Tuesday, September 20, 2011

Section 8

We are in the middle of renting one of our properties.  The property has been cleaned and turned and is ready for move in.  The property is listed and this past weekend we had three applicants.  One of the three applicants is an individual with a Section 8 housing subsidy voucher.

We have a friend who has several properties and he regularly rents to folks who use Section 8.  He spoke very positively about the program, in fact he prefers to rent to folks with Section 8 vouchers.  Our friend has explained that the Section 8 funds are paid directly by the government to the landlord and the tenant/landlord lease relationship is not altered by the Section 8 housing voucher.  If the tenant fails to pay his or her share of rent due, the eviction process would be the same regardless of whether the tenant has a housing voucher.  We understand that we would have to have the property inspected by the local HUD office, but otherwise there are really no additional hoops to jump through.

Our concern, and one that we apply to all applicants, is ability to pay.  We generally want to rent to a family or roommate group where the amount paid for housing costs (rent plus utilities) is 1/3 or less of take home pay (or other sources of income, Social Security, child support, etc.).  In this instance, even adding in the Section 8 voucher ($1000 a month), this candidate does not meet our 1/3 rule.  But looking at the Section 8 guidelines is seems unlikely that a Section 8 candidate would ever meet our 1/3 rule because then they would not qualify for Section 8.

We've never rented to someone with a Section 8 voucher so I'm wondering if anyone has any experience with this program? If so, I'd really appreciate hearing from you regarding your experiences, positive and negative.


Anonymous said...

I spoke to someone a couple years ago, they had 2 rentals, 1 cycled through the Section 8's and the other was in a different neighborhood and rented normally. They found the section 8 renters were harder on the house. Could be just their experience.

Dwight Groves said...

Section 8 Housing and the Voucher program that goes along with Section 8 Housing is a very contentious issue. I have had the opportunity to visit with real estate investors and they all seem to be on one side of the fence or on the other. I would be forward enough to say that I have yet to meet someone that is neutral on renting to folks on the program.

I believe that each Landlord has an obligation to screen potential residents using screening criteria that is written down and available to be reviewed by an applicant. If an applicant meets your screening criteria – I believe that, like you are doing, you must consider the applicant as a viable occupant.

Landlords’ always have a target rental rate so that they can generate their required return on their investment. If the housing voucher plus the tenant’s rent that they would be required to pay does not meet your target rental rate: I would pass. You mentioned in your post that you believe in 1/3 rule (where 1/3 of all of their sources of income must exceed your target rental rate – in this case the voucher is part of their income) and I believe that is where the decision can be made.

However, renting properties to folks with vouchers is a niche market and profits can be made there.
Here is a blog that believes in renting to folks with vouchers: http://www.biggerpockets.com/renewsblog/2010/11/04/5-reasons-why-rent-to-section-8-tenants/

I would enjoy reading an update.

Sam said...

Thanks for the feedback. I think our plan is to go through the HUD inspection process since we have an applicant who has a housing voucher.

But, as Dwight noted, we have a target financial criteria in place so we'll continue to take applications and we'll rent to the best applicant.

For us, our best applicant is a family or group that meets our financial criteria, no smokers, no pets and no more than two cars (groups generally do not meet our two car test because the home is three bedrooms and normally there are three individuals each with their own cars).

JKC said...

How did you end up going on this one? I used to do section 8, but I find straight rentals to be better for me. I would be interested in a follow up post.