Section 8 Turnkey rentals. Too good?

Question

James Wise · Answer

In my vast experience working with a wide range of Midwestern rental properties including tons low end rental properties ($50 Million portfolio) those are tough investments to produce a positive return on while having to pay someone else to manage them.

• Can it happen? Yes. 
• Does it happen some years and not others? Yes.
• Does it happen for some properties and not others? Yes.
• Is it my absolute favorite investment type to personally invest in? No.
• Is it my recommended investment type for those just starting out? No.

I think your better suited to move up to a higher asset class and get tenants who can pay their own rent. Working with Section 8 sounds great in theory but in practice it's an absolute nightmare. You are all but guaranteeing that your tenants are completely dirt poor. They are very rough on the home and that becomes very costly for you during the annual section 8 inspections. Section 8 will come out and make you repair much if not all of the cosmetic damage your tenant has done to your property.

If you are reading this and you are one of those bright eyed green newbies who are thinking "That's ok if they cause cosmetic damage James, my lease says the tenants will need to pay for any of the damage they caused. I will just have them pay." Yea that's great your lease says that. However your tenants are dirt poor remember? What are they going to pay you with?

If you don't pay to fix it then section 8 takes away your payment. You then need to go through the eviction process, which will be tough considering the tenants defense is that you failed to provide them acceptable housing. Once you finally get that tenant out & pay $1,000's of dollars to repair it you can then find a new section 8 tenant. Who needs you to hold the property vacant for up to 90 days while you go through several section 8 quality inspections. Let's just hope the tenant is still around when it's finally ready for them to move in. That's not always the case though because you didn't collect a hold deposit from them because remember they are dirt poor and don't have any money. Section 8 will pay for everything once the house passes all the inspections.

For those reasons above I prefer to rent homes to cash paying tenants. If your going to go that low in asset class it's a battle. I at least want to have as few opponents & red tape in my way when I decide to embark upon that battle.

Justin D. · Answer

@Saj Johnson

@Tony Manning

I have volunteered at my local Area Housing Authority to help resolve conflicts between tenants and the local Area Housing Authority.Remember the majority of section 8 people do not work.they have the time to research all state rental laws and laws that protect them against discrimination.When I mean time eight hours a day seven days a week they can dedicate themselves to this mission.Know the laws that protect them very thoroughly http://www.disabilityrightsca.org/  and http://drlcenter.org/  and https://www.ada.gov/cguide.htmThe section 8 people you want are the ones that work to supplement their government income. They work enough to make some money without losing their medical benefits due to their medical needs.The trick with people on section 8 is finding the individual that wants a better quality of life that's within their means without losing their medical benefits.Screen section 8 people very thoroughly and check them out on Facebook. Have a second meeting with them at their current residence..

Walter Himelstein · Answer

I have been to Johnstown, PA to look at turnkey properties being offered there for 25k per door where rental and fixup management is in place. In addition to that, Pennsylvania is very pro-landlord versus other States. A lot of investors want cash flow but not the hassle of hiring a contractor, finding a tenant, and managing their investment. The fact that you can evict a nonpaying tenant (in almost all cases) in under 30 days in Cambria County, PA and replace a rental unit with another tenant so quickly is a huge benefit to a real estate investor; in Maryland it can take 3-4 months.

Properties that are 25K per door cater to low income tenants, correct. However, they are NOT however Slum Lord Properties, unless you think that all Section 8 and VA rent assisted properties are slums. Low income properties probably comprise 5-10% (just a guess) of all U.S. housing. Many times renters have fallen on hard times and are getting government assistance. (For example, Section 8 in Johnstown, Cambria County, PA just released 1000 more vouchers (2/2018) for tenants and that increase helps the a number of tenants availability into the Section 8 program). If you know anything about Section 8 and government subsidized programs, you know that an inspector has to come in and does a check of the property and requires it to be in good condition before they approve the unit for a tenant. This insures that a low income unit renting for 25K is in better than market condition in most cases.

I have been to Johnstown, PA, and drove the neighborhoods looking at Section 8 and VA units, the neighborhoods were quiet homeowner areas mixed with single family houses.

There are companies that have been doing this type of home rental sales for over 10 years in the Johnstown, PA area. Look for a company that has a full staff to manage these properties and the equipment to maintain them. Make sure they have a warehouse with construction equipment and offices. Also make sure that the company provides 2 years of maintenance for these properties included in the purchase up to $10k in repairs. Choose a company so if you don’t want them to manage the property or repair the property for you, you can “go your own way”.

One final thought; someone made a comment regarding war zones, drugs and murders in Johnstown, PA-Cambria County. This person obviously hasn’t gone to Johnstown, PA. To say all people in low income Section 8 neighborhoods are drug addicts and murderers is ignorant. These properties/houses are located in neighborhoods where home owners and renters live side by side. Johnstown is a PROUD blue collar community that has fallen upon hard times just like 100’s of towns across America.

As a real estate investor myself, I always recommend going to see what is being offered and meeting the people involved face to face, which is the best way to be educated to a real estate business opportunity. Reading comments by people not familiar with an area and opportunity does not give you a true picture of the community and what is happening.

Shawn Ginder · Answer

@Saj Johnson - Johnstown PA, study this market first, you will see it is a declining market, not growing consider this in your evaluation. What jobs are there, or were there that are no longer there? I too saw ads of this nature from this part of the state I grew up in, and talked to a seller who wanted to sell to me as he wanted out of the market to move away, have to ask the questions why would an investor want to move away if the returns are so good. Retirement, possible, but it could be a number of other reasons, the seller disclosed certain realities to me as a newbie from his 20+years in that market. Find that person to talk to.

Section 8 - where we are investing in PA the section 8 program isn't working the way it should, investors are out thousands owed by the section 8 program. Is it working in Johnstown, I don't know but I would investigate first.

Lastly, the low income housing, cheep homes, have to weigh in the repair factors vs. income to cover those costs. Consider crime where these are located. Consider vacancy rates, and non paying tenants or continually having late payments always wondering will you be paid this month or not, or should you evict are situations you can run into frequently with this type of investment. All of these things don't show up on a 25%-30% projections.

Trust me, we have had some of these issues, in similar neighbourhoods, if you can manage this and find a way to be successful at it, it could be a great niche to get into, some do, others loss out and give up investing all together as result of the headache. Use caution, and gain enough knowledge and you will know soon enough if it is for you or not.

Section 8 Turnkey rentals. Too good?

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