Section 8 Housing is a hidden gem in real estate. Many people don’t think to register their properties with HUD because it seems riskier, but it can really increase your cash flow.
Section 8 refers to an apartment that is in Housing and Urban Development (HUD). Section 8’s purpose is to provide housing to low-income families. They primarily do that through what’s called “rental assistance”, where the government pays for all or the majority of the rent. A potential tenant will receive a housing voucher, which is usually based on an approval for the number of bedrooms. That voucher is good for about 60 days, in which time the tenant has to go into the market and find a property.
As a landlord, you are responsible for making sure your renters are accountable and your property is taken care of. If you follow my tips, you can use Section 8 housing to diversify and enhance your real estate portfolio.
How Section 8 Housing Can Increase your Cash Flow
Advantages of Section 8
Section 8 Housing is great because the government pays the rent. This means your rent is guaranteed at the beginning of every month. You never have to worry that the check won’t come.
Secondly, there will always be a steady stream of tenants. Tenants are always looking for a place to live, and Section 8 helps tenants connect with your particular property.
Section 8 tenants are typically longer term than normal ones. I have had some tenants that have been in my properties for five or more years. This helps you because you are less likely to have any vacancies. Longer term tenants also do a better job at taking care of your property, which means your rehab and repairs are typically a lot less.
Finally, there’s a lot less competition with other investors because many are scared of Section 8. This means you will have almost guaranteed a steady stream of tenants because there is a large volume of them, and a small number of properties available.
Protections for Section 8
When you list your property for Section 8 Housing, you need to set up the right protections for you and your property. First, you need to understand HUD Guidelines. One of the most important guidelines is that your property has to have one bedroom for every two occupants. This applies not matter what type of property you have. For single-family homes, I strongly encourage you to buy a property with at least three bedrooms or more. For apartments and duplexes, don’t buy less than two bedrooms.
HUD requires the landlord to sign a lease with the tenant, and they have to sign a housing authority contract called a “HAP contract”. These are your (the landlord’s) contract, so you can dictate what the tenant’s responsibilities are. Contrary to popular belief, there isn’t a lot of paperwork.
Thirdly, it is your responsibility as the landlord to screen the tenant. You will need to do a criminal background check and a credit check. You can get the credit check through a local mortgage broker, as long as you get approval from the tenant. Finally, you want to see where they live now. This will give you an idea of how they take care of their current property, and how they will treat yours. These protections will save you a lot of headaches.
Section 8 housing is a great way to increase your cash flow as a real estate investor. There is always demand, and the rent payments are guaranteed by the government. I encourage you to think about adding it to your real estate portfolio.
As an experienced investor, I know that there are always new things to learn when it comes to real estate. That is why I host a real estate workshop every year with some of the most experienced investors I know. We will have me, Bill Bronchick (legal expert), Karen Conrad (home staging specialist), Dan Dyer (missionary in real estate), and Mike Davis (real estate zero to hero). I encourage you to come and learn more about real estate investing! Click here to learn more and here to purchase tickets.