some argue creates a cycle of poverty, the Project Based Assistance contracts are no longer rewarded (the existing Projects that have HAP contracts can continue to operate and renew and there is a caveat that while no new contracts are rewarded you can transfer a contract from a facility where the owner does not wish to renew). Therefore, if Section 8 tenants have Vouchers, you simply will have to argue about each one of them upon their annual expiration. If you have a HAP contract, which typically lasts for 20-years, you will simply need to let it run out (the only way I know to break it is to refinance in conjunction with a substantial rehabilitation and addition of LIHTCs). Upon which point you will be able to get a Rent Comp Study from a HUD approved appraiser determining the rent going forward. Additional caveat after expiration of the initial term some owners choose to renew on the annual basis, this allows them to ask for a raise a couple of percent every year or to terminate the contract if the increases are not sufficient, if you have one of those for your property you might have a little more leeway. Best of luck!

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