Predictability of Section 8 Rents?

[Jeffrey Gordon]

We are looking at acquiring a 12-18 duplexes in our farm area that we currently have 9 buildings in.  We have been working on two buildings in the last year with our first Section 8 tenants.  We have a good "case worker" and have found the premiums for these tenants to justify the extra work and risks.

Being new to the program we are not familiar with the predictability of future section 8 rental rates.  Depending upon the final negotiations we might need to place most of these newly acquired duplexes into the section 8 program--our case worker tells us they have a long list of quality prospects.

To finance the purchase we are envisioning some "preferred equity" capital being sourced and our goal would be to refinance the first mortgages in 3-5 years and pay off the "preferred equity" at that time.  With the premium rents we would be in a position to make additional capital contributions monthly to the first mortgage and pay down the balances enough to refi out the "preferred equity" investors.

So our question is how volatile are section 8 rents, are they likely to drop if new inventory pushes down market rental rates etc. and how responsive is section to the market?

thanks

j