If you're an investor in real estate, especially in a large metropolitan area, you might have considered opening your rentals to Section 8 tenants. This federal program assists those with very low incomes by 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 housing to people that really need it, it’s wise to thoroughly research what to expect.
What Is Section 8 Housing?
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.
Section 8 housing is overseen by the U.S. Department of Housing and Urban Development (HUD), and it 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 based on the city and the state.
- Section 8 housing is nearly always in demand and may have long waiting lists.
- Before purchasing property to use as Section 8 rentals, it is essential to be aware that the building must pass an inspection by the U.S. Department of Housing and Urban Development (HUD).
- Landlords must follow strict HUD procedures when it comes to evicting tenants.
Because demand for Section 8 vouchers is so high in many areas, the waiting list can be very long; some families wait many years to receive assistance. Local PHAs close their waiting list when it becomes excessive—for example, in Los Angeles, the waiting list closed in 2017 and remains closed as of 2020.
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%.
Benefits of Section 8
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.
Payments Are Deposited Monthly
The government will deposit your portion of the rent money right into your bank account on the same day each month.
Before using your properties as Section 8 rentals, it may be wise to weigh the pros and cons.
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, and where condos and homes are unaffordable for many families and individuals.
Challenges of Section 8
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
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.
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 procedures to evict them. Be warned: HUD 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, it is good to know you'll be providing safe housing to families in need of it.