In the property management business, section 8 housing is usually not thought of very highly. As a property manager, you probably only see problems with property management for section 8; low-quality tenants, too much government involvement, excess paperwork, and too many expenses and legal issues. Though the program comes with its own share of shortcomings, managing section 8 rentals can ultimately end up boosting your property management career.
Related: Are Section 8 Rentals a Good Real Estate Investment Opportunity?
So, What Is Section 8 Housing?
Section 8 housing is a program that offers rental assistance for millions of low-income households in the US. The aim of this housing assistance program is to make sanitary, safe, and decent housing available to those that cannot afford to pay market prices. The program also offers property managers, along with their property management clients, incentives to work with local housing authorities.
Section 8 is part of the HUD’s Housing Voucher program. A housing voucher program can be either tenant-based or project-based. A tenant-based voucher makes it possible for tenants to select any privately rented home, as long as the rental property owners are involved in the section 8 housing program. On the other hand, project-based vouchers are applicable to specific rental communities that work in conjunction with public housing authorities (PHAs). The advantage of section 8 property management is that property managers have numerous pre-screened applicants to choose from and can still charge full market rates.
Section 8 Requirements
To operate a section 8 rental property as a property manager, the manager and the rental property itself must be approved by the local housing authority. The specific requirements for section 8 property management vary from one housing authority to another. However, these are the general steps you need to take to participate in section 8 housing as a property manager:
- Fill in the section 8 landlord application – Your local public housing authority will provide you with the necessary paperwork. Besides your personal information, you will also be required to provide details about the rental property such as its address, number of bedrooms and bathrooms, appliances available, and the asking rent.
- Complete a property inspection – If your application is accepted, the PHA will inspect the rental property to ensure that it meets housing quality standards. The home inspectors will look at things such as plumbing, sanitary facilities, locks on doors and windows, sound structure, and the HVAC system.
- Begin accepting vouchers – Once the rental property passes inspection, the housing authority will add your rental to its database. You can then start accepting vouchers.
Let us examine the pros and cons of section 8 property management.
Advantages of Section 8 Property Management
- Pre-screened applicants – Housing authorities pre-screen all section 8 tenants, checking things like their criminal backgrounds and income levels. This offers some assurance to the residential property manager and minimizes the risk of problem tenants.
- Consistent rental income – Since the rental income from section 8 housing is government-subsidized, it is usually more consistent compared to market-rate rentals. The public housing authority will either deposit the cash into a bank account or write a check to the property management company. Since late payments could jeopardize their eligibility for the program, renters are also very likely to settle their bit on time as well.
- Free advertising – Potential tenants can find section 8 rentals on the HUD website. In addition, many local housing authorities also have their own websites with lists of available section 8 units and contact details for property managers or landlords. The good news is that property managers and tenants can use these sites for free.
- Minimizes vacancies – Due to the high demand for section 8 housing assistance, there are usually hundreds (or even thousands) of potential renters on waiting lists. This means fewer vacancies for those involved in section 8 property management.
Downsides of Section 8 Property Management
- Difficult tenants – Section 8 housing programs usually attract low-quality tenants. This presents risks for section 8 property management such as increased property damage and drug or crime issues.
Related: How to Deal with Bad Income Property Tenants
- Rental pricing regulations – Participating in the section 8 housing programs requires setting rental prices based on HUD’s Fair Market Rent (FMR). The calculation is made based on the value of the rental investment property and even the number of bedrooms. For instance, if the HUD decides that the FMR in your area for a 3-bedroom home is $1,200, you will not be allowed to charge more than that. This could mean a negative cash flow.
- Annual property inspections – Besides the initial inspection, the housing authority will also carry out annual re-inspections on the section 8 property. If you do not pass the inspection, you will be provided with a list of things that need to be fixed. Once they are fixed, you can schedule a re-inspection. This routine can end up being very stressful and a nuisance in section 8 property management.
- Full-paying tenants may be put off – As mentioned earlier, section 8 housing is associated with low-income individuals. Due to this negative stereotype, full-paying tenants are likely to avoid your rental property, even if it is appealing and well-maintained.
- Not easy to evict difficult tenants – To evict a section 8 tenant, you will need to adhere to local and state laws regulating evictions. However, some states have made it even more difficult by requiring a rental property manager to get permission first before embarking on eviction proceedings.
- No voucher until a tenant moves in – Traditionally, a landlord or rental property management company collects rent before a tenant moves in. However, property management companies that accept section 8 will not be paid by the housing authority until after the renter moves into the home. In some cases, the administrative process before payment is released can be painfully slow.
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Conclusion
Before taking the section 8 route for managing rental property, take time to weigh the pros and cons. The decision on whether or not to participate in section 8 housing property management should also be made based on where your rental property is located and your readiness to handle the paperwork and process.
Related: Why You Shouldn’t Go for Section 8 Real Estate Investments
