WHAT IS SECTION 8 HOUSING ?

A lot of investors tend to avoid Section 8 Housing due to a number of reasons. What these investors fail to understand is that this type of housing can reap a lot of benefits, especially when you plan to diversify your portfolio. Furthermore, the Detroit market in particular not only offers a large pool of tenants for Section 8 Housing to choose from on a verified waiting list, it also allows you to maximize results while you mitigate any risks and hassles at the same time. 

BRIEF HISTORY

The program came from a housing law passed in the 1930s during the Great Depression. At the time, the government was purely focused on providing high-quality public housing for low-income tenants. Over the years, Section 8 has undergone a number of changes and amendments which is now known as a housing choice voucher program.

This program states that eligible families can find a rental unit of their choice after receiving a voucher which covers 70%-100% of the monthly rent & may or may not cover utility bills depending on the situation and state that you’re in. Applicants who are eligible for the said voucher would be responsible for the remaining balance for the month.

Local Public Housing Agencies (PHAs) distribute these vouchers to families who apply for it. These agencies receive their funding from the Department of Housing and Urban Development (HUD) in order to administer the program.

WHO ARE ELIGIBLE FOR IT?

These section 8 vouchers are mainly intended to provide subsidized housing to low-income tenants. However, applicants should meet certain eligibility criteria:

• •Gross family income of less than 50% of the median income in the applicant’s county

• •Must be a U.S. citizen or an immigrant with documents proving legal immigration status

• •Meet the HUD’s definition of a family

-with or without children

-at least one individual is over the age of 62

-one or more member/s of the household is disabled

-has been displaced from the home (due to government action or natural disasters)

-a single person who does NOT meet any of the above criteria

These are just the general guidelines set by the HUD. PHAs have been given flexibility to add or change some of the guidelines. In many areas, the PHA’s waiting lists for Section 8 applicants reach up to tens of thousands of families. It’s even quite common to wait for over 3 to 6 years before an application is accepted - some of the lists are even closed to new applicants.

Most of the PHAs even have a lottery approach where, from a list of 100,000 applicants, only 10,000 spots are opened. Priorities are usually given to local residents , disabled, veterans, and the elderly. Either way, there is no guarantee that everyone will receive a voucher.

PHAs have different ways of administering their voucher applications. The MSHDA (Michigan State Housing Development Authority) Housing Choice Voucher opens waiting lists for specific counties at a certain date and time. Applications will only be accepted for open waiting lists and one application basis only. Online applications are only accepted, meaning paper applications will not be available nor accepted.

IS IT WORTH IT?

You’re bound to receive several conflicting views when you ask different investors, landlords, and property managers whether Section 8 would be beneficial or not. Depending on your specific situation or if you’re an investor looking into this matter, Section 8 may or may not be the best choice for you. It’s imperative, therefore, to learn about the advantages and disadvantages in order to carry it out well.

ADVANTAGES

Guaranteed rental income

Since the government covers 70% of your tenant’s rent, you have a guaranteed means of income. The PHA sends the portion of your tenants directly to you and the tenant sends a separate check for their portion (30%) and pays utilities directly to the provider.

Larger pool of prospective tenants

To give you an idea of how large the tenant pool is, the Housing Choice Voucher program handles rent and utilities from almost 2.1 million households in the U.S. With this broad of a selection, you’re given the opportunity to be picky in finding a tenant that would be the best fit for your property.

Pre-screened tenants

With the extensive screening process of PHAs, tenants are checked thoroughly in order to avail of the voucher. Aside from income levels, PHAs turn down tenants who have a bad record from their previous landlord. In fact, any tenant who was evicted from a property within the last three years for drug-related activity will not be granted a voucher. The screening process gives extra protection for your property meaning if they pass both the PHA and your tenant screening process, your problems are brought to a minimum.

DISADVANTAGES

Tedious

Not only does the tenant need to be considered part of the Section 8 housing program, you and your property will be involved in it as well. You would need to provide personal and detailed information about the property. You have to be aware that the HUD and PHAs are NOT responsible in finding tenants, collecting rent, making repairs, or keeping the property safe. Once you’ve been approved to house tenants, the property is subject to routine inspections and making sure that it’s structurally up to code.

Lesser control over rent

Although the HUD will not dictate how much tenants are charged for rent, the rent should be kept within the median for your area. This means that if your property is above average compared to others in the neighborhood, you may be missing out on the rent that you could have otherwise increased outside of the Section 8 program.

Tenants can be harder to handle

The reason why Section 8 housing is controversial for landlords and investors alike is because of the tenants. Majority of their rent is already covered which prompts them to have less of an initiative to uphold their end of the bargain or keeping your property in good shape. Based on the requirements, Section 8 allows low-income tenants. Your rent from the housing department may be on time, but the rent from tenants can be delayed. On a side note, your first payment from the PHA is given to you 30-60 days after the tenant resides in the rental property.

Deciding if you’re diving into Section 8 housing for your investment can be a tough decision. If you do enough homework and keep an eye on your investment property, you’re bound to make sure everything’s in tip-top shape. The Detroit Housing Commission is a great reference for Section 8 Housing in Detroit that you can start to look into.

But the question still remains, is it worth it? Some of the best real estate investors out there can take the negatives of Section 8 Housing that warrant higher rents, and turn them into higher profits. The short answer would be YES, it is definitely worth it as long as you have a clear grasp of the advantages and disadvantages that this type of housing can bring.