I am often asked about Section 8 and whether a landlord should consider renting to someone with a Section 8 certificate. They want to know if they should accept these tenants, what kind of rent they might get, and what are some of the pros and cons of this program. Quite often they initially start out with a negative view of Section 8, so I thought I would give some pros and cons and allow you to make better decision about this program.
What is Section 8
The PA Section 8 program, also known as the Housing Choice Voucher Program, provides rental assistance to low income families in the private rental sector. Funded by HUD (The United State Department of Housing and Urban Development) the Section 8 housing goals are to provide improved conditions for families while assisting them in obtaining low income housing, maintaining rental payments, and promoting a greater freedom of choice in housing conditions. This Federal program provides incentives to the owners of apartment complexes and private homes to ensure the continued availability of government subsidized homes. Locally, the Pennsylvania public housing authority (PHA) is responsible for qualifying applicants and disbursing the vouchers to eligible families.
Low income house rentals are listed by the PHA in each of the 67 counties in Pennsylvania, though each complex and home is privately managed. So, each county, Montgomery County, Chester County, even Philadelphia County manage their own Section 8 programs. Even within some counties there are individual towns that have Section 8 offices. For example, Chester, PA has its own Section 8 office.
Philadelphia County is a busy office and very difficult to work with. To be frank it is a struggle for Del Val and others to work with them. They are trying to improve their systems but are very bureaucratic. It is very difficult to reach them on the phone to get simple questions answered. The counties outside of Philadelphia are much easier to communicate with.
But it is a partnership between three people: the owner/landlord, the tenant and the Section 8 office. Traditionally there is a lease between a tenant and an owner/landlord. That is the contract that lays out how the lease is going to work. But with a Section 8 tenant there is a second contract, which is a payment contract that describes the payment amounts and when they will be made. That contract is signed by the Section 8 office, by the tenant and by the owner/landlord. So, this is an additional contract and in an exchange for them offering to pay the rent, the owner/landlord must agree to comply with their rules and regulations. One of those rules is that the owner/landlord will maintain the house in good shape and Section 8 inspections will occur on a regular basis to make sure that you're doing just that.
What are some of the Pros of Section 8
One of the pros obviously is its federally funded guaranteed rent from HUD, so there is no credit risk involved. Traditionally, Section 8 will pay probably 90-100% of the rent. The tenant may pay a small portion from time to time but 90-100% of the rent typically is going to get paid by the Section 8 office. You will get a one year contract, sometimes a two year contract. The county of Philadelphia offers a two year contract. So obviously once you put that tenant in there for the next two years you know your property will be rented and you'll be getting your rent.
Now, the question comes up about rent; Is my rent going to be higher or lower than it would be otherwise? In some cases, it's going to be a little bit higher but I typically tell owners that it will be within 10% + or - than other rents. Again, it depends on the county, it depends on the city and the area so everything's a little bit different in each case. Typically, five to 10 years ago the Section 8 rent would be probably 15% below a non-Section 8 person. But I think that gap has come down recently to no more than 10% that you will receive. In some cases, you might actually get more for Section 8 than you would get for a non-Section 8.
What are some of the Cons of Section 8
One of the negatives is they will perform regular inspections. So initially before the tenant moves in they do an inspection and you must comply with what they're asking you to do. They're not going to ask for you to do anything out of the ordinary. So you're going to have to make sure that your outlets work, your smoke detectors work, you have fire extinguishers, stairwell banisters are tight and secure and outside that your walkways and things are all safe and secure with no tripping hazards.
Another of the cons is the fact that the tenant may call Section 8 from time to time and say something's not working. And if Section 8 comes out and determines that is correct, it's not working, then they could stop paying your rent for a period of time. That is called an “abatement of the rent”, meaning for that period you won't get any rent.
Why should you consider Section 8 tenants?
In some areas, Section 8 may be your only choice. There are certain areas where Section 8 is very prevalent and because of that there's not a lot of options and you may have to go with Section 8. There are certain areas of Philadelphia, Norristown, Pottstown, and Reading that have high concentrations of Section 8. So, it may be your only option in those areas.
Tenants tend to stay longer. If a tenant has a Section 8 certificate and they like your house, you’re keeping it up and repairs are being made, for the most part they're not going to want to leave. For one reason, because there's not a lot of other Section 8 housing out there. Also, it is very difficult to move and there's a lot of paperwork involved and a lot of risk on their part. If they notify you they're going to move out and they can't find another house within a 60 or 90-day period, they are potentially going to lose their Section 8 certificate. Second, moving from one county to another county is very difficult. So, if they want to move from Philadelphia to Montgomery County there's a lot of paperwork involved, and the red tape is not easy. So, for the most part Section 8 tenants do stay a long time.
Section 8 requires you to keep your house in good shape, they inspect it and that's a good thing ultimately for you as the owner of the property. You want to keep your property in good shape.
There is also lots of demand for Section 8 tenants. When we put “Section 8 Welcome” in our ads they get a lot of attention and so that's obviously a great reason to use Section 8.
If you are a real estate investor or property owner and want to learn more about how we can help you buy investment properties and our property management program please go to our website at http://www.delvalproperty.com/.
Mike Lautensack is the owner of Del Val Realty & Property Management ("Del Val"). Del Val is a FULL SERVICE Philadelphia Property Management company with over 15 years' experience and manage over 3,00 single family homes, HOA units and multifamily properties in and around Philadelphia, PA. We advise property owners how to build wealth and financial security through hassle-free ownership of rental real estate with our NO "Hassle" FULL Service Management Program. This proven management system allows owners to enjoy the financial benefits of cash flow, tax savings, and wealth creation. All this while it GUARANTEES you will never have to deal with maintenance or tenant issues.