Pros & Cons of Section 8 Rentals - Are They Worth the Investment?

Part 1

What is Section 8?

Section 8 of the Housing Act of 1937, referred to as simply Section 8, is a government-subsidized housing program for tenants that need financial assistance. Though the program has seen many changes since inception, under the current voucher system, tenants accepted to the program have their finances evaluated to determine how much rent and utilities they can pay, the rest is paid by the government housing agency. The voucher allows the tenants to choose and to move freely from one approved unit to another. 

To qualify for a Section 8 housing voucher, an applicant needs to meet certain criteria. Three of the most significant factors affecting eligibility are income, citizenship status, and lifestyle, which takes into account any prior evictions and criminal history.

• Income Level - To meet income requirements, an applicant cannot make more than 50% of the median income for the area. However, the program reserves 75% of those vouchers to fund families earning 30% or less of the area’s median income.

• Legal Citizenship Status - United States citizens and immigrants with current legal standing can apply for Section 8 subsidized voucher housing. For eligibility, all families to live in the home will need to provide proof of citizenship or documentation verifying their current legal immigrant status.

• Lifestyle and Criminal History - As part of the application process, government agents will conduct interviews to get a sense of one’s home life. Rental history and interviews with past landlords carry a lot of weight in an agent’s final decision. Local housing authorities may use their own judgment when considering applicants with criminal records or a history of drug abuse based on circumstances and how long ago the crimes were committed. Generally, evictions for violent felonies or drug-related offenses within the last three years will disqualify an applicant.

Many factors will weigh in on your decision to ready your property for the public housing sector. If you’ve invested in properties located in or near major metropolitan city centers, chances are you’ve come across Section 8 tenants. Let’s take a look at some of the advantages of accepting Section 8 vouchers.

     Pros

• Helps To Reduce Vacancy - Most likely, you will have many more applicants than you have vacancies, meaning your units won’t be vacant for long. With an abundance of applications, you will have the opportunity to hand-select the most qualified tenants for your property. If your house has already been approved, it’s a reasonably quick process.

• Government Guaranteed Payments - Most of the monthly rental payment is made directly to you by the local housing authority. Though large government agencies can sometimes be inefficient, you can expect to receive your rent check more consistently than from many tenants—including the private sector. As a result, you will only need to collect a small percentage from the tenant.

• Keep Your Standard Rental Rates –As long as your rent is in line with comps in your area, you won’t have to adjust your rents. You do have to be careful though, of Section 8 tenants trying to “move uptown” into higher priced areas and not understanding their voucher won’t cover those rents.

• Raise Your Rent with the Market – You have the right to keep up with rental rates in your area. As long as your rental rate increases aren’t out of line for the market, you can annually raise rents by up to 8% without violating the government program. This provides you with an opportunity for guaranteed payments, with less competition or without having to offer move-in specials.

• Property Exposure - Once you get approval for your property, it can be listed on the Public Housing Authority’s (PHAs) web site. A critical factor to being successful and profitable with public housing is finding a quality tenant. This extra publicity will allow more potential tenants to see your property, giving you a larger pool of applicants to choose from.

• Better Maintenance - HUD requires that Section 8 properties meet specific guidelines. Though some property owners see this as a hassle, being subjected to more frequent inspections translates into your property being better maintained. The program also mandates that the tenant maintain the property and leave it in the same state it was received.

• Tenant Retention - Tenants are limited to properties that accept Section 8 housing vouchers, so finding a suitable home can be more difficult. Once recipients find a home they are happy with, they tend to move less often and are more apt to renew their lease.