subject: The Pros & Cons Of Section 8 [print this page] As a landlord investor there are many options that are available to you besides the traditional rental agreement. Some landlords prefer to utilize the lease option strategy. There is another strategy that other landlords like as well. This strategy involves renting out properties to what are referred to as "section 8" tenants.
What is a section 8 tenant? Section 8 is an affordable housing program designed to help low income families to be able to have a place to live. The program is administered by the United States Government under the Department of Housing & Urban Development. The government provides a housing supplement for the tenant that can be applied towards finding a place that they can rent out and live in.
Tenants that are a part of the section 8 program are responsible for securing their own housing. Landlords that choose to participate in the section 8 program are responsible for locating and securing their own tenants. There are also minimum property standards that have to be met in order for a rental unit to qualify as an approved section 8 rental.
As a landlord if you are considering participating in the section 8 program there are a number of pros as well as a number of cons to consider. You should educate yourself as to what these pros and cons are and then make an informed decision as to whether the benefits to you outweigh the challenges. Section 8 is a very profitable program for some landlords. For other landlords it is a nightmare. By doing your research, you will be able to more accurately determine which one it will be for you.
One of the biggest factors to take into consideration is your specific local market. There are some markets in which the section 8 program works great. There are other markets in which the landlords report that the program is a complete nightmare. As part of your decision process, find out the thoughts of other landlords on the program in your local area.
The Pros Of Section 8
Let's start with the benefits of section 8. The biggest and most popular benefit, which is one of the primary reasons why landlords consider the program is the guaranteed income. The voucher allows you to get paid a large portion of the total rent from HUD. The remaining amount of the rent you are to collect from the tenant. The percentage that the government pays vs. what the tenant pays varies based upon the tenant's income.
For example, if the tenant's agreement is to pay 25% of the rent, section 8 will cover the other 75%. If the rent is $700 a month, section 8 will pay $525 and the tenant will pay the remaining $175. The landlord knows that he or she is going to receive the $525 faithfully every month because that check is coming from the United States government directly to the landlord.
With a traditional rental agreement there is no guarantee that the landlord will ever receive any rent. Most landlords collect a security deposit consisting of 1-2 months rent as a way to protect themselves in case the tenant stops paying rent. However, depending on where the property is located at, even that much rent upfront isn't enough when you factor in the costs involved with getting a tenant evicted.
The certainty of the income being received is such a huge benefit that many landlords report that this one benefit alone far outweighs any disadvantages to participating in the section 8 program. This is especially true in this tough economic environment. Even tenants that live in great neighborhoods and have high paying jobs are getting evicted when they get laid off from that job and they discover that it is going to take much longer than they initially expected to find another job. Landlords that participate in the section 8 program have no such concerns. They know that for at least the government portion of the rent that money is going to come on time like clockwork each and every month.
Another benefit to the program is the built in accountability due to the nature of the program. Section 8, like many other programs, have a lot of administration and process that need to be completed in order to qualify for the program. The tenants that have qualified for the program had to go through a lot in order to qualify. Generally speaking, they have no desire to run the risk of losing their section 8 benefits by violating the rules of the program and risking you reporting them to HUD.
In many areas of the country, the list of available candidates for section 8 housing is long and the amount of housing available is small. Therefore, when you have a vacancy, often you can fill it very quickly because of the large amount of candidates that are interested in living in the property.
The Cons Of Section 8
While there are most certainly benefits to the program, there are also disadvantages as well. One disadvantage is that you are renting to individuals and/or families with a very low income level. While every landlord would love to get the section 8 candidate that is an elderly individual who keeps to themselves and doesn't break anything, you can't discriminate against a tenant and refuse to rent because they are a single parent with 4 young children.
That means it is critically important that you do your full due diligence on every candidate that you consider for the rental unit. This is not the time to get desperate and rent the apartment to just anybody just so that you can fill a vacancy. Doing so could be a very costly error. For example, if you rent to a tenant on section 8 and then it turns out that the tenant deals illegal drugs or uses illegal drugs, this could put you as the landlord in serious liability.
Another disadvantage to the section 8 program is there is generally an increased risk for more wear, tear and damage. Most section 8 candidates have kids and kids break things. You can expect to spend more money on maintenance than what you would probably spend with a traditional rental property. This extra cost is also associated with the fact that section 8 has stricter upkeep requirements than what is required by law.
The other primary disadvantage is the process that is required in order to have your rental unit qualified to accept section 8 candidates. The tenant has to fill out a voucher completely correct. Any mistakes will delay the approval process. HUD must then approve the amount of money you are charging. They want to make sure that you are charging market rental prices and not trying to charge higher rents because you know the government is going to be paying the amount.
The final step to the approval process is a physical inspection of the location. The inspector will check the premises to make sure that it meets the requirements for HUD. For instance, you cannot have any broken windows; you cannot have a bunch of trash or abandoned vehicles. If the property fails to pass inspection there is a possibility that the entire process will need to be done all over again
The section 8 program is a very polarizing program when you question landlords about it. Some landlords swear by it and say it is one of the best programs available to landlords. Others say the program is an absolute nightmare and that it should be avoided at all cost.
Because the opinions about the program vary greatly, you really have to do your own research and investigation and not simply rely on the opinions of one or two people. Taking the time to do your own research the proper way will allow you to fully understand the advantages and disadvantages of the program so that you can make a good decision as to whether it is something you want to participate in or not.
