Author Topic: Section 8 tenants in a duplex I might buy  (Read 6679 times)

Will

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Section 8 tenants in a duplex I might buy
« on: May 08, 2013, 08:52:36 PM »
I found a property which seems to be in a reasonably nice area and is reasonably priced.  I am pre-approved for a mortgage that would require me to live in the property.  There are currently tenants in both halves of the duplex who are paying with Section 8 funds.  I am not currently aware of the lease arrangement they are currently under, but my Realtor friend is checking into it.  Obviously it would be awesome to keep a current tenant for whom the state pays the rent.  I am wondering what I should know about Section 8 rules and regulations and so on as far as how it could affect my purchase and thereafter.  When I check to see how the rent compares on rentometer, it says it is reasonable for the area, but in the lower part of the reasonable range.  I'd like to think I could raise it once the current lease is up (but still keep it reasonable).  Sorry if this is covered somewhere else already; a cursory search didn't turn up anything.  Thanks in advance for any helpful advice!

arebelspy

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Re: Section 8 tenants in a duplex I might buy
« Reply #1 on: May 08, 2013, 09:59:12 PM »
Definitely get info on the tenants - if you wouldnt rent to them, you probably don't want to buy a building with them in it unless the lease is close to up or it's a screaming deal.

Section 8 has to approve the rent, so even if you want to raise it, if they decide it's too high, they'll reject that and tell you what the rent will be. 

Some areas the section 8 office is terrible to deal with, in others it's not so bad. Check into your area.

I enjoy section 8 tenants, but I am pretty picky about what tenants I accept, so many don't make it past my filter.  YMMV.

If you have more specific questions I'd be glad to help.
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Will

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Re: Section 8 tenants in a duplex I might buy
« Reply #2 on: May 08, 2013, 10:18:25 PM »
Section 8 has to approve the rent, so even if you want to raise it, if they decide it's too high, they'll reject that and tell you what the rent will be. 

That must be why the current rent is such an oddball amount.

jenstill

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Re: Section 8 tenants in a duplex I might buy
« Reply #3 on: May 09, 2013, 04:30:37 AM »
Generally* the housing authority that issued the Section 8 vouchers will have a "payment standard" by bedroom size. This payment standard is the maximum they will allow the rent to be based on the size of the apartment and it is based on the Fair Market Rents for your area. Fair Market Rents are set annually by the Dept. of Housing and Urban Development at the federal level, but based on the statistical information for each city/county/metro area. I don't know your exact area, but here's a link to the FMRs for Washington: http://www.huduser.org/portal/datasets/fmr/fmrs/FY2013_code/2013state_summary.odn?inputname=STTLT*5399999999%2BWashington&selection_type=county&stname=Washington&statefp=53.0&year=2013&data=2013&incpath=C%3A\HUDUSER\wwwMain\datasets\fmr\fmrs\FY2013_Code&fmrtype=Final&path=C%3A\huduser\wwwdata\database

If the tenants aren't at the FMR and you want to raise the rent, you should be able to but you'll have to do it at the end of their Section 8 voucher lease period, which isn't always the same as their lease period with the landlord.

Before the sequestration, housing authorities could exceed the FMRs by a small percentage when "reasonable". I don't know how the sequestration has affected housing authorities in your area, but in mine, they are no longer exceeding FMR in any circumstances and are balking at paying the FMR at all.

Also, the housing authority should do annual inspections of the apartment which should help you with lease enforcement because they should be enforcing safe, sanitary housekeeping, unblocked/safe egress, and so on. Many landlords do not like the Section 8 inspections though because the housing authority is also checking the condition of the fixtures, appliances, flooring, etc. and often has a higher standard than the owner. They will require you to fix items to their standards or cease paying the subsidy, usually within a fairly short time frame (30-60 days). Since the tenants are already in place and you're considering living in one half yourself, the duplex is probably in good shape, so this may not be an issue for you, but I thought I'd mention it.

*I say "generally" because this is the way it's supposed to work. I have heard from owners/managers in many places where the housing authorities ignore the rules and do exactly what they want to do.

Another Reader

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Re: Section 8 tenants in a duplex I might buy
« Reply #4 on: May 09, 2013, 05:44:52 AM »
I would be concerned about living in a neighborhood dominated by rentals with Section 8 tenants.  These neighborhoods tend to have inferior schools and a lot of social problems.  Section 8 works well when you have one or two single family houses in middle of the road neighborhoods.  Buying in a neighborhood with a lot of low quality Section 8 rentals may not be a great investment and you may not be happy living there.

Section 8 is a voluntary program.  As a landlord, I do not accept Section 8 vouchers.  In the neighborhoods in which I invest, I have a steady stream of unsubsidized folks looking for rentals.  The hassles of working with Section 8 are just not worth the trouble. 

Will

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Re: Section 8 tenants in a duplex I might buy
« Reply #5 on: May 09, 2013, 08:12:01 PM »
Thanks to all for the responses.  The duplex is in a good neighborhood not overrun with duplexes and has some really nice houses.  But it is all moot now:  the other Realtor is saying that all of the current tenants are in a HUD program that would require a new 12 month lease with the new owner.  So I'm out.

hoodedfalcon

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Re: Section 8 tenants in a duplex I might buy
« Reply #6 on: May 09, 2013, 08:29:10 PM »
I would be concerned about living in a neighborhood dominated by rentals with Section 8 tenants.  These neighborhoods tend to have inferior schools and a lot of social problems.  Section 8 works well when you have one or two single family houses in middle of the road neighborhoods.  Buying in a neighborhood with a lot of low quality Section 8 rentals may not be a great investment and you may not be happy living there.

Just FYI- Vouchers were designed to reduce concentration of low income housing. This portability is the key feature. A tenant receives a voucher and then finds an apartment and landlord willing to take it. This is to avoid the very thing you are describing. Also, I don't think Section 8 voucher rentals are necessarily low quality (see the above post about HUD housing quality standards being higher). Public housing sometimes is a different story.

arebelspy

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Re: Section 8 tenants in a duplex I might buy
« Reply #7 on: May 10, 2013, 06:52:41 AM »
I would be concerned about living in a neighborhood dominated by rentals with Section 8 tenants.  These neighborhoods tend to have inferior schools and a lot of social problems.  Section 8 works well when you have one or two single family houses in middle of the road neighborhoods.  Buying in a neighborhood with a lot of low quality Section 8 rentals may not be a great investment and you may not be happy living there.

Just FYI- Vouchers were designed to reduce concentration of low income housing. This portability is the key feature. A tenant receives a voucher and then finds an apartment and landlord willing to take it. This is to avoid the very thing you are describing. Also, I don't think Section 8 voucher rentals are necessarily low quality (see the above post about HUD housing quality standards being higher). Public housing sometimes is a different story.

Absolutely.  I agree with AR about neighborhoods being dominated by Section 8 potentially being troublesome, but I don't see that happening here in Vegas due to the voucher amounts ranging from 1000-1300 typically, so they're all renting decent houses scattered in decent neighborhoods. 

The lower end areas of town don't have any section 8 tenants, because those rents are only 500ish, and they can afford nicer (plus those often wouldn't meet section 8 inspection standards anyways).
We are two former teachers who accumulated a bunch of real estate, retired at 29, spent some time traveling the world full time and are now settled with three kids.
If you want to know more about us, or how we did that, or see lots of pictures, this Business Insider profile tells our story pretty well.
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jenstill

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Re: Section 8 tenants in a duplex I might buy
« Reply #8 on: May 10, 2013, 07:21:28 AM »
I'm sorry it didn't work out for you, Will. Hopefully the next opportunity will be even better!

And just a note for landlords. I'm sure you know it if it applies to you, but there are a few states in which it is illegal to refuse to accept Section 8 vouchers, or prefer those without one, or anything of the sort. They are mostly northern and New England states. But, just check and don't get yourself into big $$ trouble over this.