If you’re a landlord in the Houston area – or thinking about becoming a landlord in the future – it’s important that you familiarize yourself with all of the laws, restrictions, and requirements that may apply in your situation. In particular, you need to think about Section 8 housing and what it means for your situation.
How Does Section 8 Housing Work?
Section 9 is a program that’s administered by the U.S. Department of Housing and Urban Development (HUD) and local public housing agencies (PHAs) that work alongside HUD to develop state-specific rules and requirements.
“The Program issues vouchers, or subsidies, to qualified households to be used to pay all or a portion of the household’s housing costs, consisting of rent and utilities,” PropertyMetrics explains. “The PHA pays the voucher amount directly to the rental property owner. If the total housing costs are more than the voucher amount, then the household must pay the difference.”
The basics of Section 8 housing aren’t very difficult to understand. It’s the eligibility and landlord obligations that can be challenging to sort through. For example, it takes some time for families to go through the approval process.
To be eligible, households are required to (1) have a household income of 50 percent or less of the median income in the area; (2) be U.S. citizens or non-citizens with eligible immigration status; (3) be in good standing with the federal housing program (i.e. no evictions from public housing); and (4) satisfy all other PHA criteria.
There’s then the discussion about what a reasonable rent rate is, how much the subsidy will cover, how much the household should be required to contribute (if any), and how landlords are supposed to deal with Section 8 tenants.
Every state has different rules. In Texas, for example, there’s no recourse for landlords who choose not to work with Section 8 tenants. Some landlords do, however, choose to work with them anyway.
It’s also important to note that there are two basic types of Section 8 vouchers. There’s a project-based voucher, which is attached to a specific property. Tenants are required to move into this property to get the subsidy. Then there’s a tenant-based voucher, which allows the tenant to go out and find housing wherever landlords or housing projects accept Section 8 tenants. In this article, we’ll be focusing on tenant-based Section 8 vouchers.
The Benefits for Landlords
Landlords and real estate investors often talk bad about Section 8 housing, but it’s important that we give it a fair shake. There are some benefits and perks that come with cooperating with these tenants. Let’s explore them a bit further:
- Consistent Rent Payments
There’s a common misconception that Section 8 tenants don’t pay rent on time. And while this can be true, it’s not as big of an issue as most think it is. The fact is, Section 8 tenants may actually be more consistent than the average – simply because the government is making subsidized payments on their behalf. And as for the portion that tenants must pay, they could actually lose access to their vouchers if they don’t pay on time.
- Low Vacancy Rates
In most cities, Section 8 tenants are lining up and looking for housing. There’s often a shortage of housing, which creates huge demand. Thus, if you’re open to accepting Section 8 tenants, you’ll almost never have a vacant property. (On a related note, Section 8 tenants have an incentive to stay in the program. While moving is allowed, it takes considerable effort and lots of approvals from the Housing Authority. For the most part, these tenants stay put for long periods of time.)
- Pre-Screened Tenants
If a tenant has been approved for a Section 8 voucher, they’ve been pre-screened by the housing authority. In addition to the aforementioned requirements, they must pass a criminal background check and get drug tested. For landlords, this eliminates some of the red tape.
The Risks and Negatives for Landlords
There’s a reason many landlords don’t work with the Section 8 housing program. In particular, you’ll find the following risks and negatives are in play:
- Rental Regulations
In order to comply with the Housing Voucher Program, you have to set your prices according to the Fair Market Rent (which is calculated by HUD). The problem is that these calculations are often low for the actual market rate. Thus, you may find it difficult to maximize your monthly return.
- No Security Deposits
HUD does not pay a security deposit. If you want to collect a security deposit from a Section 8 tenant, you have to collect it directly from them. Since these tenants are known to have income issues, this is highly unlikely. As a result, you have to take some risk.
- Regular Inspections
For your property to qualify for Section 8, you’ll be required to have an annual property inspection with a HUD official. If any element of the inspection fails, you’ll need to have the problem resolved in order to continue.
- Potential for Difficult Tenants
Low-income renters are often in dire situations with challenging circumstances. And since they have very little skin in the game – subsidized rent and no security deposit – they don’t always have motivation to take care of the property. This can create issues on your end.
Right or wrong, being a Section 8 property creates a certain perception. Whether you’re looking to rent to non-Section 8 tenants in the future, or sell the property to another investor, there might be a stigma associated with the listing.
Green Residential Property Management
As a landlord, it isn’t always easy to know how to navigate the complexities of property management. There are technical aspects, legal components, and other factors that come into play. And at Green Residential, we’re here to help you out. We offer a cost-effective and comprehensive set of property management services that allow you to streamline the mundane and focus on what matters: generating a positive ROI. For more information, please give us a call!