How it works
Created in 1974, Section 8 has undergone many changes and amendments. Today's version is a “housing choice voucher” program. It works like this:
Eligible families can find a rental unit of their choice after receiving a voucher that pays up to 70% of the monthly rent plus utility bills. The families are responsible for paying the remaining 30%. Section 8 typically includes housing assistance to disabled persons and elderly citizens, as well as low-income families.
Housing choice vouchers are administered locally by public housing agencies (PHAs). The PHAs receive federal funds from the U.S. Department of Housing and Urban Development (HUD) to administer the voucher program. In most communities, there's a waiting list to receive assistance once the applicant is qualified.
Applicants must meet certain eligibility criteria including:
- Total family income, which can be no higher than 50% of the median income in the county in which the applicant lives.
- The total number of family members that will reside in the unit.
- Recipient must be a U.S. citizen or an immigrant with documents proving legal immigration status.
The program mandates that up to 75% of the total number of housing vouchers must be given to families or individuals whose total family income is not higher than 30% of the median income in the area in which they choose to live.
If you're investing in city or rurual rental properties, you're likely to run into Section 8 tenants with housing vouchers. As a landlord, you can legally choose to participate — and accept Section 8 tenants — or not. I have a few Section 8 tenants in my rental properties, and like most things in life, there are pros and cons.
Advantages to landlords who accept Section 8 vouchers
On-time guaranteed monthly rental income — The biggest advantage of accepting Section 8 tenants is the regular check you receive each month from the government. The government typically pays between 50% and 65% of the tenant's rent. The amount depends on tenant income and anticipated utility costs for the specific property.
Once your lease agreement is in place and all the paperwork completed (many tenants have a packet), you are guaranteed an on-time check from the government for a substantial portion of the rent. That's because the PHA sends the portion of the rent they're paying directly to the landlord. The tenant sends a separate check for their portion and pays utilities directly to the provider.
Lower vacancies — Reducing vacancies is important to rental property investors. When a property sits vacant, there's no income to cover taxes, insurance, HOA fees and other monthly holding costs. Many Section 8 tenants tend to stay put for long periods of time and are happy to renew a one-year lease over and over again.
Larger pool of tenants to choose from — Opening your rentals to Section 8 tenants could greatly increase the number of tenants from which to select. A wider selection of prospective tenants means you can be pickier and find a really good fit for your property.
When I post a property for rent, I get tons of calls about it. Often the first question I'm asked is if I accept vouchers. If I respond, “No,” I would limit my pool of qualified tenants. While Section 8 tenants have low incomes, they don't necessarily have a lot of other issues beyond that. As long as you screen your tenants well, they are often no different from tenants without vouchers.
Favorable rental rates — There's always an acceptable range of market rental prices for similar properties. A two bedroom, two bath condo might rent for anywhere from $1,200 to $1,500 in my area. One of the benefits of Section 8 clients is that the monthly rent you can charge is at the higher end of the market rate range. The PHA knows that it's harder for Section 8 voucher holders to find housing since not all landlords accept vouchers. So they will accommodate the higher end of the range to allow assistance recipients to secure housing. That's not to say you can overcharge! If your rental rate is not competitive, you will likely have to lower it in order to be accepted by the Section 8 program.
Additional exposure for your rental property listing — Once you and your property have been approved, you can list your property on the PHA's website where voucher holders can see it. It's an additional advertising opportunity for your listing.
It can be rewarding — While I've personally never received housing assistance, I did live through my 20s building a career and surviving alone. I know what it's like to try to live on a low income and keep up with the bills. I've met some really great people who are receiving much needed housing assistance. It feels good to provide them with a safe and nice place to call home. And if they're open to it, I get a chance to offer some personal financial advice that will help them — basic stuff that should be taught in high school but isn't.
Disadvantages of housing voucher program participation
More involved process — Accepting Section 8 vouchers means there are some hoops to jump through as a landlord. The first time I did it was both daunting and a little frustrating. It was only after I'd fumbled through the process that I found out the county offers a free 45-minute informational seminar for landlords once a month!
To start, you have to fill out an application to be considered a Section 8 landlord. You will provide personal information and detailed information about your property. This is followed by the property inspection. And after you approve a tenant, there's more paperwork. Finally, before funds are approved for release to you, you'll need to send a copy of the lease to PHA.
Additional inspection — Your property needs to be inspected by the PHA. This is a separate Section 8 inspection that's in addition to other required inspections. For example, in Baltimore County, landlords are required to secure a rental property license, and there's a special inspection required before a rental license is approved. And if the property was built prior to 1978, it needs to be deemed lead safe or certified lead free.
The PHA inspection is pretty straightforward. Your rental property has to be up to code structurally. Everything needs to be in proper repair and working safely. There's no cost to the landlord for the Section 8 inspection. Tenants are responsible for making the property available for the inspection, which typically happens soon after they've moved in.
Tenant screening and selection is still very important — Although tenants need to be approved by the PHA to get a voucher, don't assume that they've been screened appropriately. Make sure that you carefully screen all Section 8 tenants just as you would screen any other tenant. You can and should perform any due diligence that doesn't violate the Fair Housing Act or state and local laws, including a background and credit check.
New tenant setup takes up to 60 days — There's a 60-day processing time with the PHA. This means you'll need to wait two months before receiving the government's first check. For example, I had a Section 8 family move into my three-bedroom townhouse on January 1. I received the tenant's rent portion on January 1 and February 1 as required. But I didn't receive the government's check until March 1. At that time I received three months' rent all at once (January, February and March).
Special eviction rules — Evicting tenants is something every real estate investor wants to avoid. It's costly, time consuming and expensive. Screen tenants carefully prior to placement to lessen the chance of having to do this. Fortunately, I haven't had to go through this process with any of my properties. Evicting Section 8 tenants, though, is a little more involved than a regular eviction. To evict a Section 8 tenant after he or she has been accepted, you need a judicial action. This holds true even in states that offer other methods of eviction.
The bottom line
Section 8 is a much needed assistance program allowing low-income families to live in safer communities and retain enough monthly income to adequately provide for their families.
As a landlord who accepts Section 8 in two of my rentals, I've gotten to know some great people through the program. Sadly, I've also met a few voucher holders whom I am not comfortable being around. My rental properties are more than just a financial investment. I've personally invested time, energy and money into taking an unloved property and turning it into a home. I want to be able to trust my tenant to respect and take care of my property. And I want to rent to honest people with whom I can develop a successful long-term relationship. Proper screening is a crucial component of successful rental property management whether you allow tenants with housing vouchers or not.
For landlords willing to deal with extra paperwork and do a little extra at the behest of the government, it's possible to find stable tenants — and be assured of receiving a regular rent check each month.