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The Pros and Cons of Being a Section 8 Landlord

The Pros and Cons of Being a Section 8 Landlord

Section 8 housing was established by Congress to assist those who need a home or apartment to rent, but their income can’t cover the expense. Section 8 provides a “voucher” to cover a portion of the rent payment. A number of factors are included to determine the Section 8 voucher amount such as fair market rent, standard payment, utility allowance and the tenant portion. 

Fair market rent is established by Housing and Urban Development Department (HUD) and the “standard payment” is determined by the local housing department.  If utilities are included in the rent then a utility allowance will be paid directly to the landlord. If utilities are not part of the rent then a utility allowance will be paid directly to the tenant or the utility service provider. 

The tenant’s portion of rent is determined by several factors. The tenant’s portion will be the greater of 30% of their adjusted income, 10% of gross income, or the minimum amount set by the local housing department. For example, Section 8 in Phoenix currently has a standard payment of $1214 for a 3-bedroom home. So, tenants in the program that are approved for a 3-bedroom home will receive a voucher calculated based upon that rent amount.   

On the surface, it seems like an ideal plan for landlords – a guarantee of the bulk of the rent paid on time every month – like clockwork.  However, there are several other factors to consider. To help you decide if being a section 8 landlord is right for you, here are some pros and cons.

Pros:

You get your rental check straight from the government, on time, every month. You still must collect the tenant portion, but many of those who qualify are reliable, and since their share fits their income, they can stay on track.

The government has a reasonable attitude toward rent increases. HUD and local public housing authorities calculate fair market rent (FMR) for each United States' geographic area and they allow for annual rent increases. Furthermore, HUD's fair market value estimation tends to be on the high side, increasing the amount of rent you can charge. 

A local agency runs the program in each county or a designated section. Applicants for the program must go through this agency's screening before qualifying for Section 8. Add this to your screening, and section 8 landlords typically obtain reliable tenants. On top of that, because it is a good program for the tenant, they usually stay long-term.

The waiting list of tenants is usually long. If you have a tenant move out, there is usually someone waiting for an opportunity to move in. Fewer vacancies can mean higher income.

Cons: 

As with many government programs, there tends to be some bureaucracy. This red tape can slow down the initial process and take time from when you first qualify to be a section 8 landlord, and you receive your first rent check. Even after you get the go-ahead and start renting, the red tape may slow down your initial check – sometimes as long as two months. Once the ball is rolling though, there are usually few glitches. 

Your property will have to pass Section 8 inspections before you can be a Section 8 landlord. The level of strictness is somewhat dependent on the county the property is located and who your inspector is. Some landlords find that the qualification process is straightforward, while others endure more hassles requiring repairs and upgrades. 

Although Section 8 allows for rent increases, they must be approved by the program first. This means that you will likely spend more time doing a routine rent increase than you normally would. 

There is no guarantee that the tenant will pay their portion or take care of the property. In those cases, you may still find yourself needing to give notices and possibly evict them.

Tips:

If you decide you want to move ahead with being a Section 8 landlord, here are some tips to help you succeed.

Screen your potential tenants. Yes, HUD screens before qualifying an individual or family, but don't loosen your belt – continue to be consistent in your screening of any tenant.

Maintain your property with Section 8 inspections in mind. Paint walls with satin or semi gloss, easy-to-clean, paint. Choose flooring that is durable as well. Keep appliances simple – skip the deluxe – so they are easy to maintain. Ensure all outlets, light fixtures and plumbing are working properly. Don't install unnecessary items – it's just one more thing to malfunction and be noted in the inspection process.

Schedule semi-annual inspections to keep an eye on how well your property is being cared for. If the tenant is breaking the lease agreement (including missing rent payments) don't waste time- start the eviction process.

About Rentals America

Rentals America provides full-service property management for residential properties throughout Phoenix and surrounding areas. Our team is completely dedicated to property management and we’re here to help landlords navigate the rental market. We handle the day to day hassles so you can rest easy. Contact us today.