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One year ago, I was hired to help a landlord whose tenant had stopped paying.

Property damage, excessive wear and tear, but paying, that PM has an incentive to look the other way, don't they. 

Montgomery Metropolitan Housing has a reputation of being difficult to work with and are slow to pay at times r so I have heard.One thing to keep in mind is that even with section 8, you still get to set your criteria that tenants need to qualify for your unit. 

So I put $1600 on a credit card for a down payment and then pay $500 a month until the full amount was paid off.

Some PMC's will charge a lower percentage fee, but will charge it whether tenant paying or not.

Regarding your other questions:  - If the going value is $260/SF, why would you pay more than that?  

Somebody somewhere had to pay for that real estate at some point and has continued to pay for it since.

It looks like according to the county site (sbcounty.gov) they require all renter payment go to the active owner. 

Anyone over 18 fills out has to furnish their social security and driver's license numbers, and pays a fee for a credit / background check.