Section 8 Investing

[Sophia N.]

Hi, I am considering investing in section 8 as a LL catering to tenants with vouchers and want to know the pros and cons. It seems like a great opportunity to make high returns with limited risk, but there has to be a caveat. If it was so great, why hasn't everyone been doing it for the past 25 years?  

[Melissa Hartvigsen]

Quote from @Sophia N.:

Hi, I am considering investing in section 8 as a LL catering to tenants with vouchers and want to know the pros and cons. It seems like a great opportunity to make high returns with limited risk, but there has to be a caveat. If it was so great, why hasn't everyone been doing it for the past 25 years?  

Hello @SofiaN,

Administration of Section 8 rent payments will be handled by your local Housing Authority. The local authority website should have a tab for landlords that will give you general information about how to participate in the program.  

The Housing Authority will review the household makeup (I.e family size) and income. Typically, the tenant will have a voucher for a specific home size. It’s important for you to confirm that the voucher matches your rental size. For example, if you have a single tenant and he/she has a voucher for a studio or one bedroom, but applies for your three bedroom house, the Housing Authority will not pay you. The Housing Authority also sets a maximum amount that they will pay based on unit size. You need to confirm the amount with the Housing Authority because it does not typically state the dollar amount on the voucher.

The pro is that you have steady guaranteed income, assuming that the voucher covers 100% of the rent. In most cases, a voucher covers a portion of the rent, and the tenant is responsible for the remaining balance.

Another pro is that section 8 tenants stay longer at their rental than other tenants so you will have less turn over.

Cons: there is more paperwork involved. When you accept a section 8 tenant and you approve an application for rental, you must submit an inspection request to your local Housing Authority. They must approve the habitability of your rental before payments start.

During the tenancy, section 8 also conducts annual inspections to make sure that habitability is maintained.  

Any communication you have with the tenant that includes notices of violation, rent increases, etc. must also be provided to the Housing Authority.

I am no longer in property management, but had a 10 year career where I managed 300 units and 25% of the tenants received section 8 assistance.  In my experience I received more late payments, and more maintenance requests caused by damage and neglect from tenants receiving section 8 assistance than I did from tenants who did not receive the assistance.

Cheers,

Melissa