Investing in Section 8 Housing Has Been a Goldmine
Investing in apartment buildings that offer Section 8 Housing is so lucrative it's been called "a license to print money."
Of course, we landlords don't really have the power to print money. But when Uncle Sam guarantees your rental income, it's arguably the next best thing.
Federal housing assistance for low-income families began during the Great Depression as a way of moving people out of substandard shelter and into safer housing. When shanty villages disappeared and substandard housing was no longer the critical issue, the program focused on helping low-income families cover the ever-increasing percentage of their income spent on rent.
Today, low-income households that quality for Section 8 pay no more than 30% of their adjusted monthly income on rent and utilities. The government pays the difference. For example, if a renter makes $2,000 per month, he would pay a maximum of $600 (30% of his income) for rent and utilities. If the "Fair Market Rent" for his apartment is $1,100, the government pays the landlord the difference of $500.
One note of caution the Fair Market Rent (FMR) is determined by the U.S. Department of Housing and Urban Development (HUD) so it's really not a "market" rate in the sense that the free market determines it. HUD decides it. Fair Market Rent varies by city. Understandably, San Francisco rent levels would be higher than Milwaukee Wisconsin.
Apartment building owners are not required to participate in the Section 8 program. There are some pros and cons to weigh when deciding if Section 8 is the right strategy for your building.
Common reasons apartment building owners take a pass on Section 8:
- You don't want the government involved in your business.
- You don't want the government inspecting your property for HUD quality standards.
- You want to be able to charge rent levels above the FMR as set by HUD.
- You are concerned that Section 8 tenants will not maintain their units or abide by apartment community rules.
- You are concerned that a Section 8 reputation will negatively impact your property's marketplace value.
- It's more time consuming and potentially costly to evict Section 8 tenants because judicial action is required.
Advantages to offering Section 8:
- No shortage of tenants. There's a long waiting list.
- Better quality of low-income tenant because if the tenant damages the unit or is late paying the rent they can be disqualified for Section 8 assistance.
- Low turnover. Section 8 has had no measurable impact in transitioning people from government-assisted housing to independent living. Once you have found a good Section 8 tenant, you can have them for a long time.
In a Utopian world, the glossy brochure for Section 8 housing would say landlords benefit from stellar tenants who promptly pay their rent and lovingly care for their units. In reality, they are renters like any other and all the normal tenant trials and tribulations apply.
Thus, as with any apartment house, effective property management will ensure you have an investment that continues to appreciate in value and provides a steady cash flow. The fact that the government subsidizes your cash flow is just icing on the cake.
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Investing in Section 8 Housing Has Been a Goldmine
By: Dave Lindahl
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