Is renting to HUD (section 8) a good idea?

Question

I have 15 newly remodled homes and I got a call from a rep with HUD asking me if I could lease them to thier clents.Is this a smart thing to do?I have herd the rumors on how they tear your property up and just add more coat and i am really not the landlord type. I am more a buy and sell investor I never hold.

Bryan B · Answer

I rent most of my properties Sec8 up to a point.

Locally the cap for Sec 8 is:

Efficiency - 540
1 Bed -       626
2 Bed -       726
3 Bed -       909
4 Bed -       1055

So unless it is one of my nicest rentals that I would want to keep perfect, and get 1200+ out of I generally go Sec8.  Locally I am allowed to charge 110% of market value price, so if the normal 3 bed is going for 750 on a certain street or area I can easily charge 800-825.

I have only had to evict one Sec8 tenant so far, and I generally have 30-40 people call for each housing ad I place when one is ready to go.  I can also save money on ads and go to the Sec8 office and let them know of an available unit for rent and they'll place it on their available units list and I'll get calls 1-3 days later and have it rented in 3 days max without a newspaper ad.

I can have a person kicked off of the entire Sec8 program for two years for any lease violation including suspected drug use, not paying rent, not obeying noise ordinances, etc at a property so they have quite a big interest to take care of things as they can easily lose that free money, and they definitely do not want to do that!

It's quite nice to get the check in the mail each month and not have to worry about it.  I do tend to try to rent to those who qualify for full Sec8 assistance instead of them paying half their rent.

My last tenant I rented to Sec8 this week was required to pay 7.00 while Sec8 paid 793.00 for example.  To save the hassle I told the tenant not to worry about it.  Not worth the hassle, phone calls, etc when someone can't come up with 7 bux.

Mark McGlothlin · Answer

I've been involved with several smaller multifamily projects leasing to section  8 tenants and have been pleasantly surprised.  In fact one of these projects was in a tertiary market in TX with very little section 8 housing available and we ran a waiting list the entire time we had the building.  Section 8 tenants could loose their access to their funding (at least in Tx during our ownership interval) if they caused problems, we had very little trouble.  Our project was a 44 unit Class B-/C+ apartment in a smaller central Texas community.  The subsequent owner dropped the section 8 contract, repositioned the building, and rented to many of the former section 8 tenants who were able to improve their circumstances.

Will Barnard · Answer

As Mike said, it does not matter if the tenants are section 8 or standard, you can have the good and bad in both. The real key here is knowing how to screen your tenants. Just as you would for a regular tenant, it is necessary to screen section 8 tenants (even more so in my opinion).

You are ultimately responsible for your business and as such, you should take the necessary precautions and steps to reduce potentially problematic tenants.

Michael Rossi · Answer

Yes, you would think that, but it's not true.  Section 8 tenants tear up the property just as often as non-Section 8 tenants.

Good Luck,

Mike

Adrian Bauer · Answer

Minnesota puts a cap on the max amount of rent allowable based on comps (your too I'm sure).  Depending on your remodel, you may not be able to charge what you need to come out ahead.  If you ask for too much, a rep from the Section 8 office calls to negotiate a lower price.  An upside to your fears about extra wear and tear, the whole subsidized housing program is such a great deal I would "think" tenants would be cautious not to ruin the place and risk the chance of getting banned from Section 8.

I plan to get started in RE, buy, fix, rent.  I want to begin with smaller projects to test the waters.  My target market is low income/Section8.  However, I still fear the extra wear and tear and am looking for posts to confirm or deny it.

Good luck.

Michael Rossi · Answer

If you remodeled these houses for sale and you're not the landlord type, I certainly would NOT rent them to anyone.

Mike

Richard F. · Answer

Why would you NEED to rent "newly remodeled homes" to subsidized tenants? You should be able to get the top market rent for those, unless they are in the war zone.