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Author Topic: Why section 8?  (Read 7552 times)

Offline propertymanager

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Re:Why section 8?
« Reply #15 on: November 17, 2006, 07:25:17 am »
Iron Range,

I'll try this one last time and then you can have the last word.

Section 8 tenants are no different from any other low income tenants.  They do all the same stupid things that any other tenants do and in about the same proportions.  Low income tenants frequently do not act rationally, that is exactly why they are low income tenants.  In almost every case, they repeatedly make poor choices in their lives.  Most of these people are not upwardly mobile and will always be low income.

You should screen every tenant and we do.  In fact, we do a very thorough screening.  The fact is that a lot of Section 8 tenants are single females with multiple children, usually by different men.   (Some of the bad choices I was talking about).  However, whether they are male or female, the common thread is that most are relatively young and make bad choices.  

We only take tenants that have no felonies AND not more than 2 misdemeanors AND no drugs.  It is pointless to screen Section 8 tenants with a credit score, because they all have terrible credit.  We do not accept anyone that has been evicted in the past five years or had their utilities shut off in the last year.

None of this differs whether the tenant is self-pay or Section 8.  Once the tenants are in our rental, approximately 90% are good tenants.  Whether they are self-pay or Section 8, they cause no problems and we get paid on time.  An additional 9% have some issues that we must deal with, but they pay their rent.  On average, we evict 1% per month, almost always for non-payment of rent.  These percentages are almost exactly the same whether the tenant is self-pay or Section 8.  

Whether the tenant is Section 8 or not, your payment is "guaranteed" by your lease (and the Tenancy Addendum for Section 8 tenants).  However, what does "guaranteed" mean?  It means that you will receive your rent if the tenant follows the lease.  In either case, if the tenant does not follow the lease, you may not get your rent.

In one of your earlier posts you said:
Quote
One tenant I had paid $35 a month and section 8 paid about $509 a month.  She stopped paying so I went through all the process of evicting her. I never told section 8 she wasn't paying so I keeped getting rent from section 8 all the way up until she was removed.  The few months it took to get her out only cost me $35 a month.  But if this was a non-section 8 apartment I would have lost the full $544 a month. $544 a month for 3-4 months is a couple of thousand dollars vs. a couple of hundred.

This is a blantant violation of the agreement that you signed with Section 8.  You can NOT do this without risking losing your Section 8 eligibility as a landlord.  In addition, Section 8 could demand repayment of the rent that you received as a result of your violation of your contract.  Here is what the contract you signed required (paragraph 8 f):

"The owner MUST give the PHA a copy of any owner eviction notice at the same time the owner notifies the tenant".  

So, not telling Section 8 that the tenant isn't paying their portion is a violation of YOUR agreement.  If you only have two rentals, you might be willing to risk violating your HAP contract, but I have a bunch of Section 8 rentals and will not lose a sizeable part of my business to do things in a shady manner.  In addition, there is just no reason to do things wrong.  You might be able to get away with this non-sense for a while, but that won't go on forever.

Are rents guaranteed from Section 8?  No.  Will they pay as long as the tenant (and the landlord) follow their agreements?  Yes.  

Are the payments guaranteed for non-Section 8 tenants?  No.  Will they pay as long as the tenant follows their agreement?  Yes.

In either case, if the tenant decides not to pay or to otherwise violates the lease, the rent will stop - one way or another.

An eviction is a legal proceeding - simple.  If someone leaves without a legal proceeding, You did NOT evict them.  

You claimed that it takes several months to go to court.  That is simply wrong in the vast majority of the US.  

Most tenants who do not pay rent will not leave voluntarily.  That is simply incorrect.  You will realize this as your portfolio grows and you gain more experience.

Mike





 
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Offline lucymay

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Re:Why section 8?
« Reply #16 on: November 17, 2006, 09:21:25 am »
I'm going to step back in the middle of this discussion and say I still don't see, at least, a reason to go out and actively pursue Section 8 housing. If it all comes down to screening, then what's the difference? And it sounds like many Sec. 8 tenants are unstable financially, so the chances of them having unforseen problems submitting rent would be higher, plus it's been said low-income tenants may not care for the property in the most desirable way.
A good deal is a good deal, but when comparing, say a 3/2 single family in a nice neighborhood that cash flows the same as four sec. 8's, it just seems to me that the 3/2 would be the way to go.  Also, and this may be presumptuous, but a family in the nicer neighborhood may want to do anything they can to not have their belongings thrown out onto the curb, whereas sec. 8 may not care so much what the neighbors think, and how it will affect their future financial standing and upward mobility. Am I missing something? Is it that nicer homes that offer a good cash flow are just more scarce than sec. 8's coming on the market?  Sorry for the ignorance; I'm just trying to wrap my head around this as I start out in search of properties.

Offline propertymanager

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Re:Why section 8?
« Reply #17 on: November 17, 2006, 09:45:23 am »
Lucy,

Everything you said is correct.  There is only one reason to pursue Section 8 tenants  -  to fill rentals.  If I could find enough self-pay tenants to fill all of my units, I would not accept Section 8.  However, our rental market is marginal (but improving slightly) and accepting Section 8 tenants helps to fill units.  

Lower income rentals also give you a little better bang for your investment buck (although this is at the expense of dealing with tenants who are a LOT worse).  As you move into relatively more expensive houses in any given market (possibly except NYC), there is lower cash flow in proportion to the investment.  Additionally, as you move up the food chain, a smaller percentage of the population are renting.

In short, you've got it exactly right.

Mike

     
www.1MinuteToRentalPropertyRichs.com 
This No-Hype, No-Nonsense Book is a step by step course in making money and building wealth with rental properties!  Everything from buying properties at a discount to dealing with terrible tenants.  Now In Paperback!

Offline NoMoneyDown

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Re:Why section 8?
« Reply #18 on: November 17, 2006, 09:48:55 am »
Q: What happens if your properties are located in a town that has no housing authority (and, thus, no section 8 housing office)?  Can you still get S8 tenants in on a county, region, state level?
Stephen
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Offline lucymay

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Re:Why section 8?
« Reply #19 on: November 17, 2006, 10:51:54 am »
Thanks Mike-that's the idea I was looking for, and for some reason I couldn't get it through my head that renting out higher end houses would be trickier than low-end units due to socio-economic factors in most cities.
I just moved from a very affluent place (except for me) that really had no low-end housing, and since it wasn't uncommon to be able to rent an 'executive' home with little trouble I had a hard time remembering the normal market.  But I just moved to a much more diverse city, for which the situation described fits. Anyone who can pay 1500+/mo to rent a house could probably just buy one soon enough and there isn't as large a market for high-end temporary housing, whereas the market and tenant pool for low end rentals is greater due to their financial situation and the choices that led them there. Duh. Got it, finally. I don't know why I had trouble seeing that!
Thanks! :)

Offline MikeG

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Re:Why section 8?
« Reply #20 on: November 17, 2006, 11:31:42 am »
Hello all. Before I bought my first deal I used to come here and read/lurk. Now I have 2 Rentals occupied by Section 8 tenants and I will tell you no problems as of yet. One of my homes you can practically eat  of the floors and they are subsidized by Sec8. Their portion of rent is always on time as well. I like going to collect their portions of rent cause it gives me an opportunity to see whats going on at my house.

Key is to Screen Them. You do not have to accept just anyone with Sec. 8. To the contrary, it is encouraged by the Housing Authority here in the areas I am in (LI NY) to screen prospective tenants for suitability as tenants.

And I am going into contract with a partner as I write this on a legal 2 family with 2 3 bedroom apartments.

Once my 12 month plan is in place with this deal and we occupy the home with Sec 8.  tenants it will cash flow almost $700.00! That's a tough deal to put together here in NY so I am rather thankful that after a week of squeeze plays its going to paper.

Good luck to all!

Regards,

Mike G

 




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