Section 8 housing – and how it can provide a stable source of income for your investment properties

The upside to Section 8 rentals...

Compiled by Aazim Sharp of Steeplegate Homes

If you have properties that are in need of steady, healthy ongoing renters, you may want to look no further than the Section 8 system in your state. I have included some history of the system and some serious benefits that should be taken into consideration.

The Housing Choice Voucher Program is a type of Federal assistance provided by the United States Department of Housing and Urban Development (HUD) dedicated to sponsoring subsidized housing for low-income families and individuals. It is more commonly known as Section 8, in reference to the portion of the U.S. Housing Act of 1937 under which the original subsidy program was authorized.

By the way, the name “Section 8” refers to Title 42, Chapter 8 of the United States Federal Code.

Summary of the program

Currently, the main Section 8 program involves the Voucher Program. A voucher may be either "project-based" (where its use is limited to a specific apartment complex) or "tenant-based" (where the tenant is free to choose a unit in the private sector, is not limited to specific complexes, and may reside anywhere in the United States or Puerto Rico.

Under the voucher program, individuals or families with a voucher find and lease a unit (either within a specified complex or in the private sector) and pay a portion of the rent (based on income, but generally no more than 30% of the family's income).

There is an asset test in addition to earned income. Over a certain amount, HUD will add income even if the Section 8 tenant doesn't receive any interest income from, for example, a bank account HUD calls this "imputed income from assets" and in the case of a bank account, HUD establishes a standard "Passbook Savings Rate" to calculate the imputed income from the asset. This makes the tenant's contribution higher since his gross income is made higher.

The Public Housing Agency pays the landlord the remainder of the rent over the tenant's portion, subject to a cap referred to as "Fair Market Rent" (FMR) which is determined by HUD. FMR is determined by several factors, including:
* the geographic area (city or county) where the unit is located (generally, a unit in a metropolitan area will have a higher FMR)
* the unit size (in terms of the number of bedrooms; generally, the more bedrooms the higher the FMR, while a studio apartment would be at the low end)
* whether the owner or tenant will pay utilities (generally, FMR is higher for units where the owner pays utilities)

The landlord cannot charge a Section 8 tenant more than FMR and cannot accept payments outside the contract which would cause the total rent to exceed FMR.
In addition, landlords, though required to meet fair housing laws, are not required to participate in the Section 8 program.

However, many landlords willingly accept Section 8 tenants, due to:

• a large available pool of potential renters - the waiting list for new Section 8 tenants is usually very long


• generally prompt regular payments from the PHA for its share of the rent


• a perceived higher quality of tenants, since a tenant can be permanently removed from the Section 8 program if s/he damages the rental unit and/or fails to pay his/her share of the rent

Whether voucher or project-based, all subsidized units must meet HQS, thus ensuring that the family has a healthy and safe place to live. This improvement in the housing stock is an important by-product of this program, both for the individual families and for the larger goal of community development.

In many localities, the PHA waiting lists for Section 8 vouchers may be thousands of families long, waits of three to five years to access vouchers is common, and many lists are closed to new applicants. Families who participate in the program must abide by a series of rules and regulations, often referred to as "family obligations," in order to maintain their voucher, including accurately reporting to the PHA all changes in household income and/or family composition so the amount of their subsidy (and the applicable rental unit size limitation) can be updated accordingly. In recent years, the HUD Office of the Inspector General has spent more time and money on fraud detection and prevention.

In this unsteady economic climate the housing market is facing today, real estate investors need to look at some fresher, unorthodox approaches. The fact is that many traditionally "good" renters are scarce yet there are more than enough Section 8 applicants who earn a voucher for $1,600 even $2,000. That money, paid by the government is steady and is paid every 1st of the month... that is a renter worth holding out for.

Aazim Sharp is a real estate professional who resides in New Jersey and is the proprietor of Steeplegate Homes.