Section 8 Viability?

Question

Hello!

I've been lurking for a while on BP trying to learn as much as I can from this great community and thought I'd jump into the conversation with an issue I have been struggling to fully understand!

I'm considering purchasing 2-flats in Chicago's Southside where most of the rents are Section 8. Wanting to understand all potential risks, I see one such risk that the government lower the amount they are willing to cover for rent (or even end the program).

Given the knowledgeable forum members as BP, I'm curious to hear others' experience around the longevity of the Section 8 program--have you experienced any adverse government actions with regard to your Section 8 rentals?

Lynn McGeein · Answer

Chad, One thing I found disturbing is that the Section 8 people froze rents, no increases, for the last few years. Had I known they were going to do that, I would have raised rents earlier even when not needed. It was frustrating that when my expenses triggered needing a rent increase, they randomly put a freeze in place. Just policy, no consideration of no past increases or that it's the lowest rental in the area. They now are allowing maximum 3% increases per year, but you have to justify it ... any increase must show improvement for the tenant, not just repair expenses or increase in real estate taxes or insurance, even though it's over 7 years now without any increase. My only option is to not renew their lease, forcing out a grandmother taking care of her handicapped grandchild, which is going to feel horrible but that property should rent for much higher, and taxes, insurance, and HOA fees have gone up considerably in the last 7 years. So I don't have any other Section 8's because I don't like how a change in their policies can randomly dictate my business.

Bill Gulley · Answer

While the number of vouchers may be limited due to funding for Sec 8, I'll bet it won't be ended and if it is, it will be replaced with another program. Any rent restriction is not really enforceable since you can get out of Sec 8 any time. Tenants can pay more than they are alloted, so long as rents don't exceed 33% of thier monthly income. I suggest yo talk to the Sec 8 administrator for your area and see what they require.

Prashant P. · Answer

Another thing to consider is housing codes. In the area I am in, the Housing Authority has strict codes you must follow if you are in there Section 8 housing program. So if you buy these properties be aware that you may have to fix some code violations. If you think about the codes they make sense. Also, in alot of bigger cities there is a shortage of affordable housing so your pool of potential candidates is pretty large.

David B. · Answer

Hey Chad, I'm a Chicago investor with over 10 section 8 tenants on the southside. I too was concerned with the future of the program a few years back but have since been more confident. I have read more into HUD and get updates and news about its prudence. Vets and single moms are a big part of the section 8 program and don't see the government cutting funds anytime soon. Keep in contact.

Rob K. · Answer

I currently have several rentals on Section 8. I've also had dozens of other Section 8 tenants over the years. The biggest problem I have with the program (other than the fact that I don't believe in freeloading and feel these people should get jobs), is that every office has different standsards and different rules. In my area, some offices require two people per bedroom while others don't. There could be a single woman with a son and daughter that gets a two bedroom voucher from one office, but the same family type gets a three bedroom voucher at another office. One office in my area will pay a max of $779 for a three bedroom house. I have a different three bedroom house right now rented to someone from a different office and the rent is $860. It's very frustrating when a potential tenant calls. I have to ask them which office they are through and then explain that because they are with a particular office, they need to find something cheaper. Then they want to argue with me becasue they don't understand that their voucher is for rent and utilities. I'm not paying any utilities, so those amounts need to be backed out. Another thing in my area is that some offices require the landlord to provide a stove and fridge and others don't. As far as the longevity of the Section 8 program, I don't think Obama will do anything to end it. I actually hope it does get ended some day. Until then, I will continue to accept the easy money, but I'm careful not to have too big of percentage of my rentals dependent on it. I don't want to have a catastrophe if and when it is ended.