Just found out one of my future tenants is Section 8- Advice?

Question

So I have verbally agreed to a sales price pending inspections on another duplex in Cleveland.  The area if pretty nice and the house is in pretty good shape.  I am getting the property for 96.5K and Im pretty sure it is worth 115k now.  I have good reason to believe this area will appreciate in the next couple years, in addition to earned appreciation I believe with about 20K in repairs i can boost the current market value to about $155-160K.   So with this all said, I have agreed to purchase at 96.5k and I agreed I would allow both tenants who are taking good care of their properties to stay.  I was under the impression the each paid $900 but just found out its actually $850 each and one of them is section 8.   I don't know anything about this but need to sign a contract to buy asap before one of you find this house....lol      In all seriousness, what do i need to know?    Can i adjust the rents to $900?  Is there any good, bad or ugly I need to know about buying  a property with and existing section 8 tenant?  Thanks so much for any quick assistance in this matter.

David Terbeek · Answer

@Brad Fausett We have around 60 CMHA subsidized units in our portfolio.  They are neither better or worse, just different.  As Don noted, they do visit annually but I feel that they sometimes nit pick.  There will always be something to fix to keep them happy.

The rent situation is curious because I don't think there is anyone at the organization that can tell you how they determine "market" rent as they do.  The problem with rents is that when you apply for an adjustment the rent might go up as requested or it might actually go down as we have had happen a couple times.

The good news is that the tenants tend to stay longer and the 3rd of the months is like a little celebration when that money shows up in your account.  In the end, I would not be scared of it just because of CMHA involvement but do ask to see the HAP contract from the seller in addition to the lease.

James Wise · Answer

After the existing lease is up you would need to fill out a rent change request and provide section 8 with comps to defend said request.

Patti Robertson · Answer

@Brad Fausett - Personaly I'd be thrilled if they were SEC 8.  Tenants always get spooked when they get a new owner.  A SEC 8 tenant will be less likely to try to move.  SEC 8 will require you submit paperwork saying you are the new owner and you can request the higher rent.  As long as the tenants are working and your rent amount is comparible to the market, you will likely get it.  You can test if now by creating a free landlord account on gosection8.com, entering the basics about your units, clicking on tools, and then rent compatibles.  It will show you where you are in the range. I try to always be on top of the rent range.  Once your paperwork is submitted SEC 8 will make you create a new 12 month lease with the tenant. Easy peasy! I'll send you a link to an intro to SEC 8 doc I've used at our local REIAs. BP won't let me post it here b/c it has my logo on it.

Patti Robertson · Answer

@Daren H. has a GREAT point. Once you have a ratified contract, you or the Seller can request that SEC 8 put the payments on abatement so they don't accidentally get sent to the old owner after you close.  With ACH and burocracy, you need to have enough lead time to get the notice in.  No one will lose the income. SEC 8 will just hold it until after you close and your paperwork is done.

Patti Robertson · Answer

@Brad Fausett - The HAP contract is the contract you will have with HUD.  First you submit the RFTA - Requesst for Tenancy Approval.  Then your rent is agreed upon, you pass inspection, sign the lease, and send a copy of that signed lease to the SEC 8 office. Once that's done you will receive a HAP agreement - Housing Assistance Payments Contract.  You sign that and get the origional back to the SEC 8 office.  Only then can they process your rent payments to start, however they will prorate back to your lease sign date.  Payments are generally processed on the 1st and the 15th.

Brad Fausett · Answer

David, what is the HAP contract?   Thanks for the great info again team!

Don Petrasek · Answer

@Brad Fausett  Haven't been involved with Sec 8 tenants for probably 5 years now, so maybe things have changed but in Cleveland rents are set by CMHA and they were market or slightly lower for the houses we had (44111 zip code).  And we could never figure out how they calculated rents (asked one of the counselors once and she had no idea either).   Seemed as though in the past they were above market but something changed here.

We had annual inspections which as Kevin noted were actually a good thing in terms of keeping the property up- tenants knew if the inspection failed, they might be out so we actually had one who was painting and doing other minor repairs herself to make sure the house was ready.   Inspections were hit or miss.....ranged from a 2 minute run thru to a house inspector like tour.   Overall inspections were pretty fair and we never got hit for anything unexpected.

I think they will also make you go to a landlord class to be involved in the program which is no big deal - was just a Sat morning I think.

Overall it worked OK for us in Cleveland, we got out because we wanted to be more in control of rents.

Brad Fausett · Answer

Wow,  Thank you so much Patti and Kevin!!  You have alleviated a lot of concerns i initially had and verified other things I have been reading!   Patti thank you for the pdf.   I am heading over to start reading now!

Kevin Hunter · Answer

@Brad Fausett, congrats on finding this deal.  I have a four family with section 8 tenants and I haven't had any problems whatsoever.   What I have found is that they pay their rent on time every month and keep their apartment in pretty good shape.  One nice thing about Section 8 is that all areas have some type of inspection protocol.  Where my property is located, the housing authority sends an inspector twice a year to inspect the property.  Some people look at it as a nuisance, but I love it.  I send my property manager with the inspector and we get a good look at the unit.   Another nice thing about section 8 is that the unit can always be rented at market value or slightly above and it doesn't affect the tenant, they still only pay what they can afford.  The housing authority makes the difference.  If for some reason the tenant stops paying, the housing authority still pays the subsidized portion until you get the apartment re-rented.  The tenants very rarely miss a payment though, because if they don't meet their part of the agreement, they can be disqualified from the program all together.  You are therefore afforded a bit of stability.

Your ability to raise the rent is based on the lease.  The current lease that is in place has to be honored so you can't raise it until the end of the term.  However, as long as that rent is consistent with comps, you can raise it as soon as it ends, and the tenants portion will not change.  The only time their portion changes is when their income changes.

I have been very fortunate with my section 8 tenants and I know that is not always the case.  For my money, I like the idea of subsidized rent as a guarantee against complete rental loss from a flakey tenant that takes off in the middle of the night.....

Good luck!

Just found out one of my future tenants is Section 8- Advice?

Most Popular Reply