Section 8 Decreasing Payments?

Question

Hi all,
Has anyone noticed Section 8 rental payments decreasing lately? I have several 3/1 1000 sq ft duets that have previously been renting to Section 8 tenants for 1350-1395. Sometimes I will rent to tenants with 2 bedroom vouchers for 1250 (the top out here for 2 beds). But now when we turn the paperwork in for a new tenant for Section 8 to "process" (and wait 2-3 weeks) Section 8 comes back with an offer of only 1049 with no tenant contribution allowed.
My questions are:
1. What do I look for upfront when the tenant applies besides the voucher amount (which says up to 1250). Income?
2. Does anyone know Section 8's magic formula for determining rent? (It's not comparbles, they are renting for more in that area.)
3. Can I leave the house on the market while waiting for the Section 8 process - Or will I get "in trouble" if the Section 8 office sees paperwork for two tenants for the same property?

Unfortunately in that demographic area I can't rent to nonSection 8 tenants (tried that and had to evicit 4 out of 5) Fun. Fun. Fun.

Thanks for your help.
Debbie

Chris Martin · Answer

See also this BiggerPockets article. You can look up MSA contract rent amounts from this main HUD screen, then chase down to the county level to compare given years, like in this 2012 California county vs. this 2011 data for the same county. The algorithm is in the text. For example, in my area... Process Step Step Result 1. Begin with Final FY 2010 2 Bedroom FMR $856 2. Remove Trending and CPI Updates from Final FY 2010 2 Bedroom FMR $770 3. Determine Update Factor through 2008 1.0 4. Apply Update Factor (#2 x #3) $770 5. Evaluate ACS Survey Result and Determine 2008 Rent $805 6a. Calculate Update Factors to 2009 and 6b. Trend Factor to April 1, 2011 1.0382 1.0376 7. Apply Update Factor to 2009 and Trend to Get Final FY 2011 2BR FMR (#5 x #6a x #6b) $867 The table doesn't display well... at least it is a start... if you want to do the calculations yourself.

Debbie Farmer · Answer

@ Chris.. thanks so much for The Secret Formula. Once my head stops spinning I'll figure it out for my rentals. @ Bill.... just joking about being a "slumlord". When I bought the duets they were all updated..granite counters, tile, pergo, custom paint. Better than my house :) I meant more the area - it's known as - ahem - "undesirable". Yes, I definately need to qualify tenants better. It's slim pickin's in that neighborhood though. It's not a matter of picking the best one, it's more like picking the least bad one. :) My Big Plan was, instead of buying one average 3/2 bedroom house in an average/good neighborhood for 190,000ish and renting it out for 1600/mo I could buy 2 duets for 80,000 each in a "not so good" neighborhood and rent them each for 1350ish (now 1049...apparently). It worked pretty good (give or take a few evictions) until now. I still have positive cash flow so can't complain too much. But still....the difference of what I was getting from Section 8 for the old tenant between what they offered me for the new tenant equals 3.5 months rent less than what I was getting before. Ouuuch! Onward.....

Bill Gulley · Answer

LOL, now that the secret is out, you're safe, Thanks Chris. Yes, starting off you will have some lag time waiting for it to be inspected. The rents approved can not exceed what it is, amenities can make some differences especially on the attitude of the inspector and rent analyst. Slums? You will have a very hard time if you expect to be a slumlord under section 8, not sure if that's what you meant, top shape is expected for what it is, safe, clean, secure and energy efficient if tenant pays utilities. Good luck, it can be a good deal, just qualify tenants carefully.

Chris Martin · Answer

Better just to provide a link to a sample HUD algorithm for a NC county. Page down to see the calculations.

Debbie Farmer · Answer

Hi, Thanks for your reply. At this point go ahead and tell me the formula and shoot me. I don't care. :) Unfortunatley, the problem is the waiting gap between the lease and the inspection period. Their voucher might say $1250 and the lease might say $1250, but the section 8 offer will ignore it and will come back at $1049 the day before the inspection. I guess my Big Plan on taking over the slums one duet at a time is better in theory -- like most plans in landlording....

Bill Gulley · Answer

Your tenant screening should be the same as anyone else, you are not making the qualification determination as to the voucher, you simply look at the amount qualified for and rent at that if you can or less. The magic formula is Top Secret, I'd have to shoot you if I told you, LOL But it's based on the housing costs of the statistical metropolitan area, the MSA as established by HUD. It is based on bedroom count and sq ft as well as other factors like type of heating, kitchen appliances included and utility rates. I'd say, don't even try to understand it, just use it. Initially you can ask what the property qualifies at, if they won't say, shoot a little higher than market rates and then they will provide input. But, you can charge more than the market rate if the tenant can pay the difference so long as the tenant doesn't exceed their qualified rent might be, which is 33% of income I believe. So, if they have a job they can pay more, but not over the % allowed by HUD. Best to rent at the voucher allowance, IMO, so you're not doing collections. Yes, you are not obligated to hold a property, when you have a qualified tenant who has a valid voucher, make out your lease. You will have to have your property qualified for assisted rents, so contact the Sec 8 Office, they will review your lease for compliance and inspect the property. If it all passes, you're ready to rent. When you get your lease contact the Sec 8 office to get on the rent rolls, the first check may take some time in some areas.