The Basics of Section 8 And Its Inherent Risks

Real Estate VentureWhen you ask landlords about Section 8 investment, many would hardly give you positive feedback. There are many horror stories about Section 8 tenants destroying the landlord’s property. Aside from managing difficult Section 8 tenants, landlords would also have to deal with the hassle of constant Section 8 inspections, although some would tell you otherwise. Section 8 housing can be a good source of steady income when managed correctly. Like any other type of real estate investment, Section 8 investment has its pros and cons. Now it’s up to you to decide whether you are okay with the cons.

Let’s take a look at the advantages and disadvantages of renting out to Section 8 tenants.

Advantages of Section 8 housing

  • Guaranteed rent paid by the government. Section 8 housing is a government program where they subsidize the rent of low-income Americans. A housing voucher of around 70% to 100% is given to anyone who applies and passes the screening process for Section 8 housing. Hence, you will be receiving most of the monthly rent payment from the government. In most cases, you’ll also receive the remaining percentage of the rental fee from the tenant.
  • Rules Section 8 tenants must comply with. Section 8 tenants are required to pay the remaining percentage of the rental fee and take care of the property. Delinquency can result in the revocation of their housing voucher.
  • Pre-screened tenants. In order to qualify for a housing voucher, tenants are screened thoroughly. The housing authority is usually just looking at the income level but from time to time they uncover other issues. Many housing authorities will reject applicants with past criminal problems, especially if they have been evicted due to drug related cases in the last three years.
  • Free advertising. As a Section 8 landlord, you get access to free advertising. There is a website specifically for Section 8 tenants provided by the U.S. Department of Housing and Urban Development where tenants can find low-income housing. Some local housing authorities also have a website with a list of Section 8 landlords in the area. Both services are free.
  • More prospective tenants. As a result of this program, most urban areas have hundreds of tenants on the wait list. This gives you a larger pool of prospective tenants, especially for those properties that are difficult to rent out and those in a location where there is a smaller pool of private pay tenants.

Disadvantages of Section 8 housing

  • Government bureaucracy. Dealing with the government regulations and red tape is one of the biggest challenges of Section 8 housing. Qualifying and maintaining a property for Section 8 housing is costly and government bureaucracy is partly to blame.
  • Routine inspections. To qualify for the Section 8 Housing Choice Voucher Program, your property needs to pass safety inspections and depending on the location where you live in, your property might need to undergo routine inspections.
  • Delayed payments. A delay in getting a tenant in the property is not unheard of. This is mainly due to the slow and laborious process of Section 8. It’s also worth noting that when the tenant finally gets to move in, the first government rent payment is received after 30 to 60 days.
  • Delinquent Tenants. Although there are rules and regulations against delinquent tenants, there are still some who are abusive. Since they do not pay most of the rent, they have no vested interest in keeping the premises in good shape. Some are also delinquent payers. However, landlords are reluctant to report these abusive tenants because they will be forced to go through the Section 8 eviction process which can be very taxing and expensive.

There are many benefits to Section 8 but for each benefit, there is a corresponding downside to it. Some investors readily take on the challenges Section 8 brings and profit from it, while others wouldn’t risk it. At the end of the day, it all boils down to your risk appetite as an investor. However, if your property is in a good location and is generating enough profit in private rentals then you may forgo Section 8 and all the paperwork that comes with it.