Charles:
Welcome to Strategy Saturday; I’m Charles Carillo and today we’re going to be discussing how to become a Section eight landlord.
Charles:
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Charles:
Tens of millions of Americans need help securing affordable living arrangements. Many of these Americans will turn to Section eight housing program in order to be connected with landlords who can provide clean, affordable housing.
Charles:
So first off, what is section eight? Well, section eight refers to section eight of the Housing Act of 1937. And this act was amended in 1974 and was passed by Congress to create the Section eight program. Section eight, as it is referred to, authorized the payment of rental housing assistance to private landlords on behalf of low income households in the United States. Of the 5.2 million American households that received rental assistance in 2018, approximately 2.2 million of those households received a Section eight housing choice voucher. 68% of total rental assistance in the United States goes to seniors, children and those with disabilities. The housing choice voucher program provides tenant-based rental assistance, so as a tenant can move from one unit of at least minimum housing quality to another, and landlords are not required to participate in the voucher program. Some states have laws that prevent landlords from discriminating based on source of income, and these laws are not applicable in all areas and the program remains voluntary in most places.
Charles:
Voucher amounts are based on fair market rents calculated in the area by the Department of Housing and Urban Development, hud the section eight tenant process. So that the most important factor for section eight eligibility is income and the program is available for very low income and low income individuals. In other words, individuals earning 50% or less than the areas median income. Local public housing agencies called PJs are in charge of screening potential tenants and administrating vouchers to individuals and families. The next part of the process is the wait list and potential tenants outnumber vouchers. So once the local public housing agency approves an individual or family, they’re put on a waiting list. And as a side note here, the waiting list sounds terrible. More people need help than there are vouchers. But once a tenant gets a voucher, they do not wanna lose him.
Charles:
In other words, they will be more likely to pay their portion of rent on time, respect the property, and respect their fellow tenants in order to not lose that voucher. Once the voucher is hand, the tenants can now start looking for qualified housing. So what’s the section eight rental process? Well, typically Section eight vouchers pay for approximately 70% of the tenants rent and utilities and voucher payments are made directly to the landlord’s bank account. Tenants uncover the remaining 30% themselves. A voucher holder searches for and locates a rental apartment that they would like to rent. The landlord then completes a request for tenancy approval form. It includes information about the property rental amount, utility costs, address, et cetera. Next, the landlord’s screens a tenant just that they would screen any other tenant. Now, once approved by the landlord, the local agency reviews the rental, the documents, and the tenant’s income to make sure that they can pay their 30% et cetera, and schedules in inspection.
Charles:
This part of the process can take many weeks from the time it schedule to the time it is inspected. The local agency wants to make sure that the unit meets HUDs housing quality standards before the lease is signed and the tenant moves in. If all this completed and the unit passed the inspection or the issues from the inspection have been corrected, now the lease can be signed and the tenant can move in. So what are the advantages and disadvantages of Section eight housing? So section eight advantages would include guaranteed randomly lower payments, right? The government’s portion is paid directly to the landlord every month. Annual rent increases HUD will allow for annual rent increase, usually 5% to 8%. There’s lower vacancy rates. There’s a larger pool potential Section eight tenant for your property. Once it has been inspected and approved initially though there might be a month or more of vacancy waiting for that inspection to be conducted.
Charles:
But once it’s done, now you have a very large pool of potential tenants, higher rental rates. In general, the rent you’ll receive from Section eight tenant will be higher than what you can expect from a regular tenant. Now moving on to the disadvantages of section eight. There’s an annual inspection and Section eight requires an annual inspection and they will most likely find several issues that will need to be addressed. And this will eat into your profit and decrease the rent payments that you’re receiving from the government. So eviction delays section eight, tenants are difficult to evict. Section eight requires additional steps to evict a tenant. I know a Section eight landlord that has Section eight eviction taking nearly a year to complete rental delays. The initial inspection of the lease in the property will take weeks, and then the first run track after the tent moves in can take up the two months to be received.
Charles:
How to choose quality Section eight tenants. Well complete a typical in-depth background check, including checking their credit, criminal history if they’re a sex offender, check the tenants income. Where do they work for how long? They are still paying you every month in most situations, but if the government is paying a hundred percent, I want to see their work history recommendations for Section eight landlords. Is section eight right for you and your property? Well, if you own in lower areas, it might be if you own in better neighborhoods, it might not be worth it. Thoroughly vet your tenants. Don’t be fooled by a governmental agency pre-approving tenants through section eight. You need to fully vet them yourself. Manage the tenants. Section eight properties need to be managed by property management companies with extensive Section eight experience. Like a larger percentage of their units, they manage or Section eight rules need to be provided to tenants from the beginning and tenants need to follow them.
Charles:
Nexus, tenant proof. The units, you know, section eight or not any rental units in low income areas need to be tenant proofed. Minimize items that can be broken. Use materials and flooring that is very resistant to wear and tear. If it can be broken, it will be. Now my experience with Section eight was very short-lived. 10 plus years ago, I owned a beautiful three family property. Original hardwood floor was a hundred years. It was like 120 years old. And I was like the third or fourth owner. It had these beautiful pocket doors, it was just a great property. And my property manager says that we have a Section eight person and starts to process with them. And an inspection is scheduled for like five weeks out. And after the inspection, the inspector said everything was perfect inside the unit or inside the property, but said that there was flaking paint on the foundation.
Charles:
The bricks were painted around the outside of the property. So I would need to paint this prior to them getting approval and them moving in. The only problem is it’s February in Connecticut, you cannot paint outdoors when it’s 20 degrees. So after having the unit vacant for almost two months, I rented it to a regular tenant that was there for over five years. So just remember, if you choose to rent section eight, you are renting and entering into a voluntary business relationship with the government that you can avoid. But if you own d and c minus real estate, it might be a good move. So I hope you enjoyed, please run that a rate review, subscribe, submit comments and potential show topics at globalinvestorspodcast.com. Look forward to two more episodes next week. See you then.
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Nothing in this episode should be considered specific, personal or professional advice. Any investment opportunities mentioned on this podcast are limited to accredited investors. Any investments will only be made with proper disclosure, subscription documentation, and are subject to all applicable laws. Please consult an appropriate tax legal, real estate, financial or business professional for individualized advice. Opinions of guests are their own information is not guaranteed. All investment strategies have the potential for profit or loss. The host is operating on behalf of Syndication Superstar, LLC, exclusively.
