You will find my rebuttal’s to this blog in bold red text.
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 clockwork. You’ll have your money each and every month, conveniently deposited into the bank account of your choice. Correct.
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. True, but you ask your existing tenants who have been with you for years and take care of your places for referrals. Good landlords are just as hard to find and they talk!
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. Maybe he should learn how to do a contract correctly as most contracts must have their I’s dotted and T’s crossed.
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. It doesn’t take nearly this long if you know what you are doing. Plus, once a house is approved, the first payment is delayed yes, but its retroactive.
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. They follow HUD guidelines and you can’t rent dumps. Seems like someone to me tries to rent shoddy places.
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. Section 8 tenants get an additional 7 days in the eviction process.
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? Any person that is rented can ask for an attorney. This point really doesn’t make any sense to me.
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. Depends on where you are looking. Sure, if I am renting my neighbor’s house, there will be a discount. BUT, we are not hunting there. We are hunting in areas in which are lower income areas that are good. The rents are more than you can get otherwise. OH and don’t forget about the equitable positions. Once a house is rented Section 8, they sell fast as most people don’t want the headache of the paperwork. I actually get paid to do the paperwork for folks.
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. I have 300 k rental in which a tenant messed it up. Any tenant no matter how hard you try can destroy a property. The trick is, don’t give them anything to tear up. No carpet, only hardwood, only tile in kitchen and baths no laminate (tears and gets holes), vanity’s & kitchen cabinets are reinforced.
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. This guy is just trying to sell his goodies.