Author Topic: Anyone purchased investment property with Section 8 tenants  (Read 5900 times)

charis

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Anyone purchased investment property with Section 8 tenants
« on: August 13, 2015, 02:57:08 PM »
A good deal on a very small (956 sq ft) single-family home currently occupied by Sec 8 tenants has come up and we are considering it as a first investment property purchase. 

After evaluating it per this post:
http://forum.mrmoneymustache.com/real-estate-and-landlording/evaluating-a-rental-property/

it seems worth a look and possibly ideal for a first property.  Very (!) low cost, already occupied and (probably) passing HUD inspection. 

My obvious concerns involve vetting the current tenants and the condition of the property and what approval, if any, we need to have to enter into a section 8 lease.  Any experience here?

Also, and this is unrelated to the topic, but has anyone formed an LLC for holding rental property?  My basic research makes it look complicated and probably requiring a lawyer.

iamlindoro

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Re: Anyone purchased investment property with Section 8 tenants
« Reply #1 on: August 13, 2015, 04:23:17 PM »
Congrats on finding one that looks like a good deal!  I don't own any Section 8 properties, but I did remember reading this thread in the past here:

http://forum.mrmoneymustache.com/real-estate-and-landlording/section-8-tenants-in-a-duplex-i-might-buy/

It seems like, from reading here and at BiggerPockets, aside from having to keep the property acceptable according to Section 8 standards, you might need to complete any steps your local Section 8 authority requires of landlords (perhaps a certification, etc.).  You should also consider that Section 8 has to approve increases in rent for Section 8 tenants, so if the property is well below market rates and you were planning on raising the rents, that might be a consideration.

Let us know how it goes!

Bearded Man

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Re: Anyone purchased investment property with Section 8 tenants
« Reply #2 on: August 13, 2015, 04:54:22 PM »
I never have, but I can tell you I've had section 8 neighbors and they are just awful. Generally, not always, but in most cases, these people are bottom of the barrel degenerates. I'm sure someone with a bleeding heart will come along and flame me, but unless I see them taking in section 8 neighbors all around them with their own money, their words mean nothing. I've found most of the  bleeding heart people only have bleeding hearts for them as long as they don't have to live next to them.

I've had to live next to them and they literally live like animals. Google the headaches these people cause.

fishnfool

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Re: Anyone purchased investment property with Section 8 tenants
« Reply #3 on: August 13, 2015, 07:10:30 PM »
The only positive thing I can say about section 8 tenants is that the majority of the rent will always be paid if not all of it. I was thankful to have steady rent from my section 8 tenants the last 8 years through the recession. I never increased the rent and didn't even try. But now that they're out I'm getting 20% higher rent and know our new tenants will take better care of our property.

If this house is a good buy and a solid investment I wouldn't let the section 8 tenants scare me away. When you get into the house you're sure to get an idea of how clean they live...or not!

Good luck

charis

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Re: Anyone purchased investment property with Section 8 tenants
« Reply #4 on: August 14, 2015, 07:24:51 AM »
Thanks for the responses.  We are going to look inside next week.  I don't expect that the current tenants are keeping the place up well.  Based on our drive by, there was one broken window and one broken door, so that doesn't bode well.  It is on a small quiet street off of a crappy neighborhood so I wouldn't expect any appreciation.  But the purchase price is extremely low and the rent is well above market value rents for that neighborhood because it's a 3-br single family home.  Put another way, the monthly rent is over 5 times what a monthly mortgage payment would be on the list price.

At this point, it's a long shot, but it's worth a look.

Us2bCool

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Re: Anyone purchased investment property with Section 8 tenants
« Reply #5 on: August 14, 2015, 07:47:08 AM »
I'll weigh in as well on this one. Last year I bought a condo with a section 8 tenant from a friend of the family who wanted to cash out. He gave me an incredible deal because it was no hassle for him (it was an all-cash deal) and he wanted to find someone who he knew would let her stay.

My tenant has been great. She is a single mom who works in senior care and is absolutely no trouble at all. The only real problem was that my friend had neglected some upkeep, but I expected some of that. I'm making money, never have to worry about unpaid rent, and everyone is happy.

I know some of you will say that proper upkeep is required in Section 8 housing, which is true. My friend took care of these things, but the carpet was ancient, that kind of thing.

charis

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Re: Anyone purchased investment property with Section 8 tenants
« Reply #6 on: August 14, 2015, 08:22:19 AM »
Thanks for the insight.  I have no problem with Section 8, actually.  Like any prospective tenants, it comes down to the individuals.  My SIL has non-Section 8 tenants, and their rent is late every month.  Keeping the property to HUD standards is fine with me, we have no interest in owning deteriorating property.

To the poster above who mentioned having Section 8 neighbors, that's an entirely different situation.  I will be able to vet my renters, and we will not be neighbors regardless.

zinethstache

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Re: Anyone purchased investment property with Section 8 tenants
« Reply #7 on: August 14, 2015, 10:56:17 AM »
We bought a foreclosure with a section 8 tenant. It is odd that you can have section 8 with broken windows, etc because Section 8 inspects the homes yearly and will give a punchlist of required repairs to the landlord to fix. We've been in compliance now for awhile, the tenant is never late with their portion of the rent and the place is cared for. We raised the rent when we first bought the property, our PMs put in the necessary paperwork and it was approved quickly. We did have a mix up with the section 8 rent one month when they switched to a new payment system, that was annoying but after that it was back to smooth sailing!

Blonde Lawyer

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Re: Anyone purchased investment property with Section 8 tenants
« Reply #8 on: August 16, 2015, 10:19:53 PM »
I never have, but I can tell you I've had section 8 neighbors and they are just awful. Generally, not always, but in most cases, these people are bottom of the barrel degenerates. I'm sure someone with a bleeding heart will come along and flame me, but unless I see them taking in section 8 neighbors all around them with their own money, their words mean nothing. I've found most of the  bleeding heart people only have bleeding hearts for them as long as they don't have to live next to them.

I've had to live next to them and they literally live like animals. Google the headaches these people cause.

I actually lived in upscale condos built smack dab in the middle of section 8 housing.  As in the section 8 housing was practically in the same complex.  I had no issue with any of the people that lived there. I walked my dog through their daily and became casually acquainted with some of my neighbors.  Some were disabled. 

I also rented to someone in the process of getting section 8.  That ended up being a nightmare.  She did not end up qualifying.  She did live like an animal and destroyed a lot of my property and eventually we had to throw her out.

That one bad experience absolutely does not color my view of all section 8 people since I simultaneously lived right near so many that took care of themselves and their home.  I wouldn't just a whole subset of people because you had some bad neighbors.

Also, I think the big appeal is Section 8 = guaranteed rent payment. That's a huge plus.

babysteps

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Re: Anyone purchased investment property with Section 8 tenants
« Reply #9 on: August 17, 2015, 11:38:15 AM »
We have purchased property with section 8 tenants in place, and have rented existing property to section 8 tenants.

A fair amount may depend on where you are and who manages section 8.

Not everyone on public housing assistance is in section 8, sometimes I wonder if some of the negative views on "section 8" are actually toward other programs.  At least in the areas I am familiar with (CT, upstate NY), if the section 8 client 'messes up' in any way, they are in danger of being dropped from the program.  And in CT there was a very long list to get approved, so section 8 clients tended to be pretty good.

The two biggest things to be aware of in our experience are annual inspections (in an older building, something that has been fine in their eyes for years may suddenly become a "fix or be sanctioned" issue - e.g. surprise, all carpet must be replaced now) and some tenants not being able to pay when their portion of the rent increases dramatically.  In most areas, if you do not wish to make the improvements that is an option *before* the tenant moves in; with a continuing tenant, you can still make that choice but depending on policy & timing you may be out the non-tenant paid portion of the rent until the tenant vacates.

Aside: if there are children in the unit, section 8 inspectors tend to be especially vigilant re: peeling paint (if the building is old enough to possibly have lead paint - inside *or* out).  This isn't a problem really, kids shouldn't be exposed to lead, but if you are buying a building you might want to have that in mind when you make your own inspection.

NoNonsenseLandlord

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Re: Anyone purchased investment property with Section 8 tenants
« Reply #10 on: August 22, 2015, 07:17:19 AM »
My second building was full of occupants.  I closed on the 4-plex property on a Friday, filed two evictions on Monday AM.  They were not Section 8, but were low income.  The other tenants were always late, and eventually one moved out.