Section 8 Rental Housing Vouchers: Feeding at the government trough.
I get asked about Section 8 Housing Vouchers all the time. Do we accept these from potential tenants and from landlords that have heard about the benefits?
For landlords there are some very tempting advantages that can draw them in. The number one reason is guaranteed rent payments. The 2nd can sometimes include higher than market rents if you market the property properly to Section 8 Clients. Accepting these will increase your pool of available tenants. Some areas or properties will be 75% Section 8 potential renters.
How Section 8 works: The local county housing authority, authorized by HUD, makes monthly payment to the landlord based upon the qualification for the tenants. Some tenant vouchers will cover the full amount of rent and other will require additional funds from the tenants. There is a pre move-in inspection and annual property inspections after that. The rent shows up around the 1st of the month. The landlord can ask for security deposit from the tenant. The lease agreement is between the tenant and the landlord. The amount of rent paid is based upon two issues; the tenant’s qualification and the property. The property amount rental value is based upon the area rents as determined by the housing authority and the number of bedrooms.
Some landlords have found a profitable niche marketing only to Section 8 vouchers holders the properties that have 4-5 bedrooms. These larger properties can garnish higher than market rents based upon the number of bedrooms from the housing authority. I have seen landlords get $1300-$1400 on a 5 bedroom house in an area that would only get $900 on the open market. That is a strong premium for the risks involved.
If everything goes well you can make a lot of money marketing to these niches.
I have found that the advantages stop there and are not worth the risks involved. If you have any problems the costs are very high. For example, here is a list of potential problems:
- During all eviction preceding the Section 8 Clients usually qualify for government assisted attorneys. You will pay $275/hour for your. Eviction proceedings can be very long and expensive.
- The security deposit is relatively low compared to credit history or non existent in some cases due to income qualifications.
- Pre move-in inspections can delay the move-in process. Annual inspection will require addition expense to the owner. The owner has to pay for tenants damages during the inspection. The tenant rarely has money to pay for repairs even if there are provisions in the lease for tenant caused damages.
- The housing authority can announce payment changes at any time. They are not a party to the lease. The Metro Atlanta Housing Authority budget was recently cut significantly so they sent a letter to all landlords that the rent will be reduced 15% effective immediately. The Little Rock Housing Authority announces a 5% decrease to all rents effective April 1, 2010. They don’t care about your lease agreement.
- The housing authority can delay payments to you if the tenant does not fill out the proper annual paperwork. I heard a story from another property manager where an entire multistory apartment building rent payment was held up for 2 months because of a problem with the housing authority. Try paying your venders for 2 month with out any rent.
- After the small security deposit is used for back rent or damages there is little chance of collection action. Most tenants have poor credit due to very low income.
- If there is a breach of lease by the tenant, there is very little negotiation. You can evict or settle for turning a blind eye to the issue. The housing authority typically works to help the tenant, not the landlord.
- Maintenance of the property by the tenant is a mixed bag; some are very good, but most are harder on the property than the average tenant. Your costs of maintenance will tend to be higher. I had a housing authority send a letter stating that the tenant is no longer required to maintain the lawn. That cost went back on the owner every summer.
This is just the tip of the iceberg. Ask any good eviction attorney to tell you few more horror stories about Section 8 cases. You will agree with us why we no longer accept Section 8 Vouchers at any of our properties. You can find more information and answers to rental questions at www.4RentDenver.com.
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