Section 8 property??????

[Kevin Douglas]

I found a deal that looks really sweet on paper however it is a section 8 house. The contract is currently for the next 11 months. I think I could get that property for 60 K and it rents for 950. It has a new roof new HVAC and new hot water heater. After 20% down, taxes insurance maintenance, it would cash flow around 500 a month. is it too good to pass up, or should I say no to the section 8? Advice please! No experience with section 8

[James Allen]

@Kevin Douglas - I have a section 8 tenant. The one I inherited had been there 23 years prior to my purchase of the property and had no trouble paying on time so for me, my section 8 tenant has been great. I have however also heard nightmare stories about section 8 tenants. 

Firstly, I'm assuming this is a property on the MLS. Do you have this deal already under contract/in escrow? If not, you might find there could be a lot of competition for this house already if the numbers really are what you say. It would be a mistake to pass on the opportunity without giving it a chance. (Further explanation below)

Secondly, If numbers make sense, I would put an offer in to secure the property and during your due diligence, I would suggest doing more research about your potential tenant in addition to your inspection. Verify how long the tenant has been there, ask for the updated lease agreement to make sure it is $950 a month, Check original lease agreement with security deposit info, Acquire Rent Rolls to make sure they have been paying. This should be a good place to start with your due diligence. 

Lastly, don't forget when calculating cash flow, aside from taxes, insurance, and maintenance, to include budget for Cap ex, Vacancy, Misc. Fees (Lawyers, Evictions, random expenses),  Property Management, and also check if your property falls in a flood zone! Lenders will require flood insurance if it does fall in one which depending on your property's level of risk, could be a cash flow killer. Again, you could still assess things like Flood zones during due diligence but it's not hard to pick up the phone and call your insurance agent for that. 

Good Luck! 

- James