One of the most stressful and important aspects of investing directly in real estate is selecting the right tenants. A good or bad tenant can make or break your investment. Selenid and I have dealt with both types (really only 1-2 bad ones that we inherited). In any regard, I often get asked about renting to section 8 tenants and whether we think it is a good idea.
Selenid and I have been renting to section 8 tenants. So I thought I’d share our experience!
What is section 8?
I recognize that what I am about to say represents privilege. However, prior to receiving a tenant application from a section 8 tenant, I did not know what it was.
In the most basic sense though, section 8 is a federal program through the Department of Housing and Urban Development (HUD) that subsidizes rent for low income individuals and families.
That’s about all you need to know in terms of what it is and what it does.
Our experience with section 8 tenants
Thus far, we have rented out two of our units to section 8 tenants. One tenant applied for section 8 assistance while they were already occupying their unit. The other applied as a section 8 tenant when we were first renting out the unit. This was in our third rental property which you can find more details about here.
Overall, our experience with section 8 tenants has been fantastic.
Actually, it’s been about the same as our experience with all of our tenants. It’s really not too different despite one major advantages and maybe one disadvantage compared to a non-section 8 tenant.
It is guaranteed rent. The rent is paid by the government. It gets deposited directly into our accounts on the 1st of the month every single month. You can’t beat that. Now, sometimes section 8 only covers a portion of the rent. In this case, you need to ensure the tenant pays the remainder on time out of pocket. But still, this is a nice feature.
Sort of disadvantage
In order to increase rent for a section 8 tenant who is renewing their lease, you need to give 60-90 day notice to the public housing agency facilitating the section 8 assistance. They then need to review the increase, determine if it is “reasonable,” and approve it before you can increase the rent.
Without section 8, you can obviously just do this as you see fit without any red-tape process. So to me, this is a minor disadvantage.
Similarities between section 8 and non-section 8 renting
Pretty much anything else once the lease is signed and the tenant moves in.
Does renting a unit out to section 8 require anything special?
Kind of. But it’s really not difficult.
For non-section 8 tenants, you obviously just have them sign the lease, pay the despot and first month rent and then move in.
For section 8 tenants, there is a bit more process before rent actually starts coming in.
First, you will have to fill out a portion of an application that the tenant will provide to you. This application includes things like the rent charged, who pays for electricity, who owns the appliance, etc. Also included is your direct deposit information. You will then also submit the lease.
Based on this information along with the tenant’s information on the application, the section 8 agency will determine how much assistance the tenant(s) will receive. This may or may not equal the entire rent asked for.
Lastly, an inspector who contracts with the section 8 agency will come and perform an inspection of the property to ensure it meets section 8 standards. If any repairs are required, you need to confirm they are done and the inspector will come back to check.
People often worry about these inspections but they are really to make sure you are not taking advantage of your tenants. Any respectable landlord will pass these inspections easily. For one of our properties we had to replace an outdoor railing but that was it.
After these procedures are completed, you will begin to receive rent.
Screening section 8 tenants
You may be wondering about this because section 8 tenants don’t usually meet the general criteria requiring a good credit score and 3x rental income. Further, they may have very little in their bank statements.
As an owner this can be a little scary even as you want to help these renters!
To screen these tenants, this is what Selenid and I do:
- Same procedure of meeting with them on a tour of the unit to ensure we feel a good fit and get a good “sense” from them. We trust our gut on these things.
- We ask them to bring confirmation of their section 8 qualification with them. This is a sheet of paper confirming that they are accepted for the program. It does not yet list the amount covered yet since they don’t have an apartment yet obviously.
- Using the information on this form, we call the section 8 agency to confirm that information and also inquire as to their process (it is generally always the same but we will to confirm).
- We will also call the tenants references, past landlords, and places of employment as able (we do this for all tenants regardless).
- Lastly, we ask if the tenant to at least put down some portion of the security deposit and first month’s rent. When we receive these funds from section 8, we return the paid deposits back to the tenants immediately. Some applicants can pay all of these deposits up front. However, if they can’t, leaving some deposit down will secure the property, indicate their seriousness, and minimize some of our risk.
What happens when section 8 tenants leave?
Nothing different. When their lease ends, if they are not renewing, you just receive a notice from the agency that funds will stop at the appropriate date.
And you move on with business as usual.
People worry about evictions with section 8. Specifically if they are more difficult. But HUD has a whole process that you follow if this is necessary.
The final word
For Selenid and me, renting to section 8 tenants has been great. Sure, there are some hoops to jump through.
But in the end, these situations are particularly fulfilling for us and fit our mission to help local individuals find safe, affordable, and nice housing.
Here are some additional resources about real estate investing as a physician!
- The Real Estate Flywheel Effect for Physicians
- I’m a Physician Landlord. How Do I Balance These Roles?
- Use the 3x Rent Rule to Protect Real Estate
- 3 Real Estate Lessons Learned from Our Latest Investment Property
What do you think? Have you rented to section 8 tenants? How has your experience been with section 8 tenants? Let me know in the comments below!