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Pros & Cons of Section 8 Rentals as Real Estate Investments

section 8 real estate investmentsThere is a wide range of real estate investments you could pursue as a real estate investor. Each of the different types of real estate investments out there come with various pros and cons. It’s up to you to decide which set of pros and cons you wish to take on to get the results you want.

One particular type of rental investment property some investors focus on is section 8 real estate investments.

Some people have no idea what these rental investments are, others are instantly turned off by the idea of having low income tenants, and others are completely oblivious to the possible downsides of the guaranteed income section 8 renters promise.

Section 8 – A program that allows private landlords to rent apartments and homes at fair market rates to qualify low income tenants, with a rental subsidy delivered by Home Forward.

The US Department of Housing and Urban Development funds this Housing Choice Voucher Program commonly known as Section 8. (1)

Let’s take a look at the pros and cons of renting section 8 properties.

Let’s start with the pros.

Pros of Section 8 Real Estate Investments

#1: Guaranteed Monthly Income

The number one benefit of working with section 8 tenants this effort the government is the benefactor of your tenants. Government checks don’t bounce and you can pretty much guarantee that they’re going to come every month like clockwork.

As a landlord you know that the entire business rises and falls on collecting that read that comes around once every month. That check doesn’t come through, you’re in a world of hurt. That’s why landlords love the section 8 program.

#2: Works for Multiple Property Types

As you see in the definition mentioned above this program works for renting out houses. The big benefit to renting out apartment units as opposed to houses is that you enjoy economies of scale when you own an apartment building.

Instead of having one paycheck coming from the entire property, you may have five team 20 or more coming from just one property. Instead of having ten different lawns spread out all over town that need to be cut, you can cut just one lawn for your entire apartment complex.

#3: Collect Rent at a Solid Rate

Another big benefit of section 8 rentals is that you can actually charge market rates for your units. One naturally assumes that since you’re working with low income properties and government funded programs that you are going to make a low income. However, that’s not necessarily true.

#4: Additional Advertising & Exposure

As a section 8 landlord you will benefit from having free advertising and exposure with in the internal sources on this government-backed program.

Section 8 will post available units on their website, which is visited by local potential tenants, and they will also post it on other internal sources as well.

#5: Long-Term Tenants

Section 8 tenants tend to make longer-term rental commitments than higher income tenants. Lower income tenants tend to live in rental properties longer than higher income tenants.

This means long-term stable rental income for you as a landlord. Once they find a place to stay these renters usually stay for a while.

These are some of the main pros for choosing to focus on section 8 tenants. Now let’s take a look at some of the cons.

Cons of Section 8 Real Estate Investing

#1: Slow Start-Up to Payments

As it is with everything the government does, section 8 paychecks are slow to get going but are usually stable long-term.

To be more direct, you might not see your first rental check for a new tenant for 60 to 90 days. This means you have to cover all the expenses until those rental checks start coming.

Since this is a government sponsored program there is a lot of internal paperwork that needs to be filed and work out before checks are sent out to landlords.

You can’t file late fees, you just have to know that your money is coming even if it gets there later than expected or desired.

#2: Inconsistent Payment Dates

Your checks might not arrive at the same time each month, even on a longer-term basis. So you may get a check on the first one month, get next month’s check on the fifth, and get the following month’s check on the seventh.

#3: Partial Payment

Another drawback of taking on Section 8 real estate investments is that your government funded check may not cover the entire rent amount each month. Section 8 may cover the vast majority of the monthly rent amount but in some cases the tenant will have to pay, for example, hundred dollars a month towards their rent.

So you will have two checks, in some cases, to look out for per section 8 tenant you have.

However, with non-section 8 tenants, you look to the tenants to pay 100% of their monthly rent amount. At least here you know you can trust the government to pay most or all of the section 8 tenants rent.

#4: Quality Control

there are certain standards that your property must meet in order for you to be able to rent to section 8 tenants.

They will schedule periodic inspections of your properties ensure that they meet section 8 standards. Usually, they will perform inspections before a renter moves in and they will perform periodic inspections over the years once the tenant is there.

However, if you are renting to a higher income demographic these same standards and many more will need to be met to attract and keep higher income tenant. The government simply stand in the gap to ensure a certain level of quality of living for tenants.

So this is really not that big a deal, because in every case as a landlord somebody is judging the standards of the property being rented.

#5: Maintenance Items

Depending on the agreement that you make with tenants of non-section 8 properties this item may or may not be a con.

With section 8 tenants, normally the landlord will take care of the costs of lighting fixtures, replacing light bulbs, placing smoke detectors, and other such items.

#6: Fair Housing

Another con to consider is the fact that you have a portfolio of properties you cannot choose to accept some of those properties as Section 8 real estate investments and others as non-section properties. If you accept section 8 tenants all of your properties was made available to rent by section 8 tenants.

#7: Tenant Buy-In

The last con I will mention here is the fact that since section 8 tenants are responsible for their complete rent they don’t have much buy-in to maintaining the property well. So you may be attracting a renter that is likely more prone to damage your property then tenants who are fully responsible for their own rent payments.

Conclusion

You see a full set of pros and cons to renting out units to section 8 tenants. You have to decide for yourself whether the pros outweigh the cons and make your decision based on the awareness thereof.

There are investors who do very well focusing on working with section 8 renters and there are others who wish to pull their hair out.

If you put the proper system in place you can certainly take on section 8 renters and be successful, providing good housing for demographic of clientele.

Reference:

  1. Home Forward. http://www.homeforward.org/landlords/what-is-section-8
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