Consider This Before Accepting Section 8 Tenants

The average rent for a three-bedroom house was between $800 and $850 per month. With a modest renovation costing around $20,000, my total investment rarely exceeded $40,000. This resulted in an average cap rate of 12% to 15% and approximately $500 in net income each month.

Even better, Section 8 guaranteed and paid nearly 100% of the rent each month, eliminating the need to chase tenants for payments. Additionally, tenants typically stayed longer—on average, five years—resulting in less turnover.

For those unfamiliar with Section 8, it refers to the Housing Choice Voucher Program, a federal assistance initiative in the United States designed to help low-income families in the private market. Tenants receive vouchers that cover a portion of their rent, with the amount based on the tenant’s income. Landlords must maintain properties according to HUD standards, handle the required documentation and inspections, renew leases annually, and adjust rents according to local guidelines.

Since then, property values have increased exponentially. What I initially bought for $20,000 is now worth $175,000 or more. With these increased values come higher property taxes and insurance premiums, causing my monthly net income to decrease over the years. Each year, I requested modest rent increases, but less than 25% were approved, often for less than what I requested.

So, what made me reconsider accepting Section 8 tenants?

• Section 8 has not kept pace with inflation and rent increases. Although only 25% of requested rent increases were accepted, many properties are still rented below market value.
• Rental rate increase requests must be submitted 60 days prior to the lease end date; requests made less than 60 days in advance are not considered.
• Although we receive yearly inspections to recertify the property, any repair costs incurred are our responsibility, even if tenant-caused. Most tenants cannot cover additional costs, so we deduct these from their security deposit upon vacating. If damages exceed the deposit, reimbursement from tenants is unlikely.
• Some tenants are responsible for a portion of their rent. When Section 8 readjusts their rent portion, tenants often are unprepared to pay a larger share, resulting in arrears.
• Many Section 8 tenants do not maintain the property. Minor maintenance issues go unreported, leading to larger, costlier repairs later.
• Yard maintenance is often neglected, resulting in code violations for overgrown grass. Litter, junk, and personal belongings are frequently visible from the street.
• Section 8 tenants typically stay for about five years. When they vacate, turnover involves more than just cleaning and painting. It includes repairing damages to doors, windows, drywall, refinishing floors and countertops, and replacing appliances and fixtures. These repairs can often exceed $10,000, reinvesting any net profit gained over the lease term back into the property.

We do have many Section 8 tenants who maintain their properties well and return them in good condition, and we still have some tenants from 2013. However, recent vacating Section 8 tenants have not met our standards, and we would not welcome them back to any of our properties. It’s essential to weigh the advantages and disadvantages of accepting Section 8 tenants and decide if it is worth the risk.

Would I continue to rent to Section 8 tenants? Yes, but I would enforce stricter screening criteria. I would require a minimum FICO score of 600 and references from previous landlords. Additionally, I would continue to automatically disqualify applicants with evictions, foreclosures, or criminal records on their credit reports. Your decision should consider both the details in their credit report and your personal judgment of the prospective tenant.