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Is Section 8 Rental Right for You?

If you’ve been following Jason Hartman’s advice on securing a retirement income with fixed-income rental property, you know that finding good tenants and keeping the property rented are key strategies for maximizing that income. One way to virtually assure constant occupancy and stable rental income is to make your property available for Section 8 rental.

Section 8 is a US Housing and Urban Development (HUD) program which provides a monthly rent subsidy to eligible low-income renters. Based on income, Section 8 renters receive monthly government vouchers that cover up to 70% of the total rent due. Participants in the Section 8 program must undergo an annual review of income in order to stay eligible for the program.

For owners of income rental property this means that most of the rent collected every month is backed by the government. Other benefits include a large, virtually untapped tenant market, and the fact that Section 8 typically requires a one-year lease to accommodate the annual income review. Section 8 housing rentals typically stay rented, with comparatively few gaps in rental income.

However, choosing to accept Section 8 housing vouchers means that you’ll need to make some adjustments to accommodate guidelines established by HUD, and in exchange for government rent subsidies and a large tenant pool, you’ll probably have to sacrifice some of your freedom to manage the property as you want. The local Section 8 housing authority will play a role in your decisions about rent, upkeep and tenant management.

Because lease agreements under Section 8 rules are set for one year, you’ll lose the flexibility of changing the lease term. You can only accept one month of rent as a security deposit instead of the “first and last” typical of most rental arrangements. And, since the housing authority will be providing vouchers for the majority of a tenant’s monthly rent, it can also exercise the power to establish the fair rent for the property based on the current market.

More than that, though, in order to accept Section 8 renters, your property must meet the standards of HUD’s health and safety codes. These may not be the same as your local municipal housing codes, so in order to accept Section 8 eligible tenants, you’ll be expected to address deficiencies noted by the housing inspector and make needed changes to the property, which creates inconvenience and expense.

If you decide that Section 8 rental is for you, the first step is to notify local HUD housing authorities that your property rents to tenants with Section 8 vouchers. They can then place your property on a free housing list distributed to potential tenants and arrange for an inspection. At any time, you can “de-list” your property as Section 8 housing and stop accepting eligible tenants.

Is Section 8 right for you and your plans for your rental income property? The answer may vary depending on time and circumstances. Making the property you purchase into Section 8 eligible housing can mean stable, government backed rental income — but that stability comes with a price: your freedom as an owner/landlord to set your own policies on rents, leases and property maintenance. Careful research into the HUD policies for your area can help make Section 8 work for you. (Top image: Flickr | ell brown)

The Heroic Investing Team

 

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