It can make a lot of sense for a landlord to rent to tenants who qualify for Section 8, or government subsidized, housing. In California, the Section 8 program is sponsored by county governments and subsidizes the rent payments for citizens unable to afford the entire amount of a market rate rental. The idea is that over time the tenants in the Section 8 program will become self-sufficient and essentially won’t need government assistance.
Subsidized housing in general has a certain negative stigma associated with it. There is this notion that subsidized tenants are worse tenants because they will “trash the place” or “won’t pay rent.” In my experience renting to hundreds of Section 8 tenants, I have encountered a very high quality of person and renter. In fact, focusing leasing efforts on subsidized renters was one of the biggest things that made my single-family business successful.
Section 8 can be a little tricky because different counties can have different rules. There has also been an increase in bureaucracy in the program, which is obviously a deterrent for landlords. On the whole, though, I still really believe in the Section 8 program.
Related: Rent to Section 8 or No?
Here are the six best reasons to give subsidized tenants a chance at your next rental.
6 Reasons for Landlords to Rent to Section 8 Tenants
1. Higher Rents and Built in Increases
Section 8 tenants pay a fixed percentage of their income, and the government or Section 8 program pays the difference. When I was trying to raise rents on a number of homes in my portfolio by increasing asking rental rates, I found that there were a lot of Section 8 tenants applying to the homes that were on the higher side of market rate. This actually makes a lot of sense because whether the Section 8 tenant rents a home that is $1,000 or $10,000, their portion of rent actually stays the same.
For example, if a Section 8 tenant makes $2,000 per month, they will only pay about 40% of that as their portion, so about $800 in this case. If this person rents a house that costs $1,000, then the government will pay $200, and if they rent a house that costs $10,000, the government with pay $9,200. The tenant pays $800 in both scenarios.
There are obviously limits to how much the government can pay, and there is also some diligence to make sure that the rental rate is around market, but as long as it’s close, there usually isn’t an issue. In some cases, I have been able to get about $100 over the nearest market rate comp.
Many Section 8 programs also have built in rent increases that the landlord can apply for on an annual basis. The tenant is indifferent because they only pay the fixed monthly rate. Again, the rent increases need to be around market, but any increase is a good thing for an owner.
2. Tenants Will Stay Longer
The key here is to make sure the homes you are leasing out are in really good condition and that you are a really good landlord. If something is broken, then fix it! I’m not saying that you should put in gold plated countertops, but it is important to make the home nice and a really good place to live. If you do this, then it is likely that the tenants will stay longer.
My Section 8 tenants stayed over three years on average. One of the main reasons is that I was a good landlord, but it was also due to the fact that it takes a while to make enough money to get off of the Section 8 voucher. This is by no means a knock on the tenants – they were great people; they just didn’t make a lot of money and couldn’t afford a place that was better.
The other reality is that there aren’t going to be many better places if you take care of your property and are a good landlord. There are loads of Americans who will be renters for life, and if you are a good landlord, this will end up benefitting you.
The real thrust of this point is that you make more money as a landlord if you can keep your tenants in place. Vacancy and turnover costs are killer. Section 8 tenants are more likely to stay long term, and remember that you also get a higher rental rate.
3. County-Guaranteed Rent
This is obviously a safe net. Many Section 8 tenants have lower credit than an ideal tenant. However, if the tenant loses their job or comes up short on a payment, then the county, or in some cases the city, will step in and pay you the entire amount owed.
Related: Section 8 Success Story
I was somewhat shocked when I found this out. I was renting homes in lower end cities that were partially guaranteed by other cities in the same county with ten million dollar homes. While you never want a tenant to be unable to pay, it helps reduce risk if you know you have a wealthy guarantor (particularly in the form of the government).
4. Lower Maintenance
I have heard people say that “Section 8 tenants destroy the place!” In my experience of renting to hundreds of Section 8 tenants, they are actually less likely to destroy your home, and they also require less maintenance! The reason is that most of my requests for maintenance happen within the first month of a tenant moving in.
This makes sense because we have just done repairs, and the house hasn’t been lived in for a while. As a landlord you expect this for the first month, and usually the maintenance issues iron out over time. Since Section 8 tenants stay longer in a home, the average maintenance costs end up going way down.
The other part of this is that many Section 8 tenants realize that they will never own their own home. I won’t get …read more