All Forum Posts by: Chris B.

I have a few properties and have recently started looking into section 8 so I'm new to the topic also.  So far, the program hasn't checked the boxes I need for my rentals.  Here's what I discovered so far.  Community, please correct me where I am wrong....

1. Rules and pay rates do vary from town to town. I called the city of Tucson yesterday and was told that their rates must include utilities. There is no way in heaven that I'm going to pay for AC electricity during the hot summer months for my 2200 Sq foot SFH property there. The bill could easily exceed $600 a month if they crank it down to 68 degrees and the AC would be dead within a year.

The city of Chandler said the utilities do not need to be included on the other hand.  The max rental rate for a 4 bedroom paid by the program in Chandler is $3232 this year while the max in Tucson for a 4 bedroom is $2346.  Huge difference.  Maricopa County land max rent is $2445 for a 4 bedroom.

2. If my understanding is correct, the above rates are the maximum you can charge, but the municipality may not agree to pay that much.  When I asked for clarification, I received no clear answer, but in general there seems to be a target of paying approximately the 40th percentile of average rent for an area.  My math is probably off here but if rent for a 4 bedroom in the area ranged from $1000 to $2000, their target rent for you would be around $1400.  I own nicer properties and typically rent then for around the 75% range so in the above example I'd typically get $1750 on the open market with tenant paying all utilities.

Lesson learned here is that section 8 and similar programs don't really take into account the quality of the home, neighborhood,  or school district. 

You are best to target complete spice hole property that would rent for $1000 on the open market and ask the $1400 they seem to want to pay.  Look for cheap property which typically is found in lower end neighborhoods.

Also section 8 clients tend to have issues and that is why they are on the program.  Some are legitimately in need and try their best.  Many have had responsibility issues throughout their life and have ended up here or are simply gaming the system or both.  Tenants such as this can be hard on your property and thus another reason to not buy nice property for these programs.

you can screen how you like, but my 620+credit, no evictions, and criminal / fiscal background check policy will generally exclude most of them.

Next, the program can take 2 to 6 weeks or even longer to approve all of the paperwork.  That's lost rent.

if I were to start over with the intent of targeting government assistance, I'd aim for a super cheap multi-family property with lots of bedrooms.

True fair market rent can easily be determined by looking at comps.  I'd suggest actually targeting the cheapest property you can obtain while charging the amount the program will pay.  If these numbers work for you then move forward.

Best wishes!

A similar situation happened just recently with a family member of mine.  He rented out rooms in his home and one of the tenants got sick.  He called the tenant's son many times over several days but the son ignored the calls as the person's condition worsened. Eventually he called the ambulance for her and possibly protective services also.  She refused to go with them but they forced her to go to the hospital and she ended up dying a few days later in the hospital.  Then my relative calls the son and leaves several additional messages that his mother had passed away and asking what he wants to do with his mother's belongings.  Still no reply.  After some Facebook searching, other relatives were located and contacted.  They were able to spur the son to come over with a friend and collect a few belongings.  He left 99% and said he'd come back with a truck to get it.  That never happened.  My relative gave him an additional 2 weeks and then started throwing out and donating everything.  A sad situation really.  The mom recently had received an inheritance and bought her son a nice new higher end Jeep and had given him quite a bit of cash with no real appreciation apparently.  I think a good effort was made and no normal judge would rule against my relative if some claim of stolen treasure was filed.  They were living in a rented room, who is likely to have many valuables in this situation.  I'd make a good effort, document it, and clean it out.  If you are worried, put the contents in a storage unit.  You'll never be able to recover the storage rent, but you still have the stuff locked up while you sort it out.  Meanwhile you can re-rent the place.

If you wait for a probate court, assuming there even is one as its not necessary for every estate,  you could be waiting 6 months or a year or more.

As a rental owner, if I had a property manager running the show and a tenant was so upset over something, I'd like to get in touch with the tenant and hear what's going on. Not everyone has this preference. Your signed lease should contain all of the contact information you are legally required to provide to the tenant. I'd prefer to reach out to them rather than them reaching out to me though in my case. In your case, you are family so I understand you would prefer that fact not be public for valid reasons. Honestly, unless the title is in an LLC or something, around here its a short few second search on the county assessor's website to get the owner's info and the tenant or anyone else can do that search. I know some counties are more income oriented than mine and will conceal this public data and charge for it.

Their rent is higher for a reason, and thus the need for government assistance.  They are of a generally less responsible and a higher risk group.  Sure you make a little more.  Your odds of something like this happening that will cost a fortune to remedy are a little more also.  Keep it all in perspective as you may not be making the extra profit you see statistically.

Regarding your high insurance premiums and high deductible, we don't know how large the building is or what shape its in, but on the client side it can seem almost criminal.  On the other side, if there was good profit to be made by another insurance company moving in while charging less, these companies would be doing so.

With the government program as a backup if dropped, I would have filed the claim also.

I've made plenty of mistakes so take my advice more of a learning opportunity rather than a "this is how you do it".

Appreciation:
My first investment was right after the 2008 crash.  Not an ideal entry point.  Prices had dropped something like $40k on a slightly more than $200k new home and we jumped in.  Appreciation was great in general the prior few years... until we bought the house.  Prices continued down and we lost a good portion of its value, eventually the market bottomed out, and then very slowly appreciated again for many years.  So many people just walked away and gave the home to the bank.  We kept ours.  Then shortly before Covid hit, the appreciation went up significantly.  There was a slight bump down, but its been going up more recently again.  This was not a good entry point but I was inexperienced and have since learned.  That's just what the market was like in this area at the time.  I bet on appreciation and with my poor timing it wasn't the best.  On the other hand, my last investment doubled in value in under 5 years.

There are many factors to investing in a property, but appreciation and profit (from rent) are two big components. Appreciation is a bet. And it can pay off very nicely. Appreciation here toward the west coast is a bigger factor than in the Mid-West typically. It is very typical out here to have near zero initial profit from investing in a MLS listed property as a rental. Anything juicy is scooped up by insiders and door knockers and those never hit the market. My neighbor has a real-estate friend. The friend finds the deals and the neighbor manages the rehab and they flip the properties. These never see the MLS until the flip is done. Even in our current high priced market this is happening.

Rent profit out of the gate has historically been more of a factor in the mid-west.  Its not my area so I don't know why, but people will pay $1400 a month to rent a $100k property.  It doesn't make sense to me, but it seems to be the case.  I can't really comment on this except in these areas, the numbers you are looking at usually make more sense.

People need a place to live and if they have a job, their income will dictate the amount they are willing to pay and that will partially dictate values of property. Property values and rent prices can become greatly disconnected here. In my area out in the desert with minimal greenery and dubious water sources, the area has become a mini tech center. Households bringing in over $200k now are common. These are also generally buyers (too live in it) and not renters. 10 years ago, prior to most of the tech arriving, I'll speculate the average household income in the area was under $75k. Houses that were $300k back then are now sometimes in excess of $650k. There are million dollar houses around here. If you buy one of these at this price, is there potential for immediate rent profit? For the most part its no, but 5 years ago I was looking at MLS properties that I could squeeze maybe $100 to $200 a month out of and were selling for $225k (with a substantial down payment also) I thought that was pretty good. Once again, the bet on appreciation is always present here. As tech keeps building, prices continue to rise.

Rent:
Back to my 1st investment and the poor timing, rent was stagnant for a good 10 years at the exact same rate.  No joke.  The area was on the outskirts of town and was expanding rapidly and then with the 2008 crash.  It literally froze for a good 10 years.  It really took a long time to recover.  We had a decent enough income and no kids so we could afford the $200 a month deficit.  About 6 years ago I was able to raise rent and it has been rapidly going up since then.  It even has continued to go up over the past year.  With a refinance to a good rate a few years back and the climbing rent, this buy and hold property now is performing well.

My most recent investment from 5 years ago is also paying double the mortgage.  Another buy and hold.  Some of my properties I have bought as a primary residence and when I move on, I just hold them and convert them to rentals.

Long story short, not all buyers are assessing a property's value with your numbers.  Most are not.  Your numbers are valid for your goals, so I'm not telling you to change your formula.  Just know you are competing with people who have different numbers and goals.  Most home buyers just need a place to live and really aren't calculating in the numbers significantly.  Mom and dad with 3 kids and a good paying job come to town having left their million plus dollar home in California probably won't hesitate slapping down 50k or more than you or I are willing to pay on a home if that's what they want to live in.  As more and more come in, prices will naturally rise.  High interest rates just make it even more difficult.  Local renters may to some degree not be able to absorb higher rents ant if the market can't bear it, rents can become disconnected from property values.

If someone needs it to live, they pay what works for them regardless of the investment potential and numbers.  Others are willing to bet on the appreciation.   If all property was sold based on numbers, markets across the country would be turned upside down.  My first investment property brought in -$200 a month rent not including maintenance and vacancy.   Best investment?  Certainly not, but now it's bringing in $1400 over mortgage and has doubled in value.

Greg, interesting view. This may be due to a difference in rental rates of our respective areas. I know a 2200 Sq foot, 15 year old home in OC rents for $4.5k so maybe an extra $50 to $100 a month is peanuts. The same home in Tucson rents for $2k. If it were an apartment renting for $800 it would be even more significant and add 6 to 12 percent to the income stream. When you add in PITI costs, a small time landlord may really appreciate the extra income generated. Also, in my area pent rent is the norm and renters here expect it. Raising the rent and not charging for pets would significantly reduce the number of people interested. $100 more in rent can cut your applicant numbers in half here.

As mentioned,  do not quit claim until there is a successfully completed deal and get an attorney involved to create the contract.  That aside, your daughter will want to be off the loan also as any late or non payment of the mortgage will affect her credit and they can come after her if needed.

Caroline has some creative solutions.  I don't think you have an option but to take it out and redo it, hopefully with a better quality material.  It's a small wall and shouldn't cost a lot.

it looks, like you have some wiring issues on the home also that may be a safety hazard.

Only you can control your income and that is your current hurdle. You need more cash coming in. With sufficient income, you get the bank's attention and qualify for loans. That aside, with limited income, I suggest when you are ready, focus on a duplex or a smaller SFH which you can live in and rent out the additional unit / rooms. Once acompished, take the income stream you generated to save up for your next property and repeat.