Leasing to Section 8 Tenants?
If you're an investor in real estate, especially in a large metro area, you might have considered opening your rentals to section 8 tenants. This federal program assists those with very low incomes, subsidizing a portion of their monthly rent. As a landlord, there are pros and cons to accepting housing vouchers, so before you make the decision to enter this niche market and provide much needed housing, it’s wise to thoroughly research what to expect.
What is Section 8?
The Housing and Community Development act of 1974 established the Housing Choice Voucher Program, which was an amendment to section 8 of the Housing Act of 1937. This program assists low-income renters by providing vouchers that pay approximately 70% of their monthly rent and utilities. Overseen by the Department of Housing and Urban Development (HUD), section 8 is administered by public housing agencies (PHAs) found throughout all 50 states. PHAs determine section 8 eligibility for their area based on income and family size. In general, a family’s income must be below the 50% median income for their area to qualify for section 8, but this can vary by city and state.
Because demand for section 8 vouchers is so high in many areas, the waiting list can be very long, with some families waiting many years to receive assistance. Local PHAs close their waiting list when it becomes excessive – for example, in Los Angeles the waiting list has been closed since 2004.
Once a family receives their section 8 voucher, it is up to them to find a suitable apartment or home that accepts section 8 tenants. Local PHAs normally have lists of such properties, while websites such as GoSection8 make it easy to search for rentals by zip code. The housing voucher generally covers 70% of standard rent for that area, with the family responsible for paying the remaining 30%.
- Rent is paid on time: One of the biggest perks of renting to section 8 tenants is having (70%) of your rent paid right on time each month. If you have struggled in the past to collect rent from tenants who weren’t quite so accommodating, you will appreciate this benefit. The government will deposit your portion of the rent money right into your bank account on the same day each month.
- No shortage of tenants: With waiting lists filled to capacity in many cities, you’re unlikely to ever have trouble renting your section 8 property. This is especially beneficial in towns where rentals tend to sit vacant for lengthy periods due to higher interest in purchasing houses or condos. Could you afford to cover several months' worth of mortgage payments without tenants?
- Extensive property inspections: Before you can accept renters, your property must pass an extensive inspection by HUD personnel. If your property is deemed insufficient, you have 30 days to make necessary corrections before being reinspected. After the initial inspection, your property will undergo repeated inspections, generally on an annual basis.
- Rent is capped by the local PHA: The local PHA determines the fair market rent for your unit, which is the maximum you can charge. Plus, the rent cannot be more than 40% of a prospective tenant’s income. This often leads to section 8 landlords charging their tenant less than they could a non-section 8 tenant.
- Difficult evictions: While you are entitled to evict section 8 tenants who do not pay their share of the rent, damage the property or create difficulties for other tenants, you will need to follow HUD procedure, which is usually more restrictive than the local eviction process.
- Potential crime issues: Some studies have shown a relationship between section 8 housing and higher levels of crime. Whether or not this is true, the assumption may lead to a lower valuation of your property.
The Bottom Line
Whether you are new to the world of real estate investment or an old hand, at some point you are likely to consider opening your property to section 8 tenants. Before making the decision, it is prudent to arm yourself with knowledge of both the good and the bad about renting to this particular niche. Only you, along with your property manager, can decide whether the pros outweigh the cons in your particular situation. If you do decide to open your property to section 8 tenants, you'll be providing safe, healthy housing to families in need.