The Pros and Cons of Going Section 8

[RoyalRoseProperties]

Section 8 is not for everyone or every property, but too many landlords have misconceptions about the program.

Section 8 is a government program that pays a portion of the rent for qualifying low-income families. It’s a great program from the low-income tenant’s perspective, but landlords are often unsure of whether they should accept a tenant with a Section 8 voucher. Let’s talk about the factors that should go into your decision making process.

Pros

Annual Inspections — some landlords think of this as a hassle, but we see it as getting a free inspection each year. The repair costs are always a little more than expected in the short term, but having an outside set of eyes on your property to keep it ship-shape almost certainly saves money in the long run. These inspections can also help you get rid of a tenant abusing your property. Because you get a copy of any required repairs from Section 8, you can point out to them that the tenant caused the damages since the last inspection and Section 8 will require the tenant to make the repairs. If they don’t, they have to move and could lose their voucher.
On-time Payments — Whatever percentage of the rent gets paid by the HUD will arrive on time every single month via direct deposit. There are no tenant excuses, just money in the bank. Of course, the tenant is still responsible for sending in the portion of their rent not covered by Section 8.
Higher Rental Rates — This may not be true everywhere, but in general — and definitely in Detroit — the rent you can get from a Section 8 tenant often exceeds what you could reasonably get for your typical not-the-best-neighborhood property.
Low-Cost Marketing — There MichiganHousingLocator website allows you to list your properties for a fee. It gets searched quite a bit, so it’s a great way to get some people looking at your rentals.

Cons

No Compensation for Damages — if a Section 8 tenant damages your property, you can complain to Section 8 and usually get their voucher revoked, but you’re not going to get any money from the government as compensation. Since the tenant is obviously low-income, getting money from them will be a challenge as well, even if you get a judgment against them. Because Section 8 tenants are less financially invested in your property, they also tend to be a little less concerned about proper upkeep.
Property Condition — Section 8 has some pretty strict rules about the repairs that you have to make in order to get a property/unit approved for their program. The requirements aren’t really that bad – unless you have a property with some unusual characteristics that would be prohibitively expensive to correct. Keep in mind that Section 8 will not pay ANY rent until they have inspected your property — so don’t let a tenant move in until they get it done. If you fail your inspection, they wait 30 days for you to make repairs before they’ll inspect again — that’s a month’s rent gone.
Additional Occupants — Section 8 tenants are statistically more likely than other tenants to allow long-term ‘guests’ like relatives and boy/girl friends to move in after the lease is signed. These extra people usually cause extra wear and tear on your property and aren’t allowed by Section 8. You can report this situation to Section 8, but they may not have the time to investigate and even if they do all they can is warn the tenant to comply or threaten to take away their voucher.
The Bait and Switch — For some reason, it seems somewhat common for a Section 8 office to change terms, almost always to the landlord’s disfavor, the month after a tenant moves in. They might lower the rent by $50, or they might suddenly shift a couple hundred dollars of the rent payment from themselves to the tenant (who is less likely to pay.)
Tenant Issues -– It’s been our experience that a higher percentage of Section 8 tenants contact us with problems they expect us to address when they are actually responsible for them. Recent example: a tenant’s ex-boyfriend broke several of her property’s windows and she contacted us to fix them. When we told her how much she needed to pay for the repairs, she argued that since she didn’t break them she shouldn’t have to pay to repair them!
Stretched Thin — Section 8 staff members are overworked. Minor clerical errors are commonplace — I once kept getting checks for a tenant for six months after they moved out. You have to be strictly on top of your paperwork, and submit any and all changes the moment they occur. If you can get extension numbers or email addresses for a staff member or two, treasure them — the phone system is a beast!

At Royal Rose Property Management we think Section 8 is entirely appropriate for most properties. It really depends on two factors:

Rental Amount – in the Metro Detroit area Section 8 usually won’t allow rent of more than $850 for a 3 bedroom property. So, if we can get more than that for your property, Section 8 isn’t a viable option. We do have prospects try though. We just got a call last week from a prospect asking if we’d take $650 on a 3 bedroom property with a list price of $799. We immediately suspected they only had a 2 bedroom voucher, which they admitted. They stated their last landlord had rented them a three bedroom property for that amount, so why wouldn’t we?
Property Condition – if you have an extremely nice property you may want to carefully consider the “Cons” above before accepting a Section 8 tenant. Also, if your property has characteristics that won’t pass Section 8 inspection you’re better off avoiding spinning your wheels with Section 8 applicants.

Note: a property owner can legally put in a rental ad that they DO NOT accept Section 8 tenants. If you choose to do this, just be sure you enforce it for all Section 8 prospects on that property to avoid Fair Housing discrimination issues.

[justin0419]

As an experienced Section 8 LL, I think you gave a pretty good synopsis of the pros/cons of the program. A lot of the experience with Section 8 will depend on your local office. We have two different offices here which service the area. One is much larger, slower to work with, and the inspector is pretty picky. The other office is much smaller, can make things happen quickly, and is more lenient for repairs/condition.

We’re on the opposite end of rental rates here. There have been several times where we’ve marketed a property at a certain price only to have the Section 8 director come back and say they can only pay a lower amount for that property. Each Section 8 tenant has a TTP. I believe it stands for Total Tenant Payment. It’s the amount the tenant has to pay toward the rent. It is based on their amount of family members, income, and which utilities they’ll have to pay. There’s a percentage of their income they cannot exceed to pay toward rent. What this means in practice is that you may want $550 for a 2br/1ba house, but a certain tenant may not be able to rent it for more than say $510 because of their TTP. You may get $550 from a different Section 8 tenant based on their situation. It all goes back to the TTP and the local rent reasonability rates that the HUD office must follow. One time the Section 8 director called me and said even though we had an agreement with a new tenant for a certain amount, his office could only pay a smaller amount (about $30 less per month). This was after the tenant was in place because the office was running a few weeks behind on paperwork. We went ahead and agreed to that since it wasn’t the tenant’s fault, but we learned to call the Section 8 office and run the numbers by the workers before the tenant is accepted. This falls under the “bait and switch” point you made.

Since we’re on the list here of local housing providers which accept HUD, we get calls every few days of people looking for houses. This means our advertising budget is pretty much zero and we generally stay full. We don’t have to advertise on a website here. When the people go to the orientation to get their voucher, they get a call list for providers. The local office knows we have several properties too so that helps as well.

For inspections, it should also be noted that sometimes there is a pretty decent wait time for a move-in inspection. The busy local office has taken up to six weeks to get us a move-in inspection. That’s unnecessary vacant time for the units. The benefit of waiting for this though is that the tenant will be on a 12 month lease and as you stated, at least some (if not all) of their rent will be paid by the gov’t direct deposit on the first day of the month. Our other local office that isn’t as busy can get us an inspection with virtually no notice. That guy is awesome to work with. For the move-in inspection, we can usually get the inspector to drop back by in a couple days or even just fax in a signed repair sheet (for certain minor hit-list items) to get the money started. Once again, this varies by office so Landlords should check with their local office for expected wait times.

You’re right about Section 8 not being responsible for damages. The key item for tenants is that they lose their voucher if they get evicted. Some people don’t care, but others will do what’s right to stay on the program. I once evicted a woman over her $52 portion of the rent. She lost her voucher for that and sometimes the waitlist for vouchers here can take 18 months. Low-income tenants in general can be pretty slippery and difficult to track down and get money from. They often won’t have any type of trade skill and will jump from min wage job to job so garnishing wages is difficult if not impossible. We’re starting to use a collection agency so they can deal with the headache instead of us.

Some Landlords don’t want to keep up a property to Section 8 standards so they won’t accept Section 8 tenants. It’s usually either the slumlords with crappy properties or the people with nicer properties which won’t accept Section 8. The program gets a bad rap (leaving my political feelings aside here), but we have some Section 8 tenants which keep the houses very clean and act mature in their dealings with us.

Additional occupants are often a problem. The typical scenario is the woman with several kids will be unmarried and claim she’s destitute to get her voucher. The gov’t will pick up the tab for the rent. After she moves in, here comes the “boyfriend.” She’ll try to move him in, but say he doesn’t live there. The result is the gov’t subsidizes the families biggest living expense (housing) while any money the man brings in can go to get the “extra” things like big screen TVs, big wheels for the car, subwoofers, etc.

For your “tenant issues” example, there is a clause in our lease which states which items a tenant will be responsible for. Windows broken by the tenant or their guest is explicitly stated there. They would have no argument against us for that.

In closing, dealing with Section 8 requires a little more paperwork and effort than just regular paying tenants, but I believe it’s worth it. About 1/2 our monthly income gets direct deposited on the first day of the month. I’ve had regular paying tenants behave worse than most of my Section 8 tenants. Much of your experience with the program will depend on the local Section 8 office. You’ll learn little lessons along the way about their procedures and things they look for on inspections. Remember to do your own tenant screening and background checks even on Section 8 applicants!!