Found my next deal but section 8 tenant - close or run away?

Question

Hi BP friends! I have a property under contract and have found out one of the tenants is section 8. I'm still a relatively new investor and have not yet considered the program, so I don't know much about it. I'm in the contingency period and trying to decide if it's a good idea to pursue the deal or not. I've met the individual during my initial property tour and at the property inspection. The tenant isn't what I would consider the stereotypical bad section 8 tenant, so on the surface of it all, I don't see any red flags that would push me away. I just really don't know much about the program, and want to learn more before I can make a decision. What are some resources to educate myself? I tried searching on the google machine for local resources but couldn't find much other than contact information and really basic navigational type information.

If I close on the property, is there anything required of me as the new landlord to be part of the program? Are there limits on how high I can raise rents? If this tenant moves out am I able to opt out of the program? Any rules on lease renewal or denying renewal?

Thanks!

If I close on the property, is there anything required of me as the new landlord to be part of the program?  Are there limits on how high I can raise rents?  If this tenant moves out am I able to opt out of the program? Any rules on lease renewal or denying renewal?

Thanks!

Brian Garlington · Answer

Not sure what you mean by “typical stereotypical bad section 8 tenant”.

I have Section8 tenants in Cleveland as well as cash tenants . Guess which ones cause the most drama? Guess which ones claim the most frivolous maintenance requests? It’s the latter not the former. Oh, by the way 70-100% of the rent money is guaranteed. I’m sure you have heard of one or two landlords on this forum perhaps mentioning being concerned about not being able to collect any rent and still not being able to evict a tenant 😉. In any case, all you need to do is let the housing authority know that you are the new owner. It may take them 2 or 3 months to “catch up” to you with the payments but they will take care of you and make it retroactive. Also make sure the seller transfers the security deposit that the tenant made over to you. Finally make sure you have the seller fill out an estoppel before closing and if you can, make sure the tenant fills out one before closing. If for some reason you can’t get one from the tenant before closing then get one immediately after closing.

John Underwood · Answer

I have 3 section 8 properties.  I love the program. Most or all of the rent on these properties is guaranteed and shows up like clockwork every month.

Section 8 inspects these properties for free and this ensures the tenants are taking care of the properties.

Buying a property that already has a qualified section 8 tenant would make it more valuable to me.

Kathryn Legat · Answer

I help many local and out-of-state investors with getting Section 8 tenants.  In my area, I know most of the inspectors and they do want the house to be in great shape for the tenants. Some inspectors want it freshly painted inside, others not.  I do find the best Section 8 tenants as I find out where and how they live when it is time for them to apply. You could do the same. Also, any discovered drug dealing or violence type police calls (usually by the boyfriend), Section 8 don't play.  The tenant can lose their vouchers so most stay on the up and up.  When the tenant moves, another Section 8 tenant comes in.  I know that Section 8 is guaranteed rent for the investor even when you have to wait a few months, but the headaches with the ones I placed, are less than the working tenants as they do not want to lose their vouchers because our HUD caseworkers ask every year before renewal to the owners how the tenant is doing. HUD now gives $1300 to $1650 in my area for 4-5 bedroom homes, so they are competitive.  Some homes are in beautiful areas and sometimes they can command more if there is a shortage of homes in that zip code.  HUD is worth it for investors if your county HUD offices care.

Patti Robertson · Answer

@Jeff Rogers - This topic comes up ALOT. If you search for SEC 8 you will find thousands of posts on BP.  I do a lot of SEC 8 renting and to save my poor fingers from typing a novel every time this question comes up, I put my answer in a blog post.  You can find it here.  https://www.biggerpockets.com/...

Scott M. · Answer

Sec 8 tenants get a bad rap in my opinion.  And I get it.  If you have 1 rental home and have a Sec 8 tenant and they are a bad tenant you blame the program not the tenant.  That isn't the right thing to do in my opinion but a lot of people do that.  Then they post their experience to places like BP and others learn that same lesson from them Sec 8 is bad.

Many hundreds of properties under our management since 2000 and I can tell you that it isn't Sec. 8 that is terrible.  Portfolio wide there is very little difference between Sec. 8 and Market tenants in the areas that count like evictions, tenant turn costs, maintenance etc....

That said, there are horrible tenants who happen to get their rent from Sec. 8.  Just like there are horrible tenants who pay rent themselves.  It isn't the source of the rent that determines who is good/bad, it is the individual person.

The only real world difference between the two we experience is the Sec. 8 inspection prior to move in and then the yearly inspection.  They rarely hold the tenant responsible for things that are clearly their fault (missing smoke detector for example, was there on initial move in, not there on yearly, clearly the tenant removed it but the owner is generally responsible for putting it back).

Is that tradeoff worth guaranteed rent to you?  Maybe yes, maybe no.  But don't blame a whole program and all tenants because you read a story about a terrible Sec. 8 tenant.  Ever read one about a terrible market rate tenant?  If not, just look at BP and you will see plenty of them but few seems to paint all market rate tenants with that same brush.

Great and terrible people on both sides.

James Wise · Answer

When you get into lower cost rental properties the Section 8 tenants REDUCE your risk of loss. The neighborhood is going to determine the quality of the tenant base. Lower the quality is the more important it is for you to get the guaranteed rental income from Uncle Sam.

Jeff Rogers · Answer

@Patti Robertson great article, thanks for sharing the info!

Kathryn Legat · Answer

@TiffanyB  In response to your question about what service do I provide, I was not sure if we can post our phone# or promote our business.....I haven't been on BP in a long time so not sure about the new rules.....I have wholesaled, rehabbed & managed rehabs, found properties for the owners, etc. (as an admin of course), and have acquired my own buy & hold properties.  Section 8 was a great go-to as many of the local & out of state investors were not getting their rent, so they called me.  I would evict their tenants (it was getting ridiculous) & another investor told me about HUD.  Best ever and most of the evictions stopped.  I know investors help each other and this thread gives spot-on advice.  Let me know if we can post our # or email and I will be happy to help you. I do cover Northeast Florida; the largest city in the state of FL.. (any direction, within an hour or so from downtown Jacksonville :D LOL)

Pat Goodyear · Answer

My only 2 cents to add - section 8 does NOT do month to month; at least for the first year. Also, when you qualify your tenant obviously you include the amount of the voucher. If they lose their section 8 - fraud, boyfriends, crime - YOU have to deal with Eviction.  Also, in some states - like NY; if you are receiving any rent, you can not evict. Section 8 money is direct deposited. So if you decide to end the lease and they don't leave (it is HARD to find landlords who can qualify a section 8 tenant. In NY you cant discriminate over section 8 but you can set qualifiers - like 3x rent amount and min credit score) you will have a hard time evicting them.

Jill F. · Answer

Hi Jeff, congrats on your upcoming purchase. Having a section 8 tenant would not stop me from closing on an otherwise good deal. We are value-add investors and I have found that section 8 does not pay enough to cover the rent on our properties after renovations. We are routinely getting $50-$200 more per month on the open market than section 8 is willing to  pay.

Found my next deal but section 8 tenant - close or run away?

Most Popular Reply