Section 8 Investment Properties?

Question

Michael Totman · Answer

There are certain flags that come up during the screening process that can help determine how difficult a person will be as a tenant.  Section 8 assistance is not, and should not, be one.  I have had personal experience with 3 section 8 tenants so far and passing conversation on many others. Two of these tenants are as nice as can be, currently pay on time with an occasional reminder needed, and generally take care of the property as best as can be expected.  The third was terrible.  I analyzed my screening process after evicting them to learn what went wrong.  Nothing I could have done would have led me to believe they were a garbage tenant.  The problem was her drug addicted, incarcerated, baby daddy who got out of jail a month after she moved in that she failed to mention would be living there on the application or housing voucher.  She ticked all the right boxes: had a part time job, good references, family support, was clean and well organized, etc. Regardless her income source, she turned into hell on wheels when lover-boy came home and started terrorizing the neighbors.  She was my first eviction, and it was a sweet, glorious day watching the sheriff pack up her belongings...

Bottom line is you can do all the tenant screening you want, sometimes the selection process is luck of the draw and that guaranteed payment is nice...

Paul Timmins · Answer

@Vanessa Ryder

Get a property manager who has experience in Sec 8 it is more labor intensive.

Paul

Jason V. · Answer

*Rubs hands together in glee*

Sounds like my kind of investment!

But seriously - James's post is spot on: you buy them for the income, knowing you might take a loss in future value, depending on the when, why, and how of disposition. On the flip side, in many areas, they will pay for themselves entirely in a couple of years, if not less.

Pros and Cons - all depends on your goals and mindset.

Good Luck!

James DeRoest · Answer

My only concern with Section 8 is that for our area at least, it's a class of property that simply isn't going to appreciate. You do it purely for the monthly check, nothing more. Which means your exit plan is that much more different.

So whereas my SFRs in the nicer areas will be worth $200k+ in 20 years, my Section 8 properties will be whatever I can get for them. They are merely a heartless financial tool.

Jordin Boyd · Answer

As I understand it you basically get guaranteed rents (no matter if your tenants seem "risky" or not but you would still have to worry about how they treat your property. Also, I believe that in order to qualify for section 8 status you have to maintain certain standards and go through some inspections each year which might cause extra headaches.

Pam Storm · Answer

@Vanessa Ryder  I echo many of the same sentiments above + a few additional thoughts:

- Screening is still your best tool and critically important if you are acknowledging that you are investing in Section 8 for the cash flow (vs long-term appreciation).  There is no cash flow if the tenant does not pay their part, you will likely cover a portion of the rent but not be positive cash-flow unless the tenant pays on time every month.

- Be sure of your goals and the work-effort needed to produce the results.  Most recent Section 8 story I heard was from a bank teller who is very bright and inherited a S8 property.  But the tenant stopped paying, the guaranteed portion didn't cover the mortgage, she was falling behind, stressed, and her credit was taking a hit

- Due to the work effort involved, I would recommend either an experienced property manager or making sure you can conveniently get to the property

Alex J. · Answer

there are pros and cons

pros : if u end up evicting, you still get paid from the program until the tenant move out so you will at least get partial pay

cons: you usually have trouble finding qualified people..but if you find a good tenant that has some pride in where they live then it wont be too bad

Thomas S. · Answer

Screening is the tool of choice in regards to either eliminating section 8 applicants or insuring you get the best quality, whatever that means, in section 8 tenants.

You may be assured you will get the HUD portion of rent but do not count on the tenant portion. The tenant portion should be considered a bonus that you may have to work hard to get.

Training section 8 tenants is much more difficult, verging on impossible in many cases, than your normal tenant demographic and their mindset/attitude often makes intensive hands on management mandatory.

Sometimes the work involved to insure a so called guarantee is simply not worth the effort.

Ronald Perich · Answer

I've heard that some communities won't allow you to ignore Section 8 as a source of income for your screening. But not in my area. HUD asks if you are willing to take on a Section 8 resident.

My particular HUD office seems to do a decent job with keeping their recipients on the up-and-up. They've been pretty responsive and do a good job of responding to issues. I think they've done a good job of straddling the line between resident needs and landlord needs.

One issue I have with my local HUD is from a different division entirely. At the risk of hijacking the thread, the HUD-owned housing in my area seems to be overbuilt and, dare I say it, exquisit for the area. They spent nearly $250K per unit on a community they just completed. This is in an area where SFH of similar sizes can be built for less than $75K. If they were a private firm, they could rent the apartments for maybe $650/mo. Things like solar panels, high-end fencing around the whole community, etc.

They could have helped house a much larger number of people had they used that money for Section 8 instead of building a new community. They would have also made a much larger impact on the community. Instead, you have these beautiful structures sitting right next to dilapidated and boarded up houses, some of which can't be given away.

Natalia Collini · Answer

I have mixed thoughts on the idea. On the one hand I love the idea of the stable income that Section 8 would bring in. On the other hand, the class of tenants that {usually} accompany the Section 8 vouchers is worrisome to me. On the OTHER hand (lol) I myself have applied for housing assistance in the past, so I am sure there are many other people like myself out there looking for good housing. Properly vetting any potential tenants would reduce the risk of course, but it's still something to think about.

I think what we will end up doing is advertising our properties "section 8 welcome to apply" and see how it goes. We certainly won't know until we try. :-)

Section 8 Investment Properties?

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