Questions About Section 8 in Philadelphia

[Jorge Lee]

I'm considering purchasing an apartment building (over 20-unit) and using the Section 8 strategy. How can I determine if the property is eligible for the Section 8 program? Are there concerns like location, zoning or land use, or is it simply about passing the inspection if it's a residential use? Any insights from those with experience would be greatly appreciated.

[James Mc Ree]

Section 8 is a program focused primarily on tenants and not so much on properties. I recommend focusing on getting a great investment property and disregarding Section 8 in that pursuit because any property can be a Section 8 property, but a lousy investment is lousy regardless of having a Section 8 tenant or not.

Section 8 will perform a basic functional and safety inspection for your units after you have an agreement with a Section 8 tenant and your local housing authority. The inspection is very similar to your local U&O inspections. See the PHA HQS Inspection Resource Guide for all the details. The inspection is a 5-10 minute walkthrough by a vendor who will take pictures of every room and identify any issues for you to address.

If there are issues, you typically have a week or two to get them fixed without there being an impact to you. For example, I have an inspection coming up Oct 1. If there are issues, I have the next couple of weeks to get them resolved and have a re-inspection before the end of the month. The risk is a failed inspection blocks Section 8 payments, so I could miss a month's payment if I don't get the issues resolved by the end of the month. They will add the payment to the next month's payment after the issues are resolved which would be November in my case.

Section 8 tenants are poor. So, your location is likely to be a C area. They have changed to try to offer vouchers in all areas, so it may be possible to have a Section 8 tenant in an A area. I am not familiar with that though.

You can call your local housing authority and request their list of available Section 8 homes. It is probably readily available on their web site. I did that years ago and it was very enlightening. It was a list of pits of despair that were deemed habitable, but little else. Most were in risky neighborhoods, but did offer security provided by the corner drug dealers. I hear the list hasn't changed much from that impression, but haven't looked recently.

I have 13 SFRs and 3 are rented through Section 8. The startup process is a little slow. You will probably lose a month of rent if you choose a Section 8 tenant ready to move in now versus a traditional tenant ready to move in now. Section 8 will need to approve your initial rent based on the property and what the tenant can afford. After that, my experience is I can raise the rent as much as I want and they sometimes say the tenant cannot afford that, but it works out. Worst case is the tenant has to move, but that would happen with a traditional tenant anyway.

[Alan Asriants]

How come you want to go the Section 8 route? Why does it call your attention?

Section 8 sounds great on paper but there are a lot of things to consider. 

For starters, NOT ALL the rent is GUARANTEED. Only what the housing authority pays. That can literally be like 50 bucks - and that is not up to you

Investing in section 8 usually means C-D class areas - Higher risk, higher turnover, higher chance of evictions, higher chance of property damage, behind on rent etc.

Instead of buying a 20 unit, maybe considering scaling down and investing in a solid area.