First house hack - Should I be considering section 8?

Question

We're finishing up renovations on a duplex that we're house hacking and considering section 8. I have heard all the horror stories about section 8 tenants. I know that it could end up be a nightmare living above a bad tenant, but it seems that in my area I can get much more for rent with section 8.

Market rents are around 1500 - 1700 and the section 8 payment standard is 2100. (Still unsure if this actually correlates to rent price as the housing authority rep that I spoke to was very ambiguous when I asked what potential rents I could receive)

The only reason that I'm considering is because this purchase was by no means a great deal, I just wanted to have something cheaper than my rent while learning how to renovate/manage a property. I also didn't realize that the neighborhood I am in is mostly section 8, so I am concerned that it will not be as appealing to "normal" tenants.

If I'm able to get >= 1850 for rent, this could end up cash flowing well when I move out.

I would love to get more info from experienced section 8 investors and learn more about the dos and don'ts of screening them.

Thanks!

James Wise · Answer

You don't want to share a roof with a Section 8 tenant.

Dave Skow · Answer

@Dylan Greytak- trust your  gut instinct on this one ....

Alan Asriants · Answer

@Dylan Greytak

I would avoid Section 8

As someone mentioned here. The only guaranteed return is the one paid out by the housing authority.

The tenant portion is never guaranteed.

You can get lucky with your tenant and score a good client. And to be honest with you, I have met some very nice people on section 8 and they were great to work with when I was managing properties.

But those were needles in haystacks.

Try the normal route.

Your returns are great but there is nothing better than a tenant who takes care of your place and pays on time.

I will sacrifice returns for that kind of tenant any day. Your property is your first investment, and your tenant is your second.

Invest well into that tenant

Jeff White · Answer

@Dylan Greytak I'm a big proponent of Section 8 housing for a good strategy for landlords, I think it can be a valuable tenant base, you just have to screen them just as any other tenants. There are horror stories for that tenant class, but I feel like it is market dependent.

Ex. $2,100 Fair Market Rents in Tampa, the Tampa Housing Authority covers $1,800 and the tenant pays $300 per month, you screen off the $300 per month for your rent to income ratio.

Also, you can definitely go off the Fair Market Rents that the 2nd poster mentioned above me, those are accurate but assume that number INCLUDES all utilities, so if you take out Electric/Gas or other utilities, they Housing Authority will reduce it down, so instead of paying $2,100 total, they will reduce it down to $1,950 if you want the tenant to pay electric/gas as an example. Sometimes, you can get the full $2,100 and have the tenant put the energy bill in their name.

Not every housing authority is the same, I would do more research and talk to more people at the particular housing authority you are looking at. Sometimes, they are very receptive to landlords and answering questions and other times, they are not.

Also, I recommend getting everything in writing, so confirm in writing from the housing authority that they will pay $2,100 per month if you accept a particular Section 8 voucher holder for your vacant unit.

Joseph Stern · Answer

Hey Dylan, I know of a broker who is quite experienced with section 8 tenants and he just helped an investor in a similar position boost his cash flow quite a bit by converting over to section 8. Feel free to DM me if you want me to connect you guys.

Michael Haynes · Answer

Hello Dylan Greytak in Tampa. You look like a nice, suit and tie guy with an education and a JOB. You have to learn that, "your Profit is when you Buy a Property." You did not give the address of the Duplex. You did say you want to House Hack, so, you are willing to live in one apartment and rent out the other. "Never buy a house you would not live in." Did anybody ever tell you that you need a Home to live in and that your Home is not an Investment? You need to read IRS Publication 523, Sale of a Residence. You can live in your Home for 2 out of 5 years and Sell, Tax-free up to $250,000. Think...in 2 years you can Sell, Tax-free. Do you think that in that Time your property will Appreciate anything at all? What about going to the 5 year limit? If not, then what? Your stuck with what we in Florida call "A Gator." Real Estate Investing depends on the Business and Real Estate Cycle and if you don't know where you are in those graphs, then, you are not knowing when to "Buy Low and Sell High." I hope you did not buy on the East side of I275 running North in Tampa.

Vitaliy Volpov · Answer

@Dylan Greytak

As others have mentioned, it is unlikely that if the market rents for your apartment are $1,500-1,700 that Section 8 would pay more than that.  Out of 160 units that we own, we probably have 5-6 Section 8 tenants. For these tenants Section 8 only pays a fraction of the total rent. I have not heard of Section 8 covering all of the rent for any of the properties in our area. Maybe they do, but I just haven't seen it personally.

In general, we would never deny an applicant who is interested in one of our apartments based on their source of income. But, we also don't affirmatively seek them out.  And we definitely screen them the same way as any other applicant. It is very important to maintain a consistent standard (e.g. set minimum credit score, positive prior landlord references, eviciton history if your state allows it -- my State of NY no longer allows landlords to deny based on prior evicitons, so we can't use that as a criteria any more).

The biggest issue with Section 8 tenants, in my opinion, is that because they don't have much skin in the game since they are not paying most of their rent, the incentive isn't there to take care of the apartment the way someone else might. I know people will say that they do care because they don't want to lose their subsidy, but I think it's pretty hard for that to happen and you'd have to go through a lot of rigmarole with the agency trying to prove that the tenant did this or that.

The last point is that you're going to be living at the property. You want to rent to tenants that share a similar mindset to you about finances and presonal responsibility because that translates into other things they do as well. I think you will find that, on average, people who are eligible for Section 8 subsidy will not have that same mindset and that may make it a lot harder on you living in the same building with them.

Vitaliy

Michael Smythe · Answer

@Dylan Greytak what would be the logic of the government paying MORE than market rent for a low-income tenant?

The $2100 "standard" you mention is for a specific number of bedrooms and includes all utilities. S8 publishes utility charts for each county that allow a landlord to calculate how much to deduct from the standard.

You may also what to read this BP thread:

https://www.biggerpockets.com/forums/52/topics/1164155-rant-section-8-is-not-guaranteed

First house hack - Should I be considering section 8?

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