Why I Invest in Section 8 Apartments

Apartments and you’re about to discover why. The reality is that if you have terrible Section 8 tenants who destroy your property, that is your own fault. What’s so wonderful about Section 8 is that the government guarantees payment on 80-100% of your rents, will give you a rent increase of 5-8% a year and there is also usually a large pool of tenants to choose from on a verified wait list! What you’re about to learn is is how to own and operateSection 8 Apartments like I do so that you maximize your results while minimizing the risks and hassles.

 

What is Section 8?

 

Federal Housing Assistance programs were started during the Great Depression, a time of great struggle in the United States.  The poor were in great need of housing assistance, so in the 1960’s and 1970’s, the government created subsidy programs to increase the production of low-income housing and help families pay rent. Then in 1974, Congress started the Section 8 program to provide rent assistance to low-income families. Typically the tenants will pay around 30% of their income towards the rent. This balance is subsidized by the government federal funds, which is a program overseen by the HUD,  the Department of Housing and Urban Development.

Section 8 Vouchers

The main Section 8 program involves a Voucher Program, which can be “project based”; where its use is limited to a specific apartment building. Or the voucher can be “tenant-based”; where the tenant is free to choose a unit in a private sector, but is not limited to specific complexes.

If you want to rent to Section 8 tenants, you have to register as a Section 8 Landlord, which puts you on a list that potential tenants can use to contact you. After qualifying the tenant, you show them the property, and the Section 8 tenant will set up an inspection with the Section 8 office so that your unit, can be approved. Once your property passes the inspection, you will negotiate the rent with the Section 8 office and sign the lease so that the tenant can move in. This is a basic summary of the section 8 process.

If the tenant’s rent is $1,000, then the tenant will typically be responsible for paying $200. Section 8 will pay the remaining balance of $800, which in my experience, is a pretty good deal.

 

Section 8 Advantages

 

1. On Time and Convenient Payments.

You will receive your rents directly from the HUD every single month as a check or direct deposit.

2. Protection From Tenant Financial Hardships

I had a tenant named Marcy who disappeared on me for months at a time. I was never sure where she went, but if she hadn’t been on Section 8, she most likely would have been evicted due to non-payment of rent. Instead, because HUD pays 100% of her rent, I didn’t have to worry because HUD was still paying me 100% of her rent every single month. Section 8 protected me and Marcy from her financial hardships by paying her rent.

3. Free Access to a Large Amount of Potential Tenants

There is a verified waiting list of Section 8 tenants available online that you can use to find potential tenants in your city. You can also list your property on these websites and let the tenants contact you. Two websites that I have successfully used over the years are GoSection8.com and  WeTakeSection8.com. Both of these websites are great places to list your Section 8 properties, and for a small fee, you can even review tenant profiles.

You can pay a small fee to upgrade to a premium listing which gets more attention focused on your property, when tenants are searching.  I suggest checking these sites out as a great and free way to access the large pool of verified potential tenants.

4. Higher Rental Rates

This might not be true everywhere, but in general, the rent you can get from a Section 8 tenant exceeds what you could get for your typical not-in-the-best-neighborhood property.

5. Short Vacancies

Most cities have a mile-long list of Section 8 participants with vouches, who are seeking housing. Filling a vacancy is a pretty quick process once your property has been inspected and approved for Section 8.

 

Section 8 Disadvantages

 

1. Government Bureaucracy

One of the biggest disadvantages of Section 8 is dealing with the government’s regulations and red tape. Government bureaucracy is one of the reasons it is costly to qualify and maintain a property for Section 8 housing. Even worse, HUD is often understaffed which results in slow and sometimes unreliable services. I have experienced great service, mediocre service, and horrible service, from the HUD department, so you never know what you will get.

2. Delay of Payments.

The entire Section 8 process can be very slow which results in a delay in getting a tenant into your property. Then, after the tenant moves in, it can take up to 60 days to receive your first rent payment. The only upside that is in 60 days, you will receive double the payment, since it’s been two months.

3.  Strict Inspections

Properties qualifying for Section 8 housing must pass strict inspections, which can often make it easier to just rent properties to private paying tenants.  Sometimes, it can be quite laborious just to get past all of the inspections.

4. Delinquent Tenants

Even though the majority of Section 8 rent is paid for by the government, the tenant is still responsibly for paying a portion of the monthly rent. If a tenant doesn’t pay their portion of the rent,  you can go through the Section 8 eviction process, but this often results in you settling for less profit, or possibly even losing money after you calculate in any maintenance repair costs.

Sometimes Section 8 landlords are reluctant to report a tenant who is late on their rent payments, because it could lead to a long bureaucratic process to have the tenant removed. Once the tenant is evicted,  the entire Section 8 Process has to be repeated in orderto find a new tenant. Landlords deals with both private and Section 8 delinquent tenants, and the Section 8 delinquencies are definitely costlier due to the bureaucratic regulations.

5. No Compensation for Damages

If a Section 8 tenant damages your property, the government will not compensate you for any damages. Since the tenant is obviously low-income, getting any money from them will be a challenge as well, even if you take them to court.  Generally because Section 8 tenants are less financially invested in your property, they to be a little less concerned about proper upkeep as well.

 

Section 8 Investing Tips

 

1.  Remove all ceiling fans,  garbage disposals, screen doors, and storage areas.

These items will not help you earn higher rents, but will cost you to maintain. They are unnecessary, and Section 8 does not care whether you have them or not, so I would just take them all out.

2. Do Monthly or Quarterly Inspections

Visit the property regularly to ensure it is being properly take care of. I specifically look for water leaks because a running toilet can cost you $75 a month, and a dripping faucet or showerhead can cost you $20 month.  This can become a huge expense over the years.

3. Train the Tenant

Train your tenant, do not let them train you. Section 8 tenants are kind of like children. It is important to provide structure and enforce the rules, or you will end up with terrible experiences. You should always remain professional and not get emotionally involved with your tenants. You are the parent and they are the children, so you must enforce the rules with a firm hand.

4. Fair Market Rents

You can find out what the Section 8 rental rate is in your city by googling,  “Fair market rents,” and then your city. Click the HUD link and it will  show you what Section 8 will pay for one-bedroom, two-bedroom and three-bedroom properties. You can simply compare it against the market rents in your city.

5. Know When to Not Rent in Section 8

If your property is in a good location, well-renovated, and could be rented out privately quickly, with higher rent then a Section 8 tenant, do not rent to Section 8.  In other words, if your property’s in a great neighborhood and in great condition, you’re probably going to attract a better tenant who can pay a higher amount than what Section 8 can pay.

 

How to Attract and Choose the Best Section 8 Tenants

(and Avoid the Worst Ones)

 

My all-time best tenant was a Section 8 tenant who was a single mother of four little girls.  She was very clean, kept the property in good shape, always paid on time, and  was a very responsible person.

My all-time worst tenant was also a Section 8 tenant. Of course, I learned nothing from the best tenant, but I learned a whole bunch from the worst tenant.

What I Learned from my Worst Tenant

I learned how to screen and filter through potential tenants, in order for them to qualify for my rental properties. Over the years I have developed a process that I believe is the best you will find anywhere. It is a point-based system that leaves all emotion out.  If the tenant has a good story but doesn’t have enough points, they get denied. Even if they come highly-recommended but don’t have enough points, they are denied.  If they have enough points, they get in, if not, they are denied. In one building, our evictions have gone down 70% in just one year by switching to this simple point system.

The Point System

1. Rental History

Each person is given a certain amount of points for being a long-term renter, and points are subtracted for any evictions or issues with prior landlords.

2. Income

A potential tenant must make three times what their rent portion is. So if the rent is $1,000, Section 8 will pay $$800 and the tenant is responsible for the remaining $200. This means the tenant must make $600 a month to qualify for a point in my system. If they do not make at least three times what the rent is they get -3 points.

3. Credit and Debt Ratio

Next we look at their credit and range it from excellent credit all the way down to good. fair, poor, bad, and even no credit; with each tier getting a different amount of points. The debt part is based on their debt to credit ratio.

After examining each of the sections, I tally up the points and that score determines if a tenant is approved. If they are slightly below the approved point value, I require a double security deposit for them to be approved. If they are below two points they will not be approved. This is a well-refined system that  makes it easy for property managers and leasing agents to make a quick decision.