Section 8 Rent ??
Hello,
I've got a question. I'm ready to purchase my first deal, and I am going to start small. I'm thinking I'll purchase a 2/1 condo or something, and get a section 8 tenant.
I live in Colorado Springs, and the Market rent for a 2/1 condo is about 550.
Enter my question...
I was told by my realtor, who also invests, that he knew someone in the same complex as the unit I may purchase, that had a rental, who had a section 8 tenant, who charged 700 per month.
Is this realistic?
Can you charge a section 8 tenant more? I suppose realistically, you do have a little more exposure do to the lower quality tenants, so a premium rent probably makes sense.
Any thoughts on that? Or, any thoughts on my plan? I'l like some input from some experienced investors on my plan.
Cheers,
Nick
Hello Nick, What you heard is not correct. Section 8 pays according to local rates for their 1,2,3,and 4 br apt. Usually the rate for a two bedroom is somewhere around 550 to 650 depending on the area. You can obtain the exact numbers by phone your local housing authority. Look under your county government offices for the number.
Hello,
Thanks for your response, but that information is not acurate for my area. I was just at the Housing Authority for Colorado Springs yesterday. They have a cap on the ammount you can charge for a 2 or 3 bed whatever. But it is not a set ammount. So, my originaly question still stands.
Now, the cap on a 2 bedroom unit was above 700 dollars, so as far as their cap is concerned, there is not problem, but realistically, will that fly with the tenant?
Cheers,
Nick
Sure it will fly. I have a three bedroom that I rent to a Section 8 tenant. It rents for $750 and month, the tenant only pays $25. What different would it make to them if the rent was $900 and they only had to pay $25.
That's what I thought.
I'm am just a little nervous. This is my first deal. I own my own home, but I've never invested in a piece of property. I've done enough reading and learning I think, but it's time for the next step.
I got Pre Qualified for the financing on Monday, so I'm going to make a few more phone calls, then see what happens.
Anyway, thanks for your help.
Any other thoughts that a first time investor should know?
Cheers,
Nick
Nicolas
When I invest in rentals I always check the area's rental market, so that I can determine if it is a landlord or renters market.
I try to avoid areas where it's a renters market.
I would suggest the following web site as well: http://www.affordablehousingonline.com/housingauthority.asp?State=CO&offset=20
Section 8 can be a great opportunity for you. On time rent.
Just make sure you are ready to be a landlord.
[addsig]
John,
Well, the determination of weather this is a renter's or a landlord's market is an easy one. Most definately a renters market!
I live in Colorado Springs, and everybody I've talked to says the same thing, the market is flooded with rentals.
In light of this fact, is it wise to stay away from purchasing rentals at this point in time?
Will using Section 8 lessen the risk associated with trying to rent a property in a "renter's" market?
My thought initially was this. Start small with a 2/1 condo, and go with a section 8 tenant. I was going to make all my offers contingent on finding a renter, so that I don't get stuck making an extra mortgage payment.
Of all the times to get started, had to be in this market.
Anyway, any additional thoughts you have would be helpful.
Cheers,
Nick
Quote: Most definately a renters market! In light of this fact, is it wise to stay away from purchasing rentals at this point in time?
Will using Section 8 lessen the risk associated with trying to rent a property in a "renter's" market?
Nicolas,
Often a renter's market is the perfect time to be a buyer. The rental market is depressed, landlords may have to lower rents to compete for tenants, and rent increases are out of the question for now. The market may be ripe with motivated landlord/sellers.
A low rent expectation also lowers the expected value of the property. After all, for the landlord, the property has to cash flow -- low rent goes hand in hand with lower property value expectations.
While you may get that property at a great price, do you want to be a landlord in that same market? Maybe, maybe not. Your own tolerance for landlording, the strength of your financial reserves, and your expected cash flow all have to be right for you to be a successful landlord in any market.
If you decide to purchase rental property in your market, Section 8 is just one tenant pool for you. Usually, the local housing authority has more applicants for Section 8 assistance than there are properties participating in the program. Section 8 rent allowances are set by the results of a rental market survey, so you may find that the median rent surveyed becomes the Section 8 cap on rents for units similar to yours. You have to run the numbers to determine whether the allowable Section 8 rent is sufficient to make a property cash flow for you.
All of my properties are section 8 and I find them to be a strange animal. Let me say up front that I am a big fan and love the program for what I am doing.
A couple things to take note on it the program
1)find out the word on the street on who the section 8 inspectors are working your area you intend to buy in, they do move them around, but not monthly or anything.
The reason this is important is some of these guys if allowed to set rent (some offices let inspectors set rent, some don't and have in house negotiators)have reputations for either being high or low on rents, you want to know who you got.
Weird animal I said, check this one out...say you have a property at address XXX and you have two different housing authority offices, if you have a voucher applicant from office A you might get your $700, but if you have your voucher applicant come from office B to that same property, you might get $600, go figure same property and same program, but different office, different price. I couldn't believe this the first time this happened to me. Luckily, it was to my advantage, but you can see this could have been a bad thing.
So -
Find out what office is paying better, when you find this out, list your property with that office and wait for the phone to ring.
Find out what inpectors are problems
Know the rents
You will have to turn in three identical leases, go real high on the rent in the leases and they will widdle you down to a number they can stand, this is how you get the good rent. They will never tell you the rent you are asking is too low. Alway sgo high! And yes, in most cases the tenent could give a crap about what the rent is. I have tenents that don't pay anything, yep $0. Remember in most cases they (section need you more than you need them. They have people who have been waiting years to get a house.
The good news -
They pay me more than I should get.
I have a flood of calls for tenents, no advertising cost. The money always clears.
The bad news -
You not only deal with your local inspector, but also a section 8 inspector to please, he will be checking out the place every year coming up with some little BS. They hold up your rent 60-90 days in the begining (you are the guy talking about contigent on finding a tenent, well even if you find the tenent day one you better have a good deposit to work with) because you won't see any money except the deposit. But, when the money comes it's all there, you will recieve 2-3 rents bam!
Hope this helps!
gtrzndrums
section 8 has some huge advantages.
rent on time every time!
1 year lease!
you can call the housing authority and they will tell you in advance what your rent will be for the property.
run your ad now for a 2br,3br and 4br etc get a list of potential renters,get all of the information and when you find a place you like give them a call have them look at it and make a commitment to you for the rental. Then make your deal to purchase.
simply put-have it rented BEFORE you buy it.
Nick
A renters market is not a negative. It just simply creates a positive environment for you to purchase an investment property at a discount.
My last statement on market condition just directs or should I say limits the number of units I'm willing to purchase (unless it's a good deal of course).
In your market I would pick up a Sunday paper and call all the FOR RENT Ad's.
"I call each and every add, if they answer as a company I say I've called a wrong number, if they answer as a residents I advise them I saw their rental add and I'm not interested in renting directly but would you consider a lease option or selling for a discount for cash?"
I get a lot of units with this farming REI method.
Section 8 is a great opportunity in a renters market to get your investment producing a positive cash flow. I would contact your local section 8 department and see if they have a waiting list of potential tenants.
At the worse end of the spectrum you can lease op the subject property. This will produce a tenant in any market.
If you invest in Real Estate and due your due diligence on your investment you will make a good decision.
[addsig]
JohnMichael,
Great suggestion.
DaveT,
Just help another and that will be the best thank you of all.
Happy investing
[addsig]
I would like to express my disdain at some of the postings here involving the use of section 8's as a money making tool.
I live in an area with a high percentage of section 8's. When I purchased my home 16 years ago it was a 55,000.00 home. With the advent of the section 8 program, it soon dropped to 15,000.00, because section 8's are generally single parent mothers who don't have jobs and are on welfare they and their children have nothing to furnish the homes with and they end up stealing from others who do, no father figure so they join gangs and tagging crews and ruin the "look" of the neighborhood with graffiti, and huge pileups of garbage that the undiciplined youths won't take out because they have no father. In two or three months usually the are evicted for not paying the 25.00 they are supposed to pay of the 600.00 per month or so that we as taxpayers pay, so they get angry dmaging the home, and then you investors make te government pay to fix them back up at a great cost to taxpayers and start the cycle over again. Why don't you try living in one of these neighborhoods for a year or so, and tell me that the money investors make is worth the loss in property and property value to your neighbors.
Leo Ryan, San Antonio, Tx.
[addsig]
Hey Iryan,
I say if you can't beat em, join em.
lryan,
You had a lot more going on in the San Antonio market that affected the value of your property than the Section 8 program.
I fear that you may have bought your property at or near the top of a market cycle. By 1988, the Texas oil industry suffered serious setbacks, while at the same time the national economy was showing early signs of an imminent recession. The San Antonio unemployment figures were rising rapidly, as was the frequency of foreclosures.
The San Antonio real estate market took a 30% hit between 1988 and 1993. Bedroom communities such as Converse and Universal City fared a little better but still felt the effects.
I don't have any first hand experience with your neighborhood, but I would suspect gang infiltration turned your area into a war zone and caused a further decline in your property values.
Let me correct one statement you made. If a Section 8 tenant damages a rental property, the landlord pays for the repair if the tenant can't or won't. HUD and the Section 8 program do not reimburse landlords for repairs to their property -- even if the repairs are the result of tenant abuse.
Quote:
On 2003-07-29 10:51, lryan wrote:
I would like to express my disdain at some of the postings here involving the use of section 8's as a money making tool.
I live in an area with a high percentage of section 8's. When I purchased my home 16 years ago it was a 55,000.00 home. With the advent of the section 8 program, it soon dropped to 15,000.00, because section 8's are generally single parent mothers who don't have jobs and are on welfare they and their children have nothing to furnish the homes with and they end up stealing from others who do, no father figure so they join gangs and tagging crews and ruin the "look" of the neighborhood with graffiti, and huge pileups of garbage that the undiciplined youths won't take out because they have no father. In two or three months usually the are evicted for not paying the 25.00 they are supposed to pay of the 600.00 per month or so that we as taxpayers pay, so they get angry dmaging the home, and then you investors make te government pay to fix them back up at a great cost to taxpayers and start the cycle over again. Why don't you try living in one of these neighborhoods for a year or so, and tell me that the money investors make is worth the loss in property and property value to your neighbors.
Leo Ryan, San Antonio, Tx.
You hit the nail right on the head! I'm in that very situation, bought my property 9 years ago for 78k, today, I'd be lucky to sell it for 40k, I'm stuck with it, nothing I can do. I HAD to rent it to section 8, everyone else around me was on it, I tried selling, then getting renters, potential renters would come to the "hood" and leave without getting out of their car! The section 8 scum I have in there has caused extensive damages and probabaly will cause a lot more when they move out! They are terminated from the program and the section 8 office hung me out to dry!
In ATL Section 8 pays the highest rental rates around. There's nothing like high rent direct deposited into your account. But not all Section 8 is the same. Our 2 Bd Section 8 house pulls from $700-$900 while the 3 bd maxes at $1200 and the 4Bd maxes at $1400. But that's the good side. The lease is one year guarenteed and then month to month after that. I'll usually lower the deposit and let them make payments to sweeten the deal.
On the negative, you have to still watch the property closely. I expect that if there is any carpet in the house that it'll have to be replaced, and the walls will need paint too, but that largely depends on who you pick (which is entirely up to you).
Hope that helps
I'm getting ready to take the plunge into rental property as well (newbie) but one piece of advice I've come upon that makes sense is "The more families under one roof, the better you will fare." I'm looking at a four family right now that will only cost around $500 a month P.I.T.I. and should NET between $800 and $1000 a month. That's including maintenance! Not enough to replace my day job but a nice amount of passive income to start. Also Dolf DeRoos (Author of Real Estate Riches from Rich Dad's advisor series) gives the 100/10/3/1 rule which states for every 100 properties you look at, you MIGHT find 10 worth putting offers in on, of those 10 you might get 3 accepted and of those 3 you might buy 1. My experience so far is that this is a pretty accurate rule of thumb. Best of luck to you. Erich
This is in reply to the person who choose to stereotype every section 8 tenant.
I have an investment property in the same neighborhood that I live in. I think that I would rather have guaranteed money from a section 8 tenant, after evicting the so-called "educated" nurse who didn't pay her rent and kept the apartment nasty. Nasty people who don't pay rent come in all tax brackets and social backgrounds.
Your property value probably dropped because of your area, dear. The neighborhood where I live is predominantly renters who are low-income, but the property values have soared in the past decade. My property has gone from a value of 60K to 160K since '97.
Just like everything in life, you have the good and the bad. There are many people who qualifiy for section 8 who are married, who have an education, who are clean and take care of their homes. I personally have had two people who got decent jobs and were able to get their own homes or just pay their rent on their own.
If you're so concerned, try being a part of the solution rather than saying nasty things and stereotyping everyone involved with a program.