Section 8 housing is government subsidized housing. People who invest in multifamily housing need to know about Section 8 because, historically, Section 8 has been a way for apartment owners to both guarantee and raise their rents.
The tenant paid portion of the rent is between 0 – 30%, and government paid portion of rent is 70-100%. Typically, you will not get deposits from Section 8 tenants, but you will get higher rents.
Another benefit of using Section 8 housing is that rent checks come regularly and the rent is guaranteed; however, the rent check for the first month can be delayed for weeks, and it is not unheard of for payments to take months to begin.
Here are some special considerations you will need to make when working with Section 8 tenants:
Section 8 renters are not allowed to pay additional fees. Paying additional fees for their rent would mean they are hiding income from the government, and they would lose their Section 8 status.
Although Section 8 rents have historically been higher than the market value, this could change. Recently, the government has started looking at market rents on the MLS as the basis for their Section 8 rental amounts.
Owners of apartment buildings have noticed extra wear and tear from Section 8 tenants, so you need to evaluate whether or not it is worth it, especially since you will be getting a deposit up front.
Section 8 funding amounts can vary under the current administration. Realize that each situation may need to be handled differently.
You can screen Section 8 tenants just like you can with other tenants. The difference is that they will come to you with a voucher for full or partial payment of their rent.
There are many other government subsidized rental programs besides Section 8. Some programs fill specialized needs, such as helping people with HIV or helping battered women.
There are also special programs to help homeless people get on their feet. Some of these programs pay more than others, and some apartment owners end up finding a niche in working with one or more of these programs.
The value of using Section 8 may change with the market cycles. At times there will be more Section 8 funding and tenants than at other times. Also, the government may be willing to pay higher rents for Section 8 tenants depending on the supply and demand of a city at any given time.
The importance to investors of knowing about Section 8 and other government subsidized housing programs is that these programs can help you increase your occupancy rate and raise your revenue.
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