How to Decide if Section 8 Rentals Are Right for Your Rental Real Estate Strategy
A look at the drawbacks and benefits of owning Section 8 rental homes as part of your rental property portfolio.
Are you wondering whether Section 8 rentals are a smart addition to your rental real estate strategy? Experienced landlords will tell you that there are both advantages and disadvantages to owning Section 8 rental properties in North Carolina and other markets. Let’s take a look at some of these drawbacks and benefits to help you decide if Section 8 rentals are right for you.
What is Section 8?
If you are new to real estate investing, you may also be new to the concept of Section 8 rentals and the tenants who live in these rental homes. Simply put, Section 8 tenants are low-income renters who qualify for the government’s Housing Choice Voucher Program. When individuals qualify for this program, the government will pay the balance of a rent payment that exceeds 30% of a renter’s monthly income. The tenant is responsible for covering the amount left over after the voucher.
Advantages of Section 8 Rentals for Landlords
Let’s start by looking at the benefits of renting to Section 8 tenants. The most obvious advantage for landlords is guaranteed rent payment each month through the voucher program. Also, the tenants have more incentive to take care of the property and pay on time because if they face eviction, they could lose their spot in the program. The byproduct of this is that most Section 8 tenants become long-term tenants.
Another advantage of owning Section 8 rental homes in North Carolina is that your properties are subject to annual inspections. Section 8 inspectors will inspect your rental home using a Section 8 HUD Inspection Checklist and provide a list of repairs you must pass to maintain the voucher payment. Landlords who do not follow a regular, annual maintenance schedule may find this useful as taking care of smaller issues discovered by Section 8 inspectors could head off major repair problems down the road. On the other hand, some landlords may regard these inspections as an inconvenience that they don’t want to deal with.
Disadvantages of Section 8 Rentals for Landlords
One drawback of Section 8 is the approval process. Navigating the red tape of this government program can be time-consuming and tricky as landlords must fill out paperwork and undergo an inspection. Depending on how stringent the Section 8 inspector is, landlords could face costly repairs to have a home approved for Section 8. Finally, while you wait to for approval, your home is sitting vacant and not earning rental income.
Many North Carolina rental property owners with Section 8 rentals will tell you that their monthly rent is less than other rental homes in the area. The reason for this is because the Housing Authority restricts how much you can charge for rent. While the Housing Authority claims to set prices that are comparable to the local rental market, the monthly rent is often less than other rentals in the area.
Another disadvantage of Section 8 housing for landlords is the annual inspection and cost of repairs to pass a re-inspection. Often, it is not the inspection itself, but the inconsistency of the inspectors that become a problem. Landlords may face a long list of repairs from one inspector while another inspector will only require minor repairs. Items which were not pointed out one year may because of a failing inspection the next year. This inconsistency can be frustrating to landlords.
Now that you understand some of the drawbacks and benefits of owning Section 8 rental homes, you can make a more informed decision about whether or not you wish to join the program and rent to Section 8 tenants in North Carolina. If you have further questions or any other questions about buying rental properties or property management for your existing rental homes in Raleigh, Chapel Hill or Durham, do not hesitate to contact us.