Becoming a Section 8 Landlord: Pros and Cons
While becoming a Section 8 landlord may not be a good fit for every real estate investor, it does have many advantages — and you’d be helping people in need.
If you’re a landlord, you may wonder whether you should accept low-income tenants that fall into the Section 8 housing subsidies category. You may be hesitant to do so because it means opening your doors to tenants who may not meet your typical financial requirements. Although it can be a difficult decision, becoming a Section 8 landlord has many advantages, and the drawbacks may not be as significant as you think.
What is Section 8 housing?
The Section 8 Housing Choice Voucher program encourages landlords to offer rentals to very low-income families, the elderly, and the disabled who can’t afford rent in the private market. In this program, residents are able to choose their own rental unit and are not just limited to public housing. The program provides funds through the U.S. Department of Housing and Urban Development (HUD) so landlords can offer rent accommodations at fair market rates. Local public housing agencies (PHAs) pay subsidies directly to the landlord on behalf of the participating resident. The Housing Choice Voucher program has empowered more than five million people in 2.2 million low-income households to afford decent homes in the private market.
5 advantages of becoming a Section 8 landlord
The benefits of Section 8 not only apply to tenants. There are advantages for landlords who choose to participate in the Housing Choice Voucher program as well:
1. Predictable rental income
One of the biggest perks of accepting Section 8 tenants is that you will receive most of your rent money on time every month. The government usually subsidizes between 40% and 70% of the total rent, giving you peace of mind knowing that portion will be paid out consistently. Although the tenant is still responsible for paying the remainder, if they’re late or delinquent, you won’t be completely out of pocket.
2. A competitive advantage over other landlords
By accepting Section 8 tenants, you’ll be opening your rental properties to a whole new market. A major benefit of becoming a Section 8 landlord is that you’ll stand apart from your competitors who choose not to accept Section 8 tenants.
3. A thorough tenant screening process
Your local PHA requires that tenants undergo pre-screening in order to be accepted into the Section 8 program. They must pass a criminal background check and a drug test, and have their income verified. And if you’re still worried about the risks associated with accepting Section 8 tenants, remember that you can conduct additional tenant screening yourself, just as you would any tenant.
4. Reduced vacancy rates
Section 8 rentals typically have a waiting list, with potential tenants ready to apply when a home becomes available. Consistent demand means your tenant turnover is usually low when you become a Section 8 landlord. Because Section 8 applicants can be on a waiting list for a year or more, they are likely to stay for a longer period of time once they secure housing. A relatively low tenant turnover rate makes rental incomes more predictable and profitable for landlords.
5. Minimal advertising needed
Many PHAs offer a free website to advertise eligible rental units. As a result, landlords benefit from reduced marketing costs, knowing their properties are well promoted to reach tenants looking for a home.
4 drawbacks of Section 8 rentals
Before you sign up to become a Section 8 landlord, let’s take a look at some of the hurdles Section 8 landlords may encounter.
1. You’ll encounter some government bureaucracy
One of the disadvantages to becoming a Section 8 landlord is that you need to be approved by your local PHA. To be accepted, your rental units will be inspected and you will need to ensure your rental rate aligns with the average prices of other properties in your area, among other requirements and paperwork.
2. You'll have to set a fair market rate for rent
If you’re focused on high-value properties in wealthy areas, Section 8 may not be for you. To be approved as a Section 8 housing provider, you may only charge a certain amount for rent. Check the HUD website to find the fair market rents for your area.
3. Other tenants or neighbors may discriminate
Tenants or neighbors who do not require rental assistance may not like being in the same housing community as those who do. If you own a multifamily property, be sure to screen tenants yourself and make every effort to maintain your property value to prevent issues. If the property remains quiet, safe, and well maintained, non-Section 8 tenants are less likely to complain.
4. Your property will undergo regular inspections
Renting to Section 8 tenants means your property will have to be inspected before every new tenant moves in. Even if there has been no tenant turnover, your local PHA will send out an inspector at least once a year, and if the tenant reports a health or safety issue. If any deficiencies are found, you will be responsible for fixing them by a certain date and then your unit will go through another inspection.
The bottom line: Are Section 8 rentals right for you?
While accepting Section 8 tenants may not be a good fit for every landlord, it does have many advantages, and you’d be helping families and individuals in need. If you own properties that may qualify for Section 8 housing vouchers, it might be worth looking into this opportunity.
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