Section 8 + Property Management for Cashflow

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Section 8 + Property Management for Cashflow

Snehann Kapnadak
Rental Property Investor · Philadelphia, PA · Member since 2015 · 212 posts · 116 votes

Hi All,

Hope your week's are going well!

What's the general consensus on newbies investing in section 8 rentals? Please pardon my ignorance and naivety, but I'd love to hear what people think of this plan and all the potential risks involved. Say I (as a newbie investor) want to get involved in a multifamily deal that involves Section 8 tenants in a market that I've vetted has opportunities for growth (my personal market is too expensive). I do my due diligence, vet and find a good property management team, no easy task at all but suppose I manage to find a great team, who's had experience handling Section 8 and who I trust will do a great job handling the day-to-day. Is this sustainable? What should I be looking out for? I'm relatively young and new to REI--meaning I have a longer timeline and will generally have a higher risk tolerance. I would be willing to hold on to this property for a while and deal with the rollercoaster I've heard that comes with Section 8.

My thinking is that I'd be able to find a multi-family deal at a lower price point, thereby spreading the risk of tenant turnover across several units. This would be a cash-flow play with little appreciation, unless something amazing happens, but it would yield solid cash flow for me. Ideally this would not be my only property, I would continue to invest that cashflow in B and possibly A class properties as well to diversify my portfolio in terms and spread my risk.

Additionally, I've been told that you live and die by my property manager. So if I properly vet them and if they have a ton of experience handling Section 8, then they would be managing the day-to-day, while I would get to collect higher returns. Does that seem like a good plan?

Again, please forgive me for the naivety, but I'd love to learn more from what everyone thinks. Thanks!

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  • Les Jean-Pierre
    Investor · New York City, NY · Member since 2014 · 370 posts · 85 votes
    9y

    I have a section 8 tenant in Brooklyn. The good is the consistent payment by the government. But, the aid is lower now and likely will go way down due to budget cuts. The other issues are you can't likely increase your rent a lot, the inspections can bring up non existent issues. I would say do it if you are in a sketchy neighborhood. Pass if you are in a solid neighborhood. I am about to get out of the program.

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  • Ben Roddey
    Investor · Tampa, FL · Member since 2014 · 20 posts · 11 votes
    9y

    Great post @Snehann Kapnadak !

    1.) The only thing you can control in real estate investing is the price you pay for the investment. After that, you're on a roller coaster ride at the mercy of market conditions, political climate, and "acts of God." All you can do is charge at or close to market rents, budget well, and keep your residents happy.

    2.) Never let a property manager take the reigns unless you've personally managed the property for at least six-months OR have lots of experience with that asset class and market. Set the standard for your property and hold your manager to it. If they can't play at your level, you need to cut them loose.

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  • Snehann Kapnadak
    OP
    Rental Property Investor · Philadelphia, PA · Member since 2015 · 212 posts · 116 votes
    9y

    @Les Jean-Pierre Thanks for the comment! Yes I've heard that you can't raise rents without going through a strict process. Good to know about the inspections too.

    @Ben Roddey Great advice, thank you. Would you recommend a new investor get into Section 8 rentals if they find a team who's had a lot of experience in that niche? Thanks again!

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  • Patti RobertsonBusiness Member
    Property Manager · Virginia Beach, VA · Member since 2016 · 2k+ posts · 2k+ votes
    9y

    @Snehann Kapnadak - Once the tenant has been in place for 12 months you can ask for a rent increase.  It just has to meet the same reasonible and affordable standards as it met the first time you submitted the tenant's paperwork.  In my market there isn't a cap in the increases like I have seen some on BP post they have in their markets.  I haven't tried to increase more than $150/year,  but as lon as our increases are reasonible and affordable, (and of course they always are) they are getting approved.  I have about 100 SEC 8 leases under our umbrella right now, and I think it's a super way for a new investor to start landlording. Ask if your local SEC 8 housing authority has a new owner orientation you could attend.  Only one of our 7 HAs holds one, but it's great way to learn the ins and outs of their local processes. 

    757-472-2547
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  • Thomas S.
    Member since 2016 · 13k+ posts · 12k+ votes
    9y

    As a new investor it is always best to manage your first property, or few properties, yourself. If you do not have experience managing yourself you are entering a mine field trying to find and manage a PM company.

    Real estate investing is not a passive investment vehicle.

    For a new investor managinging a C class property is a challenge but doable.  The key is to make all decisions based solely on what is best for the business. There is zero room in land lording for emotions or compassion especially in C class section 8.

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  • Ben Roddey
    Investor · Tampa, FL · Member since 2014 · 20 posts · 11 votes
    9y
    Originally posted by :

    @Ben Roddey Great advice, thank you. Would you recommend a new investor get into Section 8 rentals if they find a team who's had a lot of experience in that niche? Thanks again!

     It's situational; I couldn't afford to lose my investment if a manager ran it into the ground, so I operated it myself, then taught others to follow my system and moved on to bigger projects. 

    If, however, you can afford a potential loss on investment if somebody screws up, and you can't afford the time involved in managing yourself, then I would encourage you to bring in an experienced manager.

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