New Sec. 8 Investor/Landlord

[Yusuf Salloum]

Hi all,

I'm a new real estate investor looking for perspective from folks with more experience in renting to Sec 8 tenants. I did a lot of reading in 2016 and decided to take the plunge in late 2017. I started in affordable housing because from what I've gathered a lot of successful investors start in this space. 

I bought a 3 unit property in the far West Chicago area (North Lawndale). The neighborhood is pretty rough, but not as bad as other parts of Chicago with regular murders. The property grosses about 3600 fully rented. My mortgage/taxes/insurances comes out to about 1250 a month. After the water bill ($150/month) and general maintenance (est. $500-600/month) the place should net about about 40% of gross rents. I didn't factor in property management fees since the contractor I work with doesn't charge me a monthly fee. He just charges for the work he comes out and does.

While that all sounds nice and dandy on paper, reality has been a bit harder. One tenant moved out 2 months after I bought the place. Her unit needs about $1,000 in work to get it ready for the next tenant so I'll miss out on at least two months of rent. There's also been a mice issue that will not go away. I'm not trying to treat the property like a Ritz Carlton but I can't have tenants threatening to call the city if I don't get rid of the mice problem. 

I'm looking for some advice from folks with experience in Sec. 8 properties and West Chicago more generally. I underestimated a couple things going into the deal:

- The nature of the tenants:  they are rough on the property, will do anything to dodge their portion of the rent but will always complain when there's an issue. 

-The wear and tear on capital assets: The furnace, water heater, washer and dryer, and oven are all abused. Given the cost of these items my goal is avoid replacing them for as long as I can.

Would love to hear more from folks on how they deal with unruly tenants, and their strategy on maintaining profitability in Sec. 8 investing. I don't think the property will appreciate more than 1-2% a year so for me cash flow has to be solid to make this worthwhile. 

Lastly would appreciate any perspective on the far west side of Chicago. From what I can tell there is some gentrification happening. It's definitely not as nice as Humboldt Park, but I hope North Lawndale can get there in time. The demographics of the Chicago land area aren't great given the stagnant population, so I don't know if there will be any real impetus for gentrification in this part.

Thanks all

[Thomas S.]

Your situation sounds about typical for class C especially welfare tenants. Obviously the mice are an issue and you should have poison traps set around the property at all times. You get mice when tenants live like pigs, it's not uncommon in C properties, and is a ongoing issue to deal with.

When dealing with tenant issues you must immediately respond by issuing no pay no stay notices on the day after rent is due and notify their handler immediately. If they are not trained quickly you work with their handler to get a replacement. The threat that they will lose their welfare check should get them to toe the line. You must learn to brush them off when they call to complaine. Emergency repairs only.

To maintain cash flow you must keep repairs to a minimum. Do not jump to respond to every call. It is all about collecting rent and minimising repair costs. 

[Michele Fischer]

A lot of folks will tell you not to deal with section 8/class C properties, that it isn't worth it.  It is a lot of work, but pretty rewarding to provide housing to a niche that truly struggles.

With generational poverty there is an aspect of tenants not knowing better.  So it is part education, part beating your head against the wall.  I suggest frequent inspections, and point out situations that are causing damage or rodent problems.  I had a tenant who put milk out for feral cats then insisted that we get rid of the smell from under the house.

Plan on replacing the same things over and over and over.  Make sure you don't over improve between tenants.  The most important thing is to get non-payers out as soon as possible, and with as little drama and damage as possible.  In December we had a tenant get mad and do $7,000 damage just to be spiteful.  Rent could be lower if we didn't have such big losses, it's such a shame.  But we still cash flow well.  One property may fail for one year and be close to break even, but they average out.

[Michelle Clark]

Not all section 8 tenants are bad. I suggest you do a full background check.

[Robert Leach]

The "Smart Section 8 Landlord" by Al Roti Roti is a fantastic read and available on Amazon. 

[Ashley Pimsner]

@Yusuf Salloum I do agree that in time we will see some gentrification on West side in North and South Lawndale/Little Village, but make no mistake there is a section in North Lawndale that is very dangerous which is beat 1011. I spoke with 4 police officers who patrol that area and they said anything South of 16th is fairly safe, but I prefer to be S of Ogden Ave.

https://www.google.com/amp/s/www.dnainfo.com/chica...

As for mice use Chemwise out of Berwyn and your problems are solved as they use bait stations which dehydrate mice which makes them leave building in search of water so they die outside instead of in walls.

Me section 8 tenants are like all other tenants and at first contact they are told that if anything needs fixed I will have it done in 24 hours and 48 max, but if rent is late I react just as quickly to evict and will make sure to keep CHA in loop every step of way so their voucher is in jeopardy. 

Most times this enough for non payers to look elsewhere.

I don't pick up rent but train tenants to deposit it in my bank account with deposit slips they are provided in the name of my business entity.

Never ever allow any tenants to train you that it is acceptable to be late on rent, and if they are in HCV program call CHA immediately when rent late and follow your lease.

Just my 3 cents.

Good luck

[Yusuf Salloum]

@Ashley Pimsner, interesting to hear that. I'm actually just north of 16. The property I bought is between 16 and 15 just west of Homan. It's definitely a rougher part of town, but fortunately the street I'm on is relatively safer (basing this on shootings maps). 

I appreciate the recommendation on exterminators. I went with a national branded company with local franchises...utterly useless. Next I brought in a local guy and he seemed to know what he was doing, but the mice were not interested in his poison. There was so much food available courtesy of the tenants the mice didn't bother eating the poison. To date, the best thing that has worked for me are traps baited with peanutbutter. The mice can't resist the peanutbutter. Ultimately I need a qualified contractor to examine the outside of the house and patch up holes by which the mice are coming in. 

[Yusuf Salloum]

Also...any recommendations on property managers. I don't have the time to self manage the property. I'm currently looking at Lett's property management and Paper Street Realty but I'd like to find a vendor with lower fees. They both charge ~7% of rent and hourly rates for all contractor work on the property. Of course there is a surcharge if they have to utilize external contractors.

[Cliff Mccue]

@Yusuf Salloum 7% for your property is a steal.  Your property manager is the most important person on your team.  They can literally make or break your investment.  Would you go cheap on your money manager?  A bad property manager can cost you 10's of thousands by placing bad tenants or not maintaining the building or not collecting rents.  All this to try to save $36 a month?  If you are shopping for the cheapest manager you are going to experience it in your bottom line. 

[Kyle J.]

@Yusuf Salloum  Read the Section 8 Bible. 

[Timmi Ryerson]

I have had section 8 tenants but long ago. Most were mentally unstable and were under state supervision. This was a good thing at the time because they did weekly inspections. The handlers worked with the tenant to improve their cleanliness and get them trained in normal adl's (activities of daily life like bathing and cleaning.) One problem is that you will get phone calls repeatedly from those who cannot help themselves. I suggest that you set up a call message system so that you do not have to speak to them every time. I always checked with the handlers before making a visit to the property to inspect damage. They were on top of these problems. We had very few people on welfare so cannot speak to that. Recurring problems with mice is because people leave food for easy access either in cupboards or on the floor or both. It also causes ants in warmer months. If you can train your tenants to store food in proper containers, not to leave old stale pizza laying around and to sweep and vacuum regularly you will solve the problem. If you put this into the lease that you have, you have recourse if inspections fine the tenant of compliance. Take photos and go to the HUD office to demonstrate non compliance. Make it their responsibility to get the tenants to comply or issue eviction notice for non compliance. The other option is to make it possible for you to charge for rodent services and pest services in general if they are not taking care of the property. Screen all tenants. Give the a reason to be proud of where they live by choosing tenants carefully. My 2 cents worth.

[Ryan Canfield]

@Yusuf Salloum  Hi Yusuf - now that about 1 year has passed - how have things gone with your property?  Did you get property management or continue to manage yourself?

[Alishea B.]

I was wondering the same thing. Also Section 8 is great by John Russell is a good read. Section 8 bible 1 and 2 were gems too. Best of luck. Drop us an update.

[Zac Boelkow]

I bought a duplex with a section 8 tenant in it last year. The tenant is top notch. The housing authority that handles the finance/tenant are also a joy to deal with. They are very eager to help and willing to spend time with you and work with you so you get good tenants. Ultimately you control the tenant that gets put in to your property. Do your homework upfront and don't rush in to a bad tenant. Most people are great, section 8 or otherwise, so when I hear about the "nightmares" from other property owners/investors I always wonder what they are not doing to prevent themselves from being in a nightmare situation. I have only been in "C" hoods and have had my fair share of success and nightmares and both were 100% my fault...

[Tim King]

Looking at some section 8 housing myself... alttle unsure about exact in's and out's...  I like the payment thru gov, so you know you got that...  Just alittle unsure about regular maintance and damages...  Cause you know most will not have money for damages past $500...  any suggestions??    what should i use for my monthly maintence budget??