Affordable housing is becoming more and more difficult to find. This then creates an opportunity for real estate investors. More than five million low-income households live in privately-owned or public housing, but the number of affordable homes continues to decrease for renters. That is where the Section Eight housing program comes in.
Landlords are being encouraged to provide more affordable rental housing with the Section Eight program. Guaranteed rent payments are given to landlords monthly, along with pre-selected tenants, courtesy of the state and federal governments.
This post is going to break down what the Section Eight program is, how it works, the advantages and disadvantages are, and how to become a Section Eight landlord.
What Is Section Eight?
The Housing Choice Voucher Program, also known as Section Eight, was founded by the U.S. Department of Housing and Urban Development (HUD). It provides a rent subsidy for low-income families, disabled people, and the elderly to provide them with affordable housing in the private market.
This is important because many individuals cannot afford to buy a home or even rent a property at the normal market value. The Section Eight Program gives those individuals a chance to live in a nice home in a safe area.
How Section Eight Works
Those that participate are free to choose the housing that best matches their needs, like single-family rental homes, apartments, and townhouses. This can only happen if the housing meets acceptable safety and health standards. Vouchers are also available and are given to the public housing agencies (PHA) in each state or city. Then, the PHAs hand out the vouchers locally under the Section Eight program.
When the PHA gives a voucher to a family, it is then their responsibility to find their accommodation. They must also agree to the terms and conditions with their landlords themselves. Once a property has been decided, the tenants must meet the minimum safety and health standards on this rental unit. This is determined by the PHA.
Home inspections do occur before the Section Eight tenants move into the property and then every one to two years. At the end of the month, the landlord is paid directly from the PHA on behalf of the tenant, meanwhile, the tenant must pay any difference between the monthly rent and the subsidy.
Section Eight Landlord Advantages
Since so much affordable housing is becoming short in supply, many landlords are now wondering if they should join the Section Eight program. Well, being a Section Eight landlord allows you to help your local community while benefiting from the wide supply of tenants.
Here are some of the advantages to joining the Section Eight program:
- Predictable Rental Income
The portion of the monthly rent is covered and received by the PHA. This means that landlords do not need to worry about missed or late rent payments because they are receiving a large sum of money from the PHA. Keep in mind that the tenant does have to pay the difference. However, since the difference the tenant has to pay is significantly smaller than normal rent, one can hope that they have an easier time gathering their rent money.
- Rental Increases Annually
Landlords might have the opportunity to raise their rent each year depending on the local fair market by the HUD. As an example, a landlord that has an already approved Section Eight 3-bedroom home in Miami, Florida metropolitan can raise their rent by 7.4% next year. This is because the HUD’s fair market has estimated a rise in property value and other rental prices in the local area.
- Pre-Screen Tenants
All tenants before being accepted into the Section Eight program are screened by the local PHA. Moreover, all adult applicants must show their proof of income, pass a criminal background check, and are subject to a drug test. Even though the PHA completes this screening, the landlord has every right to conduct another screening of their own before accepting their application. However, the landlord cannot raise their rent price according to the tenant’s income.
- Low Turnover & Vacancy
A lot of cities around the country have waiting lists for Section Eight rentals. When a home does become available, there are always many potential tenants applying for the home, especially in areas where there is not enough housing. This demand allows for a consistent flow of potential tenants, but because housing is so slim, many tenants stay in their rental properties for as long as they can. That means that the turnover for tenants is very low, so the landlord knows they are receiving their monthly rent instead of worrying about finding a new tenant.
- Minimal Advertising
Instead of spending a lot of money on marketing, many PHAs have free websites where Section Eight landlords can advertise their rental properties to already screened tenants. Moreover, the PHA is there to help get tenants once a Section Eight landlord has signed up and their property has passed all necessary checks. This saves a lot of time and headaches.
The Hurdles of Becoming a Section Eight Landlord
Even though being a Section Eight landlord has its advantages, there are still hurdles that they are going to need to get over.
Before a rental property can be considered for the Section Eight program, some inspections need to take place. These inspections are conducted by HUD representatives that work with the local PHA.
The home is inspected before the tenant moves in and every one to two years afterward. Any repairs that need to be made must be completed by the landlord, so the rental property is up to HUD’s standards.
- Initial Rent Payment Delay
When a new Section Eight tenant moves in, the first month’s rent payment from the local PHA might be delayed one to two months. This is due to processing issues. Since this is the case, the landlord must have enough money to pay for the mortgage and operating expenses for the first several months just in case the payments take some time to reach their bank account.
- Limit to Annual Rental Increases
The HUD decided on the annual fair market rent in every real estate market around the country. This rent can be increased, but it might also not be. All Section Eight landlords need to be aware that their rent is now capped once they join the program. Rental increases all depend on the HUD and the fair market.
Let’s say the HUD decided the fair market rent is $1,700 per month, but the market rents are $2,000. The Section Eight landlord can then only charge $1,700 in rent every month.
- Government Rules & Regulations
Read the fine print on all documents. There are rules and regulations that all Section Eight landlords need to follow from the government.
How to Become a Section Eight Landlord
The very first step to take when becoming a Section Eight landlord is to contact the local PHA. HUD has a list of PHA contact information for every state and city, so it is easy to find who to call. In order to apply for the Section Eight program, the PHA is going to require some information about the property and the landlord including:
- Name and address of the landlord
- The property address and type (is it a single-family, multifamily, or townhome)
- Monthly rental rate
- Proposed lease start and end date
- If they are included, the utilities
However, if the PHA decided that the asking rent is too high, the landlord may need to lower the monthly rent to meet the HUD’s fair market rent standards.
After this, the PHA is going to want to inspect the rental property. The home must be in a sanitary, safe, and decent condition to meet the minimum requirements for the Section Eight program. Typical objects the HUD inspector looks for are:
- All windows and doors function and lock properly
- The kitchen stove and refrigerator are in working condition
- A bathroom with a working sink and tub/shower
- There are no peeling paint or plumbing leaks
- Both the hot and cold water run properly
- Electrical outlets and light switches have covers
- Emergency fire exit is not blocked
- Clothes dryer venting is to the outside
If the inspection results in a fail then the landlord is required to make all the necessary repairs and changes.
Once the rental property is ready, the landlord and the PHA office have a series of documents to sign. These documents allow the landlord to receive rent from the housing voucher. Afterward, the PHA can help market the new Section Eight rental property to potential tenants.
Being a part of the Section Eight program is beneficial to both the landlord and the tenant. Using the housing voucher allows for the tenant to live in a nice home in a safe area, so they can get their life on track. Meanwhile, the landlord is still being paid the correct amount and helping out their local community.