The Pros and Cons of Renting to Section 8 Tenants?

By
Services for Real Estate Pros with Del Val Realty & Property Management RS307942 
You may be a brand new investor or a seasoned investor looking for new ways of increasing your income. Some of the real estate guru’s have made big money selling real estate investing courses touting the benefits of government programs, specifically Section 8 housing, and how you can make money hand over fist. Others take a more cautionary approach, essentially arguing just the opposite.

With two opposing views, who’s right, who’s wrong, and what’s the difference?
There are a couple of Pros to Section 8 investing. But as you will quickly see the list of Pros is much shorter than the list of Cons.

First, if you rent to Section 8 tenants, you know you’re going to get your rent money. As a general rule, it’s going to come in like clock work. You’ll have your money each and every month, conveniently deposited into the bank account of your choice.

Second, if you advertise the fact that you accept Section 8 tenants, you will have no shortage of prospective tenants lining up with a housing voucher ready to move in on a moment’s notice. When tenants are hard to come by, say in a strong housing market, it’s an excellent way of guaranteeing a steady flow of renters willing to be your tenants.

Unfortunately, this is where the list of positives ends.

Section 8 tenants can present a host of challenges and problems to you from a variety of angles.

First, as a property owner, you may be lured by the easy money that renting to Section 8 tenants can generate, but if you think the Paperwork Reduction Act applies to Section 8, you have a lot to learn.
Whenever you deal with any government bureaucracy, there are massive paperwork considerations. If every I isn’t dotted and every T crossed on every form the government throws your way, you’re in jeopardy of not being paid, having your payment delayed or even worse being declared a slumlord.

We have also seen when all the paperwork and other delays can take anywhere from 3 to 5 months to complete. During this period your property sits empty with no income.

Second, Section 8 requires property inspections. In order to participate in Section 8 you first have to qualify as a property owner, which means an inspection. If the inspector finds deficiencies of any kind, they have to be corrected on the government’s timetable. Once you’ve met the timetable, you have to repeat the inspection process. When you’ve waded through all the red tape necessary to accept tenants, you really get into the heart of the problem of the Section 8 program dealing with tenants.

Third, there are Section 8 tenants who are attentive to your rules, but there are plenty of bad apples. If you have a troublesome renter one that can’t/won’t pay their rent on time or is a constant troublemaker, your inclination is to give them their walking papers (i.e., eviction). But if the individual you’re trying to evict is a Section 8 renter, you have to follow due process rules that are stricter than any state laws anywhere.

Once you’ve begun eviction proceedings, Section 8 tenants are entitled to free or very low cost legal assistance. Once an attorney enters the picture, this turns into an expensive, time consuming process. You need to ask yourself at what point does a guaranteed rent payment become not worth the hassle, the expense and the headache?

Fourth, we generally see that Section 8 pays about 70% to 80% per month of what you might get for normal tenant. So you need to make decision as to whether this discount is offset by the consistent payment source.

Fifth, Section 8 renters aren’t famous for taking care of your property. So unless you’re willing to entertain the thought of having to make extensive repairs with little hope of recovering damages it is probably in your best interest to not involve yourself in the program to begin with.

As you can see the Cons of Section 8 investing outweigh the Pros. Our experience is the program has many problems and we rarely recommend Section 8 investing.


I invite you to learn more about Real Estate Investing and become a member of our FREE weekly tele-seminar class where we teach tips and strategy on how to grow your real estate investing business and how to raise Private Money by going to http://www.realestatewealthtoday.com/TuesdayTipsSignUp.html.

Mike Lautensack is a full-time real estate entrepreneur, coach and mentor in Philadelphia, PA and creator of the Private Lending Presentation Kit. This powerful done-for-you kit is loaded with tools and techniques to attract and develop a consistent stream of private investors into your real estate business. To learn more about this kit and receive your FREE eBook go to Real Estate Investing Blog

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Re-Blogged 1 time:

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  1. Wallace S. Gibson, CPM 01/03/2010 01:52 PM
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Rainmaker
1,085,621
Wallace S. Gibson, CPM
Gibson Management Group, Ltd. - Charlottesville, VA
LandlordWhisperer

Mike * I am re-blogging your post and featuring it on the Property Managemen Group.

http://activerain.com/groups/PropertyManagement

We'd love to have you join us!!!

Jan 03, 2010 01:58 PM #1
Rainmaker
221,808
Mark Watterson
Salt Lake City, UT
Utah Real Estate

"real estate guru’s"

I hope one day people will take this as a huge red flag.  Also all those selling something on late night TV.  

Run as fast as you can.

Rentals are not for the fate of heart or for everyone.  I have a rental now only by default.  I wanted the property to subdivide.

When I was much younger and dumber, I jump into the property manangement business.

Now, I know how manage property and don't want too.  Just, don't want all the hassles.  

Jan 03, 2010 02:02 PM #2
Rainer
81,570
Michel Lautensack
Del Val Realty & Property Management - Malvern, PA
Residential Property Management

Wallace - thanks for the repost and I did join your group

 

Thanks

Mike

 

Jan 03, 2010 04:34 PM #3
Rainer
149,082
Eric Boyd
Step One Realty, LLC, 904-469-6335 - Jacksonville, FL
Broker, Property Manager - Jacksonville Property Management

Fantastic blog, Mike!  I love all the points you made.  Good stuff!

Jan 03, 2010 09:24 PM #4
Rainmaker
223,886
Jim Gilbert
Samson Properties - Manassas, VA
The Golden Homes Team

Outstanding post, sir.

Property management, like owning a house, or a car, or having children is a significant hassle that is good for you in the long run.

Feb 11, 2011 09:46 AM #5
Anonymous
Anonymous
Dave S

I am doing some research now as I have been confronted with a Section 8 request for the 2nd time.   The first one I avoided because the number of occupants was going to be high.   This one has the same problem (6 people in a 3 bedroom).  One positive I can see that you did not mention, however, is the length of time Section 8 renters will stay in the property.   Less risky renters are often renting because they are in an area for a short time for a job/education or they are saving for a home.   Since they know they will not be there long they often do not take care of the property either.  Section 8 tenants may have a goal of home ownership as well, but they are often starting further from that goal so the turn over rate might be lower.   I am not sure about this, but seems like it could be true?  A negative you didn't mention that really concerns me is the impact on the neighborhood.   My home is in an ok neighborhood but it is on the edge... a few homes are not kept up well while most are.    One bad apple really can spoil the lot and I don't want to be the one responsible for brining in a family that doesn't live in a way that fits with the rest of the neighborhood.  I don't think it takes much to chase off people who keep up their property values and bring in people who do not.   That can also have a big impact on my person ROI on the home.   Again, my comments are not based on actual experience with Section 8 renters, so I'd love any feedback.

Jun 28, 2013 05:02 PM #6
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Praful Thakkar
Keller Williams Realty - Andover, MA
Andover, MA: Andover Luxury Homes For Sale

Michael, yes, pretty old post, however, likes pros and cons of Section 8 as I am working with a section 8 potential tenant.

Jun 27, 2014 10:18 PM #7
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