Real Estate Investing: Section 8 Tenants

If the question is, “How do I improve occupancy rates?” the answer could lie in opening your property to section 8 tenants.

Sooner or later, most residential real estate investors will look at the possibility of renting their units to section 8 tenants, particularly in the larger metro areas. Leasing to section 8 tenants is a niche market and in many regions, an urgent need.

This federal program provides safe, healthy housing to very low income families through housing vouchers that cover about 70% of their monthly rent and utilities. Each family is then responsible for the remaining 30% of their housing expenses.

How does section 8 work?

The Housing Choice Voucher Program was set in place by The Housing and Community Development act of 1974. This was a change to section 8 of the Housing Act of 1937.
The Department of Housing and Urban Development (HUD) controls section 8, although administration is done by public housing agencies (PHAs). Your local PHA decides who qualifies for section 8 in their area. Most cities have waiting lists and families can wait many years before getting their section 8 voucher.

Working with government is different

Essentially, you’re working with the government and HUD personnel will need to perform a comprehensive inspection of your property. If the property fails to pass the initial inspection, you’ll have 30 days for corrections before the property is inspected again.

Some facts for would-be section 8 landlords.

The fair market rent for your property will be fixed by the local PHA and must not exceed 40% of the renter’s income; this is the maximum you can charge. Section 8 landlords may end up charging less than they would charge ordinary tenants.

While there is always a potential for criminal activity, the notion there is a relationship between section 8 housing and crime levels could lead to a lower property valuation. And in the event of an eviction being necessary, you will have to follow the processes laid down by HUD.

Perks for property owners

Probably the best advantage of renting to section 8 tenants is that the rent (70%) is paid on time each month. The rent will appear in your account on the same day each month, deposited by the government. If you have struggled to collect rent from uncooperative tenants in the past, you’ll appreciate this advantage.

With waiting lists for section 8 tenants filled to capacity in most cities, you’ll never have a lack of renters again. If rental units in your town tend to be vacant for months between occupants, this is one benefit that cannot be ignored. Covering the mortgage payments gets harder as occupancy dwindles.

Any action that impacts on your bottom line has to be based on knowledge. Before you and your management team make a decision, equip yourself with a thorough understanding of the pros and cons involved in the process.

One benefit unspoken but ever present is the knowledge that you are giving disadvantage families a chance to have a home.

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