Photo: Kevin Murphy
In 2004, my first real estate client was an investor. This investor got his start in real estate by purchasing HUD homes and turning them into lease-options. As the options were executed, he wanted to use the available funds to invest in more properties.
A few months before, I read somewhere about a local investor who was very successful in a small niche. He rented solely to section 8 renters.
I did more research in my area of expertise and found this niche had huge potential and lots of low-hanging fruit.
There are many different types of residential renters: corporate road-warriors, college students, military families, assisted-living “seasoned” citizens, the list goes on and on. However, if your a real estate investor, here are three reasons why you should think about renting to good folks on government assistance:
1) Government Writes You A Check. In Arizona, the subsidy payments, made directly to the landlord, are usually the difference between a percentage of tenant income and the payment standard established for housing units by bedroom size. Visit your local housing authority website to find out their thoughts about fair markets rents.
In my area of expertise, to justify a rental price, the housing authority also has requested a list of comparable leased properties. Any real estate agent should be able to get this information. Even during recessions and mass layoffs we have never had an issue, with the government not paying on time.
Our 3 bedroom 2 bath section 8 properties rents are between $800 to $1,250 per month. You may be able to get more in your area from a non-section 8 renter. However, we enjoy the fact, that since we followed specific steps in purchasing properties, the government checks cover most of the mortgage notes.
2) If They Mess Up There Out. In my area of expertise, there was a 2 year waiting list to receive a section 8 voucher. Once they receive that voucher, 99% of them will do everything they can not cause waves.
I believe in the law of attraction. If you’re slum-lord real estate investor, you will eventually receive what you put out in the world. The onus is on you, the real estate investor, to have the type of properties that will attract the type of families you want.
Yes, there’s numerous inspection hoops you must pass, but that’s okay, you want well-kept safe properties anyway, correct?
3) Not All Them Are Equal. Many people hear the word “section 8 renter” and immediately images of horrible maintenance problems and trashed homes flash across their minds. However, that is not the case. My real estate investment partner and I have 4 properties currently rented to section 8 tenants. These folks are great!
In our area of expertise, we focus on renting to section 8 tenants. We know in this particular area, these majority of folks appreciate the opportunity to live in a nice home with a caring landlord.
The last property, we purchased from an real estate investor, was already occupied by a non-section 8 tenant. The family lived in it like it was a pig pen. But the lady-of-the-house called it clean. After a while, the tenant started to miss their below-market rent payments of $600, eventually they were evicted. Hurray!
After we secured the property. My investor partner, invested $15,000 to upgrade and renovate the condo. We created and enhanced equity, so guest who we put in this completely-remodeled 3 bedroom condo? A wonderful section 8 family who takes great care of the property at $800 per month.
Remember, a good tenant is a good tenant. Don’t let the horror stories turn you away from renting to qualified individuals. Do your due diligence and give someone with a section 8 voucher a chance.
Moving Forward,
Kendall Matthews