To Section 8 or NOT to Section 8 ?

Question

I'm currently searching for our first investment which is proving difficult as a Cali resident who is looking to invest out of state. Out of state being my old home state in the south so I'm not completely ignorant to that area but not being "boots on the ground" makes it harder to find that cat lady or hoarder home that you purchase and rehab for 70-80% ARV. I have connected with some realtors but what gets passed on to me are pretty much the same turnkey deals I am finding on the MLS myself. With that said, I have found some nice turnkey MFH that meet the 1% rule but they are in an area that is all Section 8 tenants. The area is nice and kept up well but one downside is rents are 50-200 dollars a month less per door than the surrounding area. Im curious to how many here love or dislike section 8 from personal experience? I have heard some say they love it bc it is guaranteed payments every month while others cite destruction of property by such tenants. The landlords who say they love Section 8 rebuff the destruction of property claim citing that in their experience tenants are afraid to lose their voucher therefore do not destroy their properties. Personally I believe, not all, but most people on Section 8 are of a certain socioeconomical demographic which tend to have a different set of problem solving and coping skills in life (which can be a contributing factor to destruction of property more than others) and that in and of itself is what makes me shy away from the idea of Section 8 tenants.

Any personal experiences shared are much appreciated and valued!

Gregory Massi · Answer

i have had a section 8 tenant for the last year and a half. it has been a great experience. literally no issues so far..having said that, i have heard horror stories but i think some good due diligence can avoid bad tenants in the S8 program.

Nik S. · Answer

You never know what you get with tenants but that's part of the game! There's horror stories with all types of tenants.

Nik S. · Answer

Depending on the asset/location, I don't mind S8. I have about 20 tenants/Units that are S8. I get my money on the 1st and have minimal problems. I am getting market rent so i have no complaints. These are also 1 bedroom units so the tenants can't cram excess people in. In my area, if you have S8 voucher you do NOT want to lose it as the waiting list is years long. So essentially tenants are fairly decent. Some investors say if you do S8 your units have to be PERFECT. It's not exactly true however you do need to take care of the required items to have your unit/building S8 approved...it's not hard and in most cases I agree with their demands.

Obviously if its a A/B asset, I prob wouldn't recommend it. It all depends on your location and building. Sure you may come across a few bad S8 tenants but what about for the bad financial responsible tenants, some are TERRIBLE.  In the last 5 years, I don't think i've had to evict 1 S8 tenant however for the financially responsible tenants, I've had to evict a handful.

Pick your poison :-)

PS: The ONLY downside I see is when it comes time to the exit strategy. It appears that a building with S8 tenants has a very little appreciation value given location of course. Other investors see it as a "low class asset" even if its not true. Cash flow is king although. I don't personally buy on appreciation value but more so focus on core value (meaning given current income what's property worth right NOW).

Good-luck! Theres a ton of strategies that work, what matters is what's best for you!

George Lods · Answer

@Gregory Massi

Yes, due diligence is key. Thanks for sharing your experience!

George Lods · Answer

@Nik S.

That's another great point that prob most S8 are long term therefor turnover cost are likely to be less over the long run compared to F.responsible tenants. Thanks for all the feedback!

Nik S. · Answer

@George Lods

You can always request a rent increase however it's not always met. S8 department has their own way of figuring "market rent",  wrong or right. Generally trying to make the tenant pay more of they portion is difficult and doesn't happen too often.

What you mention of S8 not paying full mkt rent is very true. If the rent works out in the low 700's as opposed to $800, then its okay. It matters when you base your numbers off the $800 and S8 only offers $700.

For the units I have that are S8, I NEVER worry about payment. ALWAYS on time (unless holiday).

My expericene of S8 (5 years) is that the tenants are LONG term. So whether they are S8/F.responsible, after the long term tenancy your going to have to do a turn over regardless.

Depending on who is doing your tenant screening (assuming all laws), whether its your or your PM, apply best judgement possible...just as any other tenant.

Im sure you will require a deposit, so it goes the same for S8 tenants and f.responsible tenants.

George Lods · Answer

@Nik S. so if your S8 rents were under market value and you wanted to go up to or get closer as in my scenario, is that possible? Does S8 do leases also and at the end of the lease could you increase rents in a reasonable amount? Does S8 allow it and or how does that impact the renter, does their portion also increase?

George Lods · Answer

@Nik S. Yes that is a good point and one I thought of also and that is taking into account the Non S8 people that default on rent etc.. I think it would be a little easier of a decision if the rents were comparable like in your scenario. These S8 duplexes are renting from 600-725 a door while less than 10 miles down the road, same city, same building type non S8 are getting 800 a door. I guess if I could get 725 or push it to 750 a door that wouldn't be so bad for the guaranteed rent every month vs 800 from a non s8 tenant.

Thanks for your input!

To Section 8 or NOT to Section 8 ?

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