Pros and Cons of Renting to Section 8 Tenants

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Frequently our investor's who purchase properties from us will ask our opinion about section 8 tenants and how section 8 works. This article will briefly explain how section 8 works, the pros and cons, as well as how to attract section 8 tenants.

Brief overview of Section 8

First of all, let me give a brief overview of what section 8 is and how it works. Section 8 is government assistance to help low-income families obtain safe, decent, and affordable housing. A perspective section 8 tenant must apply to a local public housing agency (PHA). When an eligible tenant comes to the top of the PHA's housing choice voucher waiting list, the PHA issues a housing choice voucher to the tenant. Tenants who receive Section 8 vouchers are responsible for finding their own rental housing. The vouchers they receive from their housing agency is to help pay the rent. Basically, the voucher means that the Federal Government will pay a specific amount of the rent. The amount varies based on the voucher holderýs qualifications. Once a voucher holder locates a property and is approved by the property manager, there is a string of events that take place. The voucher holder fills out a form that the property manager signs. The voucher holder submits this form to his/her case worker at the PHA. The case worker executes a contract with the property manager (PM). This contract authorizes the PHA to make subsidy payments on behalf of the tenant. If the tenant moves out of the unit, the contract ends and the tenant can move with continued assistance to another property. In addition, the PHA must conduct a physical inspection of the property to ensure it meets section 8 standards of safety and code. After the inspection is approved and the paperwork is in order, the tenant can move in.

Pros of Section 8

On-Time payments: The best benefit of all is that the government pays on-time, every time! No chasing your money each month. It arrives in the mail the first of the month every month. In our opinion, this alone outweighs all other negatives. With our out-of-state investors, the PM has the section 8 funds send to her. Once she receives it, she deducts her management fee and any other fees and sends the balance on to the owners. If the tenant is responsible for a portion of the rent then the PM treats the rent collection similiar to a non-section 8 tenant.

Longer contracts: Section 8 lease agreements are typically 1 year contracts and sometimes 2 years. Although the tenant can attempt to break the lease and move, he/she must first locate the new property and go through the entire process again with section 8. The general rule is that if the investor keeps up on the property, the tenants tend to stay the length of the contract and often will renew to avoid having to go through the hassles of section 8 all over again.

Good Tenants: Generally speaking, section 8 tenants tend to be good tenants. Most tenants waited and worked hard to qualify for their vouchers and complaints to the PHA against the tenant could result in the tenant losing his/her voucher.

Cons of Section 8:

Difficulty of move-in: Often times, it is a lengthy process of paperwork and inspections before the tenant can move in and start paying. Some housing authorities are better than others and it depends on how quickly paperwork is submitted, inspections pass, and how backed up the PHA is with orders. Our recommended PMs understand well the process and have a good relationship with the case workers and inspectors and usually delays are on the part of tenant or PHA and not the PM.

Wear and tear: Most section 8 tenants have large families and limited work, which means they are present more often than a working family with fewer children. As a result, the property experiences more wear and tear on the carpet, paint, etc.

Pros outweigh the cons:

Overall, when comparing the pros and cons, in our opinion the pros by far outweigh the cons. I have a section 8 tenant who has been in the same property for 3 years now. I donýt have to worry about inability to pay rent due to job loss, unexpected expenses, bad budgeting, or anything else. Theyýve been happy with the property so they havenýt shopped rental rates or considered leaving. I get my check each month like clockwork. In fact, I think I can count on 1 hand how many times Iýve interacted with this tenant (one time was from a tree falling down in the yard)! Although such a positive experience can and does happen with non-section 8 tenants, the consistency of payment is enough to put an investor at ease and willing to deal with the cons.

Attracting Section 8:

There are a few methods of attracting section 8 tenants, all of which we encourage our investorýs PMs to do. The first is to inform the local PHA of the availability of properties. Our PMs do this by posting flyers in the PHA offices where section 8 voucher holders frequent. Our PMs also include in their advertising; ýsection 8 welcome.ý That alone is usually enough to attract a section 8 voucher. For more information about section 8, visit http://www.hud.gov/groups/landlords.cfm

Jerry Norton is a full-time real estate investor and mentor. His company, Equity Services, LLC specializes in providing investors with fully renovated, cash flowing investment properties for under $50k. http://www.equityservicesllc.com