Public housing dates back to the Great Depression era when the U.S. government started building multiple unit facilities to house poor and needy families. By the 1960s, the federal government had amended the original public housing plan to allow low-income families to live outside of the public housing system in privately owned rental properties.
Under the Section 23 program, the government negotiated the rent between the landlord and the tenant. In the 1970s, the government dropped the Section 23 program and adopted the Section 8 Housing Choice Voucher program, giving both landlords and tenants more freedom.
What Is Section 8?
The Section 8 program helps low-income, elderly, and disabled tenants afford decent and safe housing outside of the public housing system. With traditional housing assistance, many of these renters had to live in public housing facilities often located in rougher neighbourhoods, with very few other housing options.
Using the Section 8 Housing Choice Voucher Program, tenants receive a housing voucher they can use for any privately owned apartment, townhouse, or house that has qualified for the Section 8 program.
To start working with the Section 8 program, landlords and tenants must receive approval from the local housing authority. Requirements to become a Section 8 housing landlord and qualifications for renters vary by area. Approved applicants are put on a waiting list, unless housing is immediately available.
Public housing agencies can give some preference to families that are homeless, living in substandard housing, involuntarily displaced, or paying more than half of their income on rent. Landlords, tenants, and the public housing agency then enter into a contract that outlines the roles and responsibilities for each of the parties involved.
How Section 8 Works
Each year, every state receives a block grant from the federal government to cover housing assistance costs. The states use a portion of this funding to cover the cost of the Section 8 program and to pay for a portion of the tenant’s rent and utility costs. Usually, the housing authority will pay around 70% of the tenant’s costs but in many cases can pay 100% of the tenant’s costs.
As an example, consider a Section 8 tenant who has a monthly rent of $700 and averages $150 a month in utility expenses. Based on the 70% calculation, the housing authority would pay $630 of the tenant’s living expenses each month, divided between the landlord and the utility company. The tenant will then pay the remaining 30%.
The Section 8 program can benefit both landlords and tenants.
Many investors have the misconception that Section 8 tenants are of lower quality than private renters and that they mistreat the properties. The reality is there are many benefits to an investor having a Section 8 tenant and this simply is not the case.
Firstly with a Housing Choice Voucher, tenants can rent houses and apartments in safe areas they would not have been able to afford without assistance, and use their remaining income to pay for other necessities. Section 8 tenants like any private tenant are looking for an affordable property in a good location.
Secondly, regardless of your property agent doing all the necessary due diligence on a private tenant there can still be the possibility that they become a bad tenant. If a private tenant is evicted from the property they will just move on to the next one.
If a Section 8 tenant becomes a bad tenant they can and almost certainly will lose their Section 8 voucher. If you are removed from the Section 8 program, the federal government will not help pay your rent and you will be responsible for paying the full amount of the rent and you will still be evicted from the property. Most common reasons for losing your Section 8 voucher are: … Not paying rent on time. Not keeping utilities like gas, electric, or water on in the unit or you have been convicted of certain violent crimes, certain types of fraud, drug trafficking.
Global Investments advice& Honest assessment
The simple fact is a Section 8 tenant has a lot more to lose than a private tenant if they abuse the property or generally become a bad tenant.
The majority of our investors have very little problems with Section 8 tenants, however it is fair to point one very important factor, cost, your property will need to be maintained to a “ Section 8 standard “
One of the main reasons Global Investments are the number 1 overseas agent for investment properties in the USA, and the reason why we are still in business after 7 years and over 4000 sales is our strict company model. Each and every property our clients reserve are all subject to a full independent inspection. Our inspection will highlight any major issues or repairs we feel needed to be up to rental ready standard regardless if there is a tenant already in place or not. However a rent ready standard and a Section 8 approved standard are two separate things.
If you wish for the property to be up to Section 8 standards then buyers may wish or decide to spend a small amount more on the property to comply with the City’s regulations and this is good advice. In the long run with any buy to let property the peace of mind that you should minimise any repairs bills means a more stable ROI and a more stress free hand off investment.
Purchasing renovated or updated properties may cost a few thousand dollars more but worth every penny in the long run. Do not be tempted by cheap alternative properties online that do not have warranty deeds and may need a huge amount of repair work. As the old saying goes and is very true, you get what you pay for.
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