All Forum Posts by: Bradley Bogdan

I totally agree with @Greg H.

@Mark Doyle and @Derek Kartchner , wonderfully thorough and thought out advice. This is why I value and enjoy the BP community! Kudos and votes!

I took out my paragraph on Section 8 and property values when i noticed you edited your previous post, but since you've mentioned it again... :-P

The literature on Section 8 and its effects on local rents and property values is mixed, mostly owing to the fact its tough to get enough good data on a homogeneous neighborhood over time to have any power to your statistical analysis. In the best studies, the ones that are able to get around this issue by having bigger better data sets, the research suggests Section 8 rentals in an area actually increase both property values and rent, despite popular opinion pieces, such as this fear mongering story where the only expert interviewed is an eviction lawyer:  http://www.abcactionnews.com/marketplace/law-tv/se... . Needless to say, there's nothing scientific or data based about an article like that. 

Now, why would this be the case? Aren't Section 8 rentals full of low income people who are, on average, tough on rentals which will bring down the look of a neighborhood? Well, sort of. In all but the major cities where FMRs aren't close to actual market rents, Section 8 rents actually encourages investors, like us, to purchase low cost properties in cheaper sections of town and raise rents to the Section 8 level, which in turn raises values because those properties are making good money. If your PHA is any good, they'll prevent slumlording through the inspection process, and over the course of time, property values rise, more people invest, and eventually rents rise to above Section 8 levels. Now, this is a general trend, we all can point to neighborhoods where this hasn't happened, but overall, this is the case. Also, it should go without saying that there are many many other factors that have an effect on local property values outside of affordable housing programs. 

If you'd like to take a read of some of the aforementioned research, try these: 

A list of articles I can't post due to journal subscription stuff, but are cited in a short explanation of values by Habitat for Humanity: http://www.habitat.org/how/propertyvalues.aspx

A working paper by NYU students that provides all the dense dry stuff I love, but bores most people to tears: http://furmancenter.org/files/publications/Does_Fe...

And finally, what should be considered a holy grail source for us here on BP, the National Association of Realtors agrees with me, and links to some of my favorite research (and opinion pieces for those who like more interesting writing): http://www.realtor.org/field-guides/field-guide-to...

Sorry @Account Closed , when you stated that "People tend not to take care of something that they don't have to pay for" it sounded like you were referring to the Section 8 tenants that have an income low enough, or no income, where they pay no portion of rent to the landlord. My apologies, not trying to put words in your mouth.

(Edited to remove a short discussion on research into Section 8's effects on rent and property values, now deemed irrelevant :-) )

Now don't get me wrong, renting to low income renters has its risks and downsides, no question. I just often see folks in my community and here on BP that have awful perceptions of the program or the people on it, and when they are based on erroneous information or a misunderstanding of what the program will or will not provide the tenants. I just attempt to correct those understandings when possible. 

Hey @Scott Campbell  ,

Section 8 comes with its own set of challenges and rewards, as any target population for your rentals. @Gerald Harris  has given you two good spots to pick up some basics for how to get started, so I'll give you a few suggestions of things to look out for that might impact your decision and probably aren't well explained or found in those links.

- Look at what HUD has established as Fair Market Rents (FMRs) for your area. Note that these are set to be INCLUSIVE OF UTILITIES. Most people assume they can rent up to that limit and include none or some of the utilities until they get their first prospective tenant and are denied by the local Housing Authority. My rule of thumb in my area is $50 less max rent for a 1 bedroom that includes water sewer and garbage, and $75 less than max for a two bedroom is usually safe. These rules will vary both on the projected utilities for your area (also publicly provided) and the income of the tenant. The higher the income of the tenant, the closer to that max rent you can charge. The lower the utility projections are, the closer you can charge, and vice versa. If you'd like an in depth course once you're ready to rent on how much you can charge a particular person, PM me and I'll walk you through it.

- Unlike @Account Closed  suggests, the large majority of folks on the program actually do have income and will owe you a portion of the total rent every month. It unfortunately is a very common misconception that most or all of the folks on the program have no income. That portion they pay will depend on their income, usually about 30% of it, give or take depending on those projected utilities and the total rent. You can make sure to set your rent price over the maximum allowable rent for someone with $0 income to avoid those folks, if that's a major worry.

- Make sure you have a legal discharge tube on your water heater. It has to drain outside or to a pan on the floor and the tube needs to be heat resistant PVC, not the normal stuff. It also needs to reach to within 2-3 inches of the floor pan. I don't remember if its 2 or 3 exactly, but it needs to be very close to the floor. This is the one thing that causes 90% of units that I see that flunk the initial inspection to fail. Its a $5-10 fix, if that. Save yourself the trouble of a re-inspection.

- Identify local non-profits and programs that help with things like deposits. Call them up and find out what kinds of assistance they offer to low income persons. Section 8 does not provide any assistance with deposit, so tenants have to come up with it on their own or through another program. If you already have a list of who can help, you'll expand your pool of potential tenants and be able to keep higher deposits, which in turn gives you added security. If you make friends with these non-profits, you'll also often get referrals for tenants directly from them, also increasing your pool of applicants. Often these agencies have assistance for rental arrears as well, which can be a great place to turn if a tenant you like has hit a rough patch but you'd like to keep them.

- Have appropriate standards for tenants. Do not demand everyone get co-signers because they have tiny incomes, or expect everyone to have excellent credit, or to have made similar life choices to your own. This is not to say throw your standards away, continue to be super wary of anyone with a prior eviction, etc., but do remember that everyone on the program is poor. Just because they're poor doesn't mean they will be bad tenants, have substance abuse issues, or are bad people.

- Have rentals in a part of town people want to live in. If the FMRs are at least reasonably close to the actual rents in your Housing Authority area, you will still need rentals that people actually want to live in and take care of. That means you can't just scoop up houses for 30k in the ghetto and expect to make a mint. Poor people don't want to live in the crappy neighborhoods any more than we do, so when they have the choice, they don't.

- Do regular walkthroughs. This is a must for any landlord, but is especially helpful for avoiding problems with the yearly HUD inspections. Many low income tenants are used to landlords that will kick them out if they ask for repairs on a unit, especially in big cities, so they wont necessarily say anything if the sink is leaky, etc. Its an understandable learned reaction, but it can be countered by a peek in every once in a while.

Finally, have fun! Assuming your numbers work, enjoy the fact you're making an excellent investment for your future, and take a bit of solace that the portion of income you're forking over every year to uncle sam is coming right back to your pocket with the next month's rent.

@William A. 

I'm not sure you could stipulate that units would pass a Section 8 inspection just because no one would likely do an inspection on the units during your inspection period. You can, in theory, have units pre-inspected for Section 8 before a tenant is lined up, though it is rare that a PHA offers this to landlords as an option as they're usually a bit backed up. I would just make sure that the major things for the apartments are taken care of, everything works and looks good. It may be annoying to adjust a door to latch properly after you buy, but its a quick cheap fix. So long as the major things like appliances, water heater and heater/AC are in good order, of appropriate size, and would pass, that's about all you can really ask for. 

Hey @Jonathan Napper , just to clarify, do you mean the renter/HUD is currently paying $1228/mo? I'm guessing ~$100 in monthly gross income total isn't going to make that property cashflow, haha.

Love the idea of a gift card and a "Thanks for your understanding" note explaining that you can't issue a rent credit. If someone is forking over $1750/mo, a modicum of customer service is certainly warranted. Make sure they're feeling like they're getting what they're paying for, write it off as an expense, it will almost certainly save you the less than 1 day rent somewhere along the line. 

Now, if this was a $400/mo rental, the story might be different, but ultimately good tenants are good tenants and keeping them is usually worth a small amount of hassle. 

A short personal story, a bit off topic but relevant, I rented a 2 bd/1bath unit with a friend in college from a local professor. We were great tenants, always on time, never partied (at our place at least!), never complained about anything or had anything break, etc. The professor sent a $5 gift card to the local coffee shop on everyone's birthday, as well as to each tenant just before exams. He had the quietest building and longest term tenants, despite not being the cheapest landlord around, in part because he spent about $100 on coffee for his tenants. I didn't not move out my senior year because of the $15/yr he gave me, but I sure had a great opinion of him and have since referred other students to his units. Small outlay, great results. 

Hi @Kate Kedenburg ,

My family's current rental property is located in a city with many of these converted MFH properties, while my current locale sports many as well. I think @Colleen F. is pretty spot on with her suggestions of what to look out for. If you're looking at old converted victorians for instance, I would worry more about the purchase of a 100+ y/o house rather than the partitioning of the units or the work done to split the electric, etc. 

A couple issues to also keep in mind: What is zoning like in your area, was the property legally converted to MFH or is that a headache to tackle after purchase? It sounds like the housing stock in the area has a lot of these converted properties, so renters are probably used to them, but if not it can depress rents. Things like sound deadening, floor plans and privacy can be compromised by the conversions. 

On the upside, these properties are usually markedly cheaper in the two areas I'm familiar with, so can potentially cash flow better than a purpose built MFH. 

Bottom line, if you do your homework on the property and know your local rental market, you'll probably do just fine with a converted MFH. Make sure you're both comfortable with whichever route you take though, big decisions like this can potentially split a marriage if the property ends up being a poor one. If you're not both on board, you could lose much more than the time and money it takes to address the property. 

In some areas, allowing a pet might be a huge selling point. I know in my area, you can potentially get a large premium on rent if you allow dogs, in the neighborhood of $100-$200/mo depending on your rental. This is directly a function of most landlords/rentals in the area not being pet friendly, so spend some time browsing your local rental listings and see if your area is similar. If you can get $100 or more per mo. in additional rent, you're virtually guaranteed to recoup any repair costs at moveout plus a hefty bonus.