Is Being a Section 8 Landlord Right for You?Property ManagementUpdated on Jan 29, 2020 View more like this | Visit SACRAMENTO, CA | Contact Utopia Property Management |
Most landlords who flirt with the idea of becoming a Section 8 landlord generally have one thing in mind: Reliable government funds deposited in their account each month. No more worrying about covering the mortgage when the tenant is late with payment. No more fretting about increasing the rent to align with the 5 to 8 percent bump permitted in most cities as long as fair market values are honored. Also, on a national average, Section 8 renters pay higher rents. So far, so good, right? Well, you should understand the risks involved if you are thinking of becoming a Section 8 landlord. Here’s an overview of what you need to know to determine if it’s the right choice for you.
Section 8 Voucher Program
Section 8 is a rental assistance program known as the Housing Choice Voucher Program, which is funded by the U.S Department of Housing and Urban Development. In order to be considered for Section 8, applicants must apply at a local housing office to obtain the necessary vouchers to qualify them as low-income housing candidates. Prospective tenants may be denied, approved, or added to a wait list dependant on need, income, and housing availability.
Though not all applicants will be granted Section 8 vouchers, landlords do have the option of deciding which tenants to accept among those awarded entry into the program.
Pros of renting to Section 8 tenants
1. Consistent and regular rent payments. Once your tenant signs the lease, the government will issue your payment either by check or depositing the rent funds directly into your account.
2. Rare vacancies and low turnover rates. Because there Section 8 apartments are in such high demand and many prospective tenants are wait-listed, your apartment will likely never sit empty for too long. For this same reason, once tenants have a place, they are in no hurry to move.
3. Higher rent potential. Landlords are permitted a certain rent increase annually (determined by fair market value research conducted in the area of the rental). Since the government is paying most of the rent, Section 8 tenants are less likely to complain about an increase.
4. Pre-screened tenants. Voucher candidates are screened mainly for income purposes, but often during this screening, criminal histories and drug offenses are brought into the light. Though this will not totally prevent the housing authority from issuing vouchers, the applicant must be free of drug convictions for three years prior to applying. Hiring a property manager can help you with this task, once the screening is complete, and the tenant passes, the landlord will be supplied with the following very basic information only:
•Type of screening the potential tenant was given
•Tenant’s current address (if they have one)
•Names and addresses of former landlords
5. Altruism. As a Section 8 landlord, you would be helping low-income families, single mothers, and/or possibly even handicapped persons who are not able to obtain regular jobs. These people depend on Section 8 vouchers so that they can support themselves and their families. Though not always monetarily profitable, what you may gain from helping others is often immeasurable.
6. The untapped market of renters. This is directly related to fewer vacancies and lower turnover rates. By opening your rental to Section 8 vouchers, you will have an untapped resource of renters not previously available to you. This would be good for you especially if your apartment struggled to find renters because of its location or say during a “buying market period” when people are buying homes instead of renting because it’s more cost-effective.
Cons of renting to Section 8 tenants
1. Yearly property inspections even if the unit is unoccupied. Inspections are strictly regulated and landlords who fail are given a list of items that need to be fixed. Once this list is complete, the property will have to be re-evaluated before occupancy.
2. No security deposits. Vouchers are for monthly rents only. They do not include security deposits, so if the tenants damage the property, you will have to foot the bill. Even if you decide to take the renter to court for damages, there will be no guarantee that you will ever receive any money if you win. Plus you will be responsible for court charges.
3. Rent vouchers do not become effective until after the tenant moves in. This means you can go months without payment. Sometimes 3 or 4 months. This delay causes many considering Section 8 to rethink their decision.
4. Renters who are non-Section 8 may opt to move out. Tenants without rent vouchers may consider you a slumlord or feel that you do not provide regular maintenance on your property.
5. Section 8 has a maximum rent allowance. This means only a portion of the rent is guaranteed by the government. Since rents are calculated by fair market value in accordance with the unit’s number of bedrooms and location, you could receive less than the amount you might be able to rent the apartment for to a non-Section 8 tenant. Also, just because a Section 8 tenant is expected to pay a portion of the rent, doesn’t mean he or she will.
6. More difficult eviction process. Evicting non-Section 8 tenants can be a difficult and labor-intensive battle. Because Section 8 tenants are basically government-funded, the process of evicting them involves even more red tape and could potentially drag on for months, draining both your energy and your bank account.
7. Out of pocket expenses for additional tenant screening. Though Section 8 tenants are screened during their initial entry into the housing program, a more thorough screening should be conducted. Remember that the government does not provide security payment vouchers so you are basically handing over your property, hoping it will not be destroyed. As long as you are in compliance with the Fair Housing laws and follow FHA guidelines for tenant background checks, you have every right to find out more about just who you will be renting to. Be sure to keep in mind that laws in this regard vary from state to state.
There are other things to consider when deciding if you want to be a Section 8 landlord. One very important deciding factor is location. If your rental is in a trendy, progressive neighborhood, you may be able to rent it with no problem without involving the government. Knowing the rental’s fair market value when help you determine if perhaps you might even be able to ask a higher rent rate than Section 8 vouchers allow. This is just one of many things you should think about before weighing the pros and cons and making a decision.
Section 8 Voucher Program
Section 8 is a rental assistance program known as the Housing Choice Voucher Program, which is funded by the U.S Department of Housing and Urban Development. In order to be considered for Section 8, applicants must apply at a local housing office to obtain the necessary vouchers to qualify them as low-income housing candidates. Prospective tenants may be denied, approved, or added to a wait list dependant on need, income, and housing availability.
Though not all applicants will be granted Section 8 vouchers, landlords do have the option of deciding which tenants to accept among those awarded entry into the program.
Pros of renting to Section 8 tenants
1. Consistent and regular rent payments. Once your tenant signs the lease, the government will issue your payment either by check or depositing the rent funds directly into your account.
2. Rare vacancies and low turnover rates. Because there Section 8 apartments are in such high demand and many prospective tenants are wait-listed, your apartment will likely never sit empty for too long. For this same reason, once tenants have a place, they are in no hurry to move.
3. Higher rent potential. Landlords are permitted a certain rent increase annually (determined by fair market value research conducted in the area of the rental). Since the government is paying most of the rent, Section 8 tenants are less likely to complain about an increase.
4. Pre-screened tenants. Voucher candidates are screened mainly for income purposes, but often during this screening, criminal histories and drug offenses are brought into the light. Though this will not totally prevent the housing authority from issuing vouchers, the applicant must be free of drug convictions for three years prior to applying. Hiring a property manager can help you with this task, once the screening is complete, and the tenant passes, the landlord will be supplied with the following very basic information only:
•Type of screening the potential tenant was given
•Tenant’s current address (if they have one)
•Names and addresses of former landlords
5. Altruism. As a Section 8 landlord, you would be helping low-income families, single mothers, and/or possibly even handicapped persons who are not able to obtain regular jobs. These people depend on Section 8 vouchers so that they can support themselves and their families. Though not always monetarily profitable, what you may gain from helping others is often immeasurable.
6. The untapped market of renters. This is directly related to fewer vacancies and lower turnover rates. By opening your rental to Section 8 vouchers, you will have an untapped resource of renters not previously available to you. This would be good for you especially if your apartment struggled to find renters because of its location or say during a “buying market period” when people are buying homes instead of renting because it’s more cost-effective.
Cons of renting to Section 8 tenants
1. Yearly property inspections even if the unit is unoccupied. Inspections are strictly regulated and landlords who fail are given a list of items that need to be fixed. Once this list is complete, the property will have to be re-evaluated before occupancy.
2. No security deposits. Vouchers are for monthly rents only. They do not include security deposits, so if the tenants damage the property, you will have to foot the bill. Even if you decide to take the renter to court for damages, there will be no guarantee that you will ever receive any money if you win. Plus you will be responsible for court charges.
3. Rent vouchers do not become effective until after the tenant moves in. This means you can go months without payment. Sometimes 3 or 4 months. This delay causes many considering Section 8 to rethink their decision.
4. Renters who are non-Section 8 may opt to move out. Tenants without rent vouchers may consider you a slumlord or feel that you do not provide regular maintenance on your property.
5. Section 8 has a maximum rent allowance. This means only a portion of the rent is guaranteed by the government. Since rents are calculated by fair market value in accordance with the unit’s number of bedrooms and location, you could receive less than the amount you might be able to rent the apartment for to a non-Section 8 tenant. Also, just because a Section 8 tenant is expected to pay a portion of the rent, doesn’t mean he or she will.
6. More difficult eviction process. Evicting non-Section 8 tenants can be a difficult and labor-intensive battle. Because Section 8 tenants are basically government-funded, the process of evicting them involves even more red tape and could potentially drag on for months, draining both your energy and your bank account.
7. Out of pocket expenses for additional tenant screening. Though Section 8 tenants are screened during their initial entry into the housing program, a more thorough screening should be conducted. Remember that the government does not provide security payment vouchers so you are basically handing over your property, hoping it will not be destroyed. As long as you are in compliance with the Fair Housing laws and follow FHA guidelines for tenant background checks, you have every right to find out more about just who you will be renting to. Be sure to keep in mind that laws in this regard vary from state to state.
There are other things to consider when deciding if you want to be a Section 8 landlord. One very important deciding factor is location. If your rental is in a trendy, progressive neighborhood, you may be able to rent it with no problem without involving the government. Knowing the rental’s fair market value when help you determine if perhaps you might even be able to ask a higher rent rate than Section 8 vouchers allow. This is just one of many things you should think about before weighing the pros and cons and making a decision.
