Like many real estate investors, I started off my investment journey as a cash flow investor. When evaluating properties, my goal was to make sure that I could receive monthly cash flow after netting out expenses, maintenance, taxes, etc.
Generally speaking, cash flowing investment properties focus less on property appreciation, but they are a great way to start off an investment journey since they are grow your assets and pay for themselves.
Because some of these properties are in less desirable neighborhoods when compared to other types of real estate investing, I found myself doing a bit more research on the topic of Section 8 rentals. Section 8 real estate is another way to diversify your real estate strategy. Think of it as another tool you can add to your toolbelt.
In this article, I’ll share my experiences navigating the Section 8 process and provide firsthand opinions on whether or not I think taking advantage of this government assisted rental funding is a good idea for fellow landlords.
Should I Accept Section 8 Tenants?
Yes, if you are a landlord focused on cash flow investing, you should strongly consider accepting tenants with Section 8 vouchers as they can be a great source of reliable income for your rental properties. They help reduce your cash collections risk.
As with anything in real estate investing, there are considerations around Section 8 tenants that you should think about before you fully jump into these government assisted rental payments. I reached out to my local housing authority just to get more information on how it works. If you are interested, you should give them a call.
We go into more detail on the advantages and disadvantages in going with Section 8 housing below.
What is Section 8?
Section 8 is a form of rental assistance that the United States federal government provides to low-income, elderly, and disabled families.
It is referred to as “Section 8” due to the introduction of the program in the Housing Act of 1937, as you guessed it, in section 8 of the legislation.
The goal of the program is to allow renters to have the choice and freedom to pick the housing that they need for their family and unique situations. They were able to create this using “housing choice vouchers.” A minimum health and safety standard is required for each rental property that is trying to accept Section 8 vouchers.
What are the benefits of accepting Section 8 housing as a landlord?
- Consistent and reliable income: The key attraction of this program is that you are receiving monthly payments from the government that are as good as guaranteed
- Lower downtime and longer term tenants: Typically, tenants in these programs will stay for years – something that my local PHA mentioned to me as well
- Fair market rents: Not only will you be assessed a fair market rent amount for your property, but you can increase the rent annually
- Relatively high profitability: Typically speaking, properties that are used to support housing voucher programs will be cheaper to purchase to begin with and they typically outperform rental properties in better neighborhoods for cash flow
- Partially screened tenants: Your local PHA will pre-screen applicants before you even get a chance to talk to them
- Helping those in need: At the end of the day, you are providing help to those that are in need of housing and you should feel good about that
- Free inspection service: You get an inspector at your disposal and if they can be your ally, they can be a very valuable tool
What are the downsides of accepting Section 8 housing as a landlord?
- Have to go through an inspection process: The inspection process can be time consuming and may identify many different fixes that you were unaware of. They will also perform annual inspections and failure to fix those things may cause you to lose your payments.
- Tenant concerns: Because these tenants are needs-based, some of them may not even have the basic necessities to live. That also means, cleaning and maintaining your property may deprioritized in terms of what is important to them.
- Dealing with the local public housing authority: Landlords have to now introduce a third-party to their real estate process instead of being able to efficiently deal with the tenants directly.
- Getting rental payments rolling: You won’t receive your first payment until the tenant moves in, and you may not have the full security deposit payment for a while
How does Section 8 pay landlords?
In most circumstances, Section 8 will cover around 70% of expenses associated with renting. That will typically include the cost of rent as well as utilities. The landlord will receive direct payments from the public housing authority, which typically goes straight into your bank account every month (fantastic!).
The tenants are responsible for paying the remaining 30% of the balance and expenses. This is typically collected separately and this portion of the income may not be as consistently reliable.
My local housing authority mentioned that are certain cases where they cover the entire rent if the tenant is not making any income at all. All of these tenants are required to be approved into the program so they will already have these vouchers in hand before they reach out to landlords.
How do I get started with Section 8 as a landlord?
Depending on your local housing authority, the steps below may vary slightly. The guidelines below were provided by my local PHA when I tried to register my property for a Section 8 tenant. Overall, the process is fairly simple as long as you follow the steps. You’ll be on your way to collecting rent payments in no time.
1. Give your local public housing authority (PHA) a call (or visit the office in-person)
Your local public housing authority is the key to making all of this happen. There, you can find resources on how the process works, what documents you need to fill out, and if you’re lucky, you may even get a chance to chat with the inspector to see what types of things he/she looks for on their inspection.
Just a quick Google search with the name of your location and “public housing authority” should pull up their website and relevant contact information. My particular housing authority has a brick-and-mortar office and they’re open from 9 am to 4 pm every day.
You can also find a list of offices on the official HUD website: https://www.hud.gov/program_offices/public_indian_housing/pha/contacts.
Step 1 is to reach out, get information, and get a name of a point of contact that can help guide you along the way.
2. Find your tenants
Before you apply your property, you actually have to look for tenants, which is great news for landlords. There’s no need to do a pre-inspection of your home. You can start by finding interested tenants that have a housing voucher and go from there.
My local PHA has a list of landlords that accept Section 8 and they also have a complimentary list of tenants looking for housing and their requirements. This is a great way to find additional potential tenants, outside of your normal advertising efforts.
The local PHA will already perform a background check on individuals as part of their application process. So they will already weed out those that have had felonies in the last 5 years and if they have any repeat offenses that is important to be aware of. They also recommended to me that once you narrow down a list of tenants, you should consider giving them a phone call or even do an in-person meeting before accepting them. Since they’re potentially going to spend years on your property, a quick 15 minute call or meet up is worth the investment.
3. Schedule a property inspection
Once you have potential candidates as tenants selected, you will then need to schedule an inspection with the local housing authority. The housing authority has full time inspectors that you can book through the office. We have more information below on everything that they look at during an inspection. Make sure that you can plan ahead because not only will it take some time to get the inspection scheduled, you may also need to line up contractors or yourself to help remedy any inspection findings if there are any.
4. Resolve any property inspection outcomes
After the inspection, you’ll receive a report (in writing) about the outcomes of the inspection and what needs to be fixed in order for your property to be approved by the public housing authority. Depending on the inspector, the locality, and the condition of your home, there could be plenty of fixes or not many at all. The inspector will have a follow up inspection once you have remedied all of the necessary items on your property before you can move forward with the Section 8 contracts.
5. Complete paperwork (from the PHA and lease agreement with the tenant)
The last and final step that you need to do is to make sure all of the paperwork is completed. You will need to fill out a contract agreement with the PHA that will outline the agreed upon rent amount and any other details that may be involved in the process. Additionally, you will also need to make sure you have a lease agreement with the tenant. Generally speaking, you will be responsible for creating your own lease with the tenant. The PHA will review the lease for any major issues, but the contract agreement is between you and the tenant.
6. Collect rent every month
Congrats! If you have reached this step, this means that you have successfully found tenants and you have passed the inspection. While there will be some on-going activities such as follow-up inspections, you now just have to wait in the mail for monthly checks (or direct deposit) from the public housing authority.
How does Section 8 determine the rent amount for a property?
Your local Public Housing Authority is the one responsible for providing a fair and reasonable value for rent on a given property. As you would expect, the rent is based on the size of the property, location of the property, and other influencing factors. They look at other comparable housing options that can be used as fair comparisons to price your rental.
The local housing authority in my area mentioned that they typically have a schedule of average rental prices, based on size and configuration in different areas. That’s the starting point of what they will pay for rent. If you believe your property deserves more (or less) rent, there are ways to request for a variance; however, that is not always guaranteed.
What is involved in the Section 8 Inspection Process?
To schedule your “Housing Quality Standards” inspection which is required for housing vouchers (Section 8), you will need to reach out to your public housing authority. They can arrange an inspector to come to your rental property.
According to the HUD website, there are 13 performance requirements that need to be met before the tenants can move in. Additionally, these performance requirements need to be maintained while the tenant resides in your property, else payments may be withheld.
Note that the questions associated in each category are only examples of what they would look for and should not be thought of as the exhaustive list of questions.
- Sanitary facilities (Do the bathrooms work correctly? Is there a shower/bathtub? Are their plumbing issues?)
- Water supply (Is there running water? Is there hot water?)
- Food preparation and refuse disposal (Does the kitchen meet basic safety standards? Are there issues with any of the appliances? Is there a place to cleanly dispose garbage?)
- Lead-based paint (Is there lead-based paint on the premise?)
- Space and Security (Do the exterior entrances lock securely? Do rooms in the building have appropriate space for the family living in?)
- Access (In case of emergencies, is there proper access to the exterior? Are there proper safety exits in basements?)
- Thermal environment (Does the furnace work properly?
- Site and neighborhood (Where is the property located? Are there any issues with the surrounding environment that may impact the safety of the inhabitants?)
- Illumination and Electricity (Are the electrical outlets functional? Are they properly connected? Does the breaker panel have any issues? Are lighting fixtures available throughout the house?)
- Sanitary conditions (Is the house clean to a livable standard? Are there any other issues that may cause harmful health effects?)
- Structure and materials (Does the building have any structure issues?)
- Smoke detectors (Are smoke detectors working? Are they properly distributed throughout the house? Are there proper smoke detectors near the bedrooms?)
- Indoor air quality (Is mold present? Are there any other harmful airborne substances?)
How often does your Section 8 property have to be inspected?
The housing authority will require a number of different inspections. In short, there is an initial inspection that happens whenever you sign on a new tenant and their will be on-going inspections.
For my local PHA in the Midwest, they require the following.
- Initial inspection: The initial Housing Quality Standard inspection
- Follow up inspection: To make sure all of the repairs are completed
- 1-Year Inspection: After the tenant has stayed for a year, the inspector will come to make sure all of the quality standards are still maintained
- On-going Biannual Inspections: Inspection every two years after the first-year inspection
- Each tenant turnover resets the timer
What Responsibilities Does A Section 8 Landlord Have?
As Section 8 requires, landlords have to take care of the property as they would for any other tenant. It needs to meet the sanitary and safety conditions necessary for decent housing. Outside that, they have some simple paperwork to complete, often through the local PHA’s website.
What type of tenants qualify for Section 8 vouchers?
Your local public housing authority will be responsible for qualifying Section 8 participants. In order for them to qualify they must meet a number of requirements listed below.
- Background Check: Tenant must pass a background check which typically involves making sure that have a clean recent history. My local housing authority said that they will check if there are any felonies in the last five years. They will also check to see if there are any repeat offenses that may rule them out. (Keep in mind that you can do your own landlord background check if that’s what you require)
- Eligibility Check: Since this is a needs-based program, the tenants are required to meet certain eligibility requirements. Those may include income caps, disability status, age, etc.
- Rental History Check: Tenants will also checked on their past rental history with the Section 8 program. There are a number of rules that may cause tenants to lose their voucher status. Getting evicted, not paying on time, and causing property damage are potential voiding reasons.
Ways to protect yourself when dealing with Section 8
- Vet out your tenants
As part of the process, you will get the opportunity to select your tenants. Whether it be background checks, reference calls, or even interviewing the tenant directly, you can do your own due diligence when selecting a tenant. If you a property management company, you may also be able to provide some general guidelines and preferences so that they can vet out the tenants on your behalf.
- Ensure a bullet proof landlord-tenant lease agreement
For all types of rentals, you want to make sure you have a rock solid lease. Ideally, you never have to refer to the document, but when things get dicey, it’s important that you have all of the legal protections on your side. Spend the necessary time and investment in to a
- Tenant-proof your rental unit
Applicable to all sorts of tenants, but it’s good to assume that the tenants will treat the home poorly. With that in mind, there are a number of techniques that may help improve the durability of your property.
Some quick examples would include using water proof vinyl plank flooring throughout the property, spending more for the higher durability option (i.e. buying a cast iron tub instead of an acrylic one), and making sure you have plenty of the same color paint.
- Annual check ups
Since the PHA inspector will also need to do follow up check ups, it may not be a bad idea for you to tag along and perform your own check up in the process. You can check on things such as making sure the HVAC filters are clean, generally cleanliness of the home, ensure their are no actively leaking areas, etc. You will also have the opportunity to see what your tenants are doing in the property. Now this isn’t always the great option, but it certainly happens. If you have a bulletproof lease, you can find an avenue to evict the tenant if that’s the unfortunate outcome that you are seeking.
- Plan for your property exit strategy
If the worst case scenario happens, you may want to have an idea of how to divest the property if that happens. There are often wholesale buyers that are willing to pick up distressed homes. You may even be a person that is willing to flip the home if it requires a re-gut.
An example scenario would be that you bought a house for $60,000 and you can rent it for $800 a month. Even if the tenants inside completely destroy the home, perhaps the house to its studs is still able to fetch $50,000 to a wholesaler. That makes the investment a lot less risky overall.
- Ensure you have the appropriate insurance coverages
Property insurance can give landlords another layer of added protection. While all rental properties should have property insurance and some form of liability insurance, housing choice voucher homes are especially good candidates for an appropriate insurance policy. Talk to your insurance agent about coverages that he or she may recommend for your unique situation.
Calling your local public housing authority
Whether you have a voucher tenant ready to go and/or you are looking for additional information on how the entire process works, I highly encourage you to give your local public housing authority a call. They can be an invaluable resource and be a part of your real estate investing team.
My experience chatting with them was great… I didn’t need to have an appointment and there was practically no wait time if you mention that you are a landlord via phone prompt. They were knowledgeable and they got me connected to the right people if they were unable to answer any specific question.