To Section 8 or Not Section 8, That is the Question

 
 

To Section 8 or Not Section 8, That is the Question

What is Section 8?

Section 8 housing is, as found in the Housing Authority of the County of Los Angeles states in their website:

“The Section 8 Programs offers tenant-based assistance.  Participants find their own housing to rent in the open market, and pay a portion of their income towards rent.  The Housing Authority subsidizes the balance of the monthly rent in direct payments to the owner.”

We have seen a family with a mother and three children live in a nice unit, in a nice area. The family contributes $150 and the government covers balance of the rent.  This allows families with low income to have suitable housing when otherwise, they may be homeless.  First, let me state that I am not opposed to Section 8.  It is a massive program (assists almost 5 million households) and huge in scope (over 17 billion in federal assistance).  In Southern California there are far more eligible section 8 families than there are properties for them to rent.

Owners ask us, given this huge need for Section 8 housing, should they allow Section 8? The local HUD housing department must inspect your home  in order to be considered for Section 8. During the inspection, the department will look for health and safety issues and require them to be corrected. Only then may a tenant occupy the property.  They will also set the maximum rent.  The applicant must provide income documentation to the department and will be told what percent of the rent they are contributing, based on a predetermined formula.

Pros of Section 8 for an Owner:

  • Tenants are guaranteed to receive the federal government’s portion of the rent wired directly to the owner.  Even if we are managing the property, this portion does not flow through us.
  • They will find a tenant easily. For each HUD approved unit, there are many eager Section 8 applicants.

Cons of Section 8:

  • The rent is usually not market rent. Since the government decides the “fair market” rent that will be allowed, it rarely reflects the true market.  Here are the allowable rents in Orange County from 2016: $1,324 for a 1 bedroom, $1,672 for a 2 bedroom, and $2,327 for a 3 bedroom.  Rents in Orange County vary depending on the area, but suffice it to say, in many parts of the county a 2 bedroom can rent from $1,600 to $2,400.
  • The tenant can call the local agency to check on issues with your unit. Typically, we will receive a call from a tenant if they have a problem with a rental. With Section 8, they often call the local agency. The agency does an inspection of the property and the owner is given a list of items to repair. If not done in a timely fashion, or to the expected standards, the owner may be fined. The tail sometimes wags the dog.
  • Once a tenant is moved in and their contribution to the rent is established, tenants have little incentive earn more. Any additional income will trigger more payment to the rent for them.  We find that many Section 8 tenants rent rooms or add tenants without our approval to increase their income.
  • In larger multi-unit buildings, where there is mix of Section 8 and standard rentals, some the tenants don’t like the fact that they are paying more for their unit than the Section 8 housing.

Section 8 can be a great alternative for an owner if…

it is the right property, in the right condition with the right tenant.