Does Section 8 Make Sense?

Does Section 8 Make Sense?

by Omar Ruiz

does section 8 make senseRecently a new client rented to a section 8 tenant and got me reflecting about my experience over the years. I’ve worked with section 8 tenants for many years and in 3 different states. In fact my first rental property over 15 years ago had a section 8 tenant that I inherited.  It’s been several years since I’ve personally worked with a section 8 voucher tenant but I do believe it’s one of the best government programs to help people find affordable housing. It also helps landlords fill their vacancy and I consider it in a sense a way to get back the tax dollars I paid to the government. In this blog I’m going to talk about my experience and whether section 8 make sense.

Stigma vs. Reality

I’ve heard investors and property managers express reluctance to work with section 8 vouchers due to a belief that these tenants cause more damage and are difficult to work with. To be upfront, I have had voucher tenants that were a challenge to deal with and didn’t last. I’ve also had many more regular tenants cause problems and had to be removed as well. The main thing is that the tenant qualification process is up to ownership and it should never change regardless if there’s a section 8 applicant. Having good qualification practices is what gets you good tenants. We’ve had many good section 8 tenants that keep their places clean, follow the rules and are fantastic. These tenants want to protect their rental assistance, so they’re motivated to follow rules and not jeopardize losing their benefits. With the right tenant section 8 make sense.

The inspection process is something that can be cumbersome and sometimes annoying. Inspections are done yearly by the housing authority. Some inspectors are unreasonably demanding causing delays to fix minor things that don’t materially affect the tenant or property (light bulbs; mini blinds; etc.). These inspection failures cause delays because a re-inspection appointment to be scheduled. In these instances the unit would rent up faster with a regular tenant because there would not be an issue. If tenants complained the item could be easily repaired and addressed during the tenancy. We’ve discovered it’s best to have someone present during inspections, which takes extra resources and time. While most inspections go smooth, there have been instances in certain cities where inspectors are difficult to work with, so we refused to accept vouchers.

Does Section 8 Make Sense?

does section 8 make senseIn certain markets, yes working with section 8 makes sense. When I started investing in 2009 in the Inland Empire of Southern California shortly after the great recession, there were many foreclosures and people with bad credit. We bought class “C” rentals and had success with section 8 voucher tenants. In some situations we were able to get higher than market rate rents so section 8 made sense. This helped occupancy and increased our investment returns.

What I’ve learned from my experience and the different cities I’ve operated in is that section 8 makes sense in lower-income, class C neighborhoods because it opens the pool of available applicants, especially if finding qualified applicants is a challenge. In some areas there are few properties willing to accept section 8; therefore, when voucher tenants find a place they’ll stay longer because their options are limited.

It may also make sense with older properties in better markets that may have a functional obsolescence. If a property has older finishes; weird layout and hasn’t been updated in a long time, section 8 make sense to get the same rents compared to other properties, even though it’s older without updates.

When Section 8 Does Not Make Sense

does section 8 make senseThe question of when it doesn’t make sense to accept section 8 vouchers comes back to the market and condition of the rental. In areas where there is a large pool of qualified and available applicants, it may not be advantageous and only delay things due to the paperwork and inspections. In my local area of Orange County California, there’s high demand and finding qualified applicants so not difficult.

If your rental is decent quality with updates and comparable to others, then it may not make sense to deal with the extra administration and inspections. You’ll likely be able to easily find qualified tenants that will want to rent from you.

due diligence teamAs mentioned earlier, if the housing authority inspectors are difficult to work with, then it will be easier to rent to regular tenants. Years back we owned an older apartment complex in a good area of Indianapolis. I thought working with section 8 vouchers makes sense, especially during the holiday slow season. The inspectors made things difficult. They had a city wide reputation for failing units on first inspection for unreasonable items (light bulbs, mini blinds, etc.). We’d have maintenance guys escort inspectors, so they could fix any item on the spot, such as replace a light bulb; change battery, etc. but the inspector would not allow it. I later learned through other property managers and owners that inspectors were motivated to increase their hours as their government pay was generous. Even tenants would complain because they just wanted to get a clean, safe place as soon as possible. The inspectors seemed more concerned about their pay than the tenants. We would escalate to the head of inspections, who eventually passed the units. Things never improved. The extra work on our part wasn’t worth it, so we refused to accept section 8 vouchers.

An interesting observation reflecting back from my beginnings is that when I started investing (2009-2010) the economy was bad and the section 8 program helped to fill vacancies. Since the economy has improved over the years and there’s more demand from good qualified renters, we no longer consider section 8 vouchers, but we don’t entirely ignore them either. This means the local market economy should also be considered.

Conclusion

The section 8 voucher program is a good program that helps low-income people find affordable places to live. I’ve had mostly positive experiences and believe section 8 makes sense in certain situations. It does involve extra paperwork and time but in the right circumstances the benefits bring a lot of value to ownership. Whether it makes sense to accept section 8 voucher tenants depends largely on the area the property is located in; the incomes in that area and how difficult it is to find qualified tenants

 

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