There are many ways to turn a profit in real estate, and Section 8 housing is perhaps the most intriguing. Created by the Housing Act of 1937, this program is designed to financially assist low-income American citizens and those with eligible immigrant status. The government fully or partially helps qualified individuals to pay their rent and utilities.
This subsidized housing program solves two of the biggest concern most landlords have: lengthy vacancies. Turning a property into a Section 8 real estate investment can mean receiving a steady source of income. While this benefit is encouraging, this venture comes with many caveats.
Here are the common challenges Section 8 property investors contend with.
1. Bureaucratic Red Tape
Any investor with a tight timetable may fall behind schedule when dealing with the government. Qualifying a property for Section 8 housing can take forever because the U.S. Department of Housing and Urban Development is usually understaffed. The painfully slow service may postpone the flow of money into an investor’s pocket.
Although guaranteed rent payments are synonymous with Section 8 properties, the government may not pay on time due to accounting delays. It’s not uncommon for the initial rental to arrive several months after a tenant moves in.
2. Stringent Inspection
The government can be extremely strict when it comes to the condition of the property. The tiniest imperfection may not get past an inspector, which is why many properties don’t get approved after the first assessment. As a result, an investor may need to spend a lot of money and time to ready a property for occupancy.
3. Quick and Frequent Property Damage
A tenant may not feel invested in a Section 8 property because the government pays most, if not all, of the rent. An ungrateful individual may not only keep the dwelling in good shape but also damage it for no reason.
To be fair, the government requires every Section 8 beneficiary to maintain the rental property. However, an investor has little recourse when a tenant misbehaves. The vouchers that qualified tenants receive from the government don’t include a security deposit, which could cover the damage. In the end, the landlord will ultimately be responsible for the necessary repairs.
4. Strong Rent Control
The government imposes a ceiling on Section 8 property rental prices across the country. Although the maximum rate a Section 8 landlord can collect may be higher than that of charged to private-pay renters in the area, this limitation can affect an investment’s profitability. This is especially true in hot real estate markets. Many investors consider Section 8 rent control a deal-breaker.
5. Reduced Revenue
The government may subsidize the rent, but a tenant may not pay on time. Delinquency may force the hand of a landlord to pursue eviction, which can be a tedious process. No thanks to government bureaucracy, a landlord may have to jump through hoops to kick a problem tenant out and find a new one. Taking this route can negatively impact the cash flow significantly.
It takes a special kind of investor to put money on Section 8 housing. But considering the great competition to attract renters, this type of investment has endured and continues to become more viable in certain locations.