Tuesday, March 5, 2019

Benefits & Drawbacks for Renting to Section 8 Tenants

Considering Becoming a Section 8 Landlord?


A lot of landlords are afraid to rent to Section 8 tenants. It's mostly due to fear of the unknown.

I've seen many landlords ask questions like:
  • Would a Section 8 tenant neglect or tear up my property?
  • Are Section 8 tenants habitually late on rent?
  • Are Section 8 tenants a neighborhood nuisance?
  • Would Section 8 tenants bring drugs or crime to my property?
  • Is there going to be a lot of paperwork or red tape when renting to someone Section 8?


So before we get into the benefits and drawbacks of renting to Section 8 tenants, let's clarify some of the typical concerns...

There’s a lot of stigma when it comes to Section 8 tenants. I really hate that, because not all Section 8 tenants are bad. You may hear stories about how a Section 8 tenant tore up the property, or caused a lot of problems for a landlord. However, when something like this happens, there’s a few more variables than just a tenant being on Section 8.

In many situations, landlords don’t screen their tenants thoroughly-- or they will give a tenant the benefit of the doubt after seeing a couple of dings on the tenant’s background. Some landlords hastily want to hurry up and get a new tenant into a unit asap to avoid any more days or weeks of rent loss. However, it's always better to wait a week or two for the right tenant to come along, than to hastily rent to one who might cost you more in the long run.


Now, it’s not always the landlords fault. Bad tenants can happen to good landlords. Just like in any business scenario, you can encounter tenants who are naive, negligent, and don’t understand responsibility and accountability-- but that's with any tenant across the board. There are some special case scenarios when, even though a tenant was screened carefully, the tenant ends up still being a pain in the ass, but those instances will only happen far and few between, as long as you’re screening carefully. In other words, you can stand to win more than you lose with Section 8 tenants.


As always Screen… screen…. screen the crap out of your prospective tenants!! That’s what application fees are for! Also, contact all previous landlords and personal references listed on the application. I do realize that personal references might give you a biased opinion on the applicant, but the advantage of this is that you can get an idea of the kind of company the perspective tenant keeps.

It might suck to go through the extra motions of cold calling strangers, but you can gain some valuable information from it! If a previous landlord had a bad experience with a tenant, I’m sure they’d love to tell you about it…. I mean, wouldn’t you? But if you REALLY can't stand calling previous landlords, you can use a service like Rent Prep, and they'll call them on your behalf.



Benefits of Renting to Section 8 Tenants:


Section 8 wants to give you the highest available market rate rent for your area. They want to pay you as much as they can, because like how many nonprofits work, the more money they give, the more funding they receive….  but since they are under the umbrella of HUD, they have to put a cap on the amount of rent they can give a landlord for a property, so they do an evaluation of Fair Market Rent for your rental area. I always say, when in doubt, ask for the higher amount. The worst they will do is come back with a lower number, which probably won’t be anywhere near as bad as you thought it was.

You get the bulk of your monthly rent like Clockwork: Landlords are paid on time every month for the portion of rent that Sec 8 covers, which is usually the larger portion.


You have someone called a Landlord Liaison at Section 8: Most landlords don’t know that they have such a thing. Sometimes they’re helpful, and sometimes they’re not. Depends on what kind of person works in that department in your local housing authority.


Renting in not so great areas can be just as lucrative as renting in “good” areas. Typically, in a not so great area, you can buy a property for less than you would in a higher market area. However, section 8 is also likely to pay you more monthly rent for a property (in the not-so-great areas) than any regular out of pocket market-rate-renter. When rent is sky high and the rental market is up. People are looking for less expensive alternatives, so you’re not as likely to find someone who will pay the amount that section 8 is willing to pay.


For example, there’s a rental unit in a not-so-great area that will rent for $950 through Section 8, but the people paying out of pocket for the unit are usually only willing to pay around $800 per month.

You can apply for a rent increase every year.
Every year, you can apply to increase the rent. Section 8 will re-evaluate the property and the market to determine if you can get approved for a rent increase. I've seen cases where a previous landlord hadn't raised the rent in 2 years, and when we put in for a rent increase, we were able to get $200 more per month in rent. That's a huge hike! It's not always like that, but you should always try to go for what the market will bear. Those previous landlords were missing out on 2,400 per year, just for 1 property!


Despite what most think, it’s not difficult to become a Section 8 Landlord:
You don’t have to be listed with the Housing Authority as a "Section 8 Landlord", but it will help Section 8 tenants find you. Another thing you can do is say "Section 8 Ok" in your advertisements. If you're not listed as a "Section 8 Landlord", and you happen to come across a Section 8 tenant, all you have to do is file some paperwork, known as RTA (Request for Tenancy Approval).

Basically, here's what happens...
  • You screen the tenant to make sure they're a good fit
  • The tenant gets the RTA from Sec. 8
  • Tenant brings it to you
  • You fill it out and turn it into Sec 8

 Check to see if they have a "Fast Track" for RTAs at your local Section 8 office. If so, you can get an application approved as fast as 24 hours. However, if you turn in the RTA the regular way, may end up waiting weeks for approval, which means you lose money waiting.



Drawbacks of Renting to Section 8 Tenants:


Communication with Section 8 can be tough: It’s tough to reach people at Section 8, especially when you’re a new landlord… but once you become more known to them, you may be able to get a directory of the staff. However, that list is ever changing as they get new staff, or as people change positions within the company. Sometimes, you may have to pay them a direct visit or give them a call… but there’s also an option to email… which can be a good thing so that the Section 8 worker can get back to you when they have time instead of trying to line up their schedule with yours.

Yearly Inspections: If you have a Section 8 tenant living in your rental property, Section 8 will do an annual inspection to ensure the property is being maintained. If something is wrong with the property, you'll have to correct it. Though, I don't know if this is necessarily a Drawback, because you'd probably have to maintain and fix whatever with the property anyway-- unless you have an aspiration to be a slumlord. LOL

Section 8 inspectors can be nit-picky: Something as small as a carbon monoxide detector placement can make you fail an inspection… and if you fail, they will abate the rent- meaning you won’t get rent for the days  that go by before you pass the next inspection. Here’s a Section 8 inspection checklist that you may find useful, so that you can make sure to cross your T's and dot your I’s prior to the inspection.  

Learning the ropes: It may take you a little time to learn the the rules and how everything works. However, Section 8 does have a orientation class as well as a ton of other resources for landlords. They have meetings for landlords and guest speakers come in that will help with more than just Section 8 related things. As mentioned above, you also have a landlord liaison if you need help through something.

Somewhat of a Risk: As I said above, you have a risk renting to anyone. However, Section 8 tenants are in a lower income bracket, and with that may come a lack of resources, exposure to certain things, as well as awareness, which may make them unable to properly care for and maintain a property responsibly. However, not all Sec 8 tenants are lacking in those areas. Some have had a lot of experiences, and can responsibly maintain a property. A Sec 8 tenant may be looking to move into your place simply because the previous landlord couldn't meet standards, or because they want a better neighborhood, school district, or better property to live in-- Nothing wrong with that! Either way.... Screen! Screen! Screen!

1st Month & Possibly 2nd Month's Rent will be delayed: Sometimes it takes a while for landlords to get their rent from Section 8 upon first acquiring a tenant. However, they do catch up, and once it gets established in the system, the money will come in automatically like clock work.



Other Things You Should Know


Section 8 Tenants can lose their voucher. They have to do things like pay their portion of the rent on time or they could lose their section 8 voucher. However, just because they have a lease violation, doesn’t mean they will lose their voucher… The housing authority views that as something between the landlord and tenant. However, if you end up having to evict a tenant, Section 8 may take away their voucher.

Section 8 vouchers are difficult to get. Getting a Section 8 voucher is very difficult, and is a very long grueling process. They typically have to first wait for years until the Section 8 waiting list suddenly opens up. And when the waitlist actually does open, there’s no mail notices or calls that bring this info to Section 8 applicants. They have to either see or read it on the news or just happen to hear about it through a friend or social organization. Some people miss the opportunity to get a voucher on that basis alone.


The Section 8 voucher is one of the most sought after commodities. After going through the waiting game, applicants have to wait in line for hours, fill out an application, put in a ton of paperwork…. And they’re usually waiting for some years, struggling, living with relatives, living in a less than desirable place owned by a slumlord, and doing whatever they can to keep a roof over their head until they get this long awaited voucher…. Unless someone is absolutely crazy or entitled, do you really think a Section 8 tenant would want to risk losing their voucher after all that time, effort, frustration, and years of waiting? Not to mention, if they do end up losing their voucher, depending on the situation, they may have to wait for years to re-apply for another voucher.

Tenant pays his/her own deposit. Section 8 does not provide that.


Section 8 will pay more for certain amenities and areas.
If you have things like a dishwasher, central air, etc. Section 8 will figure that in when they calculate the amount of rent they will give you. Also, if your unit is in a nicer area, Section 8 will pay whatever the market rate is in the area. However, there is a cap to what they will pay, and you cannot take a side payment from the tenant to make up for the difference, or you and the tenant could be banned from the program.





A couple of other things that will help you have a better experience with any tenant:

  • If the perspective tenant omits info from the application, chances are, there’s a reason… and you absolutely can reject an application for incomplete information.
  • Make sure your unit is the kind of unit that would attract better quality tenants.
  • Train your tenants. Lay down the ground rules. Make a separate sheet of housekeeping rules bullet points when they sign the lease. Before they move out, give them a checklist of what is the tenant’s responsibility prior to move out.
  • Follow through: Tenants will sometimes try to cross boundaries to see how far you're willing to go. They might pay a few dollars short on rent… or pay one day after the 5th, or do small damages as a result of a little negligence to the property. As things come up, you must follow through with what it says on your lease, or the tenant will not take you seriously. However, if you have an overall good tenant,  you can be reasonable you can cut a little slack now and then, (when it matters most and seems to be the most reasonable) but don’t make a habit of it or the tenant will expect it all of the time. Basically, keep good tenants happy, but make tenants who test your boundaries aware that you're not on their bullsiht. Nip it in the bud if anything shady with them ever starts up.



Bottom line: As a landlord, it's your responsibility to put the right tenants in your units--regardless of where the rent comes from. So why not open it up to Sec 8 tenants AND Market Rate renters? It's not like you'd be forced to rent to a specific Sec 8 applicant if they don't pass the background check or aren't a good fit. You're the one who makes the ultimate decision. Not to mention, you’ll likely get your unit rented much sooner than if you were to limit yourself to just one type of tenant.






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