Section 8 48 unit complex in tertiary WI market

[Jeremiah Schwersenska]

Hello BP Community! Growing my deal analyzing muscle and came across a property that looks like it could be a real value add opportunity. It is a 48 unit Section 8 apartment in a smaller WI community but has solid employers in the area. The rents are under market and the units haven't been upgraded since built in 1981. Are you allowed to purchase a property and remove the section 8 designation? I have read all the stories about the problems with section 8 and I currently don't except vouchers in any of our smaller MF.

There is a comp property that is upgraded to be more modern with solid surface counter tops, vinyl plank flooring, fixtures and updated color scheme and rents are about $200 more for a 2 bedroom and should get about the same for the 3/2s.

NOI for 2020 says it was $159k on about $350k gross rents. I assume there is some differed maintenance but not much due to the annual HUD inspections. The cash flow makes sense with the current rent and after updating the whole property one could potentially add conservatively $150/door a month.

Are investors avoiding this because of section 8 or is this a good deal? I am looking at trying to buy a larger MF yet this year so any advice would help when evaluating this deal.

Thanks!

[Evan Polaski]

@Jeremiah Schwersenska, I would check with whoever the housing authority running the section 8 program is.  In Cincinnati, you have low-income housing that is subsidized through tax credits, so you can only rent to low income/subsidized tenants.  We also have the Housing Choice Voucher system, which allows tenants to pick any housing that is willing to except the voucher.  I have one rental, and used to have more that were on the voucher program.

The voucher runs with the tenant, and the landlord has discretion to accept or not accept voucher tenants.  It sounds like the property you are considering is tied to Section 8 directly, and therefore you may have trouble being able to rent to non-section 8 tenants.

Generally speaking, I never had issues with my section 8 tenants, or at least no war stories.  I started moving away from them because market rates were growing faster than voucher rents, and the annual inspections continued to cost more and more each year.