Section 8 apartments might seem like the worst investment a commercial real estate investor could possibly make.
However, despite fears of tenants who destroy apartments, disturb neighbors, and are impossible to evict, there are still some investors who happily invest in Section 8 apartments, and are able to make significant profit.
Should you invest in Section 8 apartments? And how can you ensure you don’t end up with the tenant from hell?
What is section 8?
Section 8 started off in the 1970’s, when the government agreed to pay a portion or all of the rent for low-income individuals. Qualified tenants are either placed in government housing, or receive vouchers that can be used in particular properties throughout a city.
As an investor and owner of a multi-family apartment, this means you can either dedicate an entire building to Section 8 tenants – which is very management-intensive – or you can dedicate a one or more units to a Section 8 tenant.
The Pros of Section 8 Apartments
First of all, receiving payments from the government on time, month after month, is a big advantage. In some cases, the government pays for 100% of the tenant’s rent… so you never need to worry about missed payments. In some smaller cities, you may even receive higher rents than a private tenant would pay.
Second, once you are registered for Section 8 and the unit has been inspected, the amount of time you wait for a vacancy to be filled is very short.
The Cons of Section 8 Apartments
Government bureaucracy is exactly what you think: slow, lengthy times for things to get done, and uncaring workers who could care very little about your empty apartment.
The second problem is that you might not get your first check until several months after the tenant has moved in. This could present a problem, especially if you have more than one unit dedicated to Section 8.
Another issue is the inspection required by the government. The requirements are very particular, and in order to qualify, you must pass every single requirement necessary.
And lastly, Section 8 payments may still have problems paying their rent, and when they leave, aren’t required to pay damages. So you could end up needing to evict a Section 8 payment with little recourse to recover the missed payments, and no way to cover the costs of repairing damaged carpets, broken appliances, and more. You can complain to the government, but this will only strike the tenant from the Section 8 list.
Tips and Tricks For Investing in Section 8
Remove any fixtures that aren’t needed
Although the government has specific rules about what needs to be in the unit in order to qualify for Section 8, there are certain things that aren’t required, and simply add to the cost of maintaining the property.
These “extras” are garbage disposals, ceiling fans, screen doors, and any additional storage area. And while these technically add to the value of the apartment, your goal in Section 8 is to provide a clean, well-maintained apartment that is safe. These extra fixtures are easily broken, and cost money to repair each time, so its best you remove these from a dedicated Section 8 unit.
Visit each Section 8 apartment every quarter
Items like leaky faucets and running toilets can cost as much as $600 a year in expenses. Not only does this eat away at your profit, but it also lowers your property value.
Visiting your Section 8 apartments regularly ensures you catch these problems before they get out of hand.
Be clear about the rules and regulations – and enforce them
The lease agreement tells you exactly what you require of your tenants. Avoid being emotional and follow the rules you’ve set out; they will protect you from making decisions that could cost you profit and peace of mind.
How to find the best Section 8 tenants
Just because someone is a Section 8 tenant doesn’t mean you can’t choose the ones best suited for your property.
Use a specific, standard system for rating tenants and deciding whether or not they are suitable. Evaluate their rental history, credit history, debt, references, and income, just as you would with a regular client. (Keep in mind you can’t discriminate based on age, sex, race, or sexual orientation).
In general, their income must be at least three times their rent (the rent they pay, not the rent the government pays). Assign a particular number for each question – for example, a minimum credit number of 680 – and assign a point to the tenant if they meet your requirement. If they don’t meet the requirements, they can even receive negative points.
Renting apartments to the Section 8 population isn’t for the meek,or for those who aren’t prepared to hire an experienced manager. However, if you understand the pros and cons of Section 8 apartments, and make sure to screen tenants without deviating from your guidelines, you will have a better chance of succeeding with this unique population.
Interested in selling or purchasing a commercial real estate property?
Click here to schedule a free 15-minute strategy session to discover how to create wealth through low-risk property investments.