By: Dennis Norman
You may already be renting your homes to one or more of the 1.95 million families that receive rental assistance under HUD’s Housing Choice Voucher program, however if not you may want to consider doing so.
What is the Housing Choice Voucher program? This is a program that was established in 1974 and known as “Section 8″ to assist lower income famlies, the elderly and the disabled to afford decent, safe and sanitary housing in the private market. Subsequently there have been several changes to the program including in 1998 when Congress combined the then two existing Section 8 rental programs into the “Housing Choice Voucher Program” as is in use today. For this article I’m just going to focus on the low-income family aspect of the program but will discuss the other applications of the program in future articles.
The way the program operates is HUD issues vouchers to about 2,400 public housing agencies (PHA’s) throughout the country. The public housing agencies (PHA’s) then issue the vouchers to persons meeting the income requirements. Unfortunately the demand for vouchers greatly exceeds the number of vouchers leaving about 3/4 of the eligible people without vouchers. Once a tenant has a voucher he or she can then elect to stay in their current housing or seek different housing. Therefore the voucher is “tenant specific” and not “property specific” giving the tenant the ability to choose to rent whatever house or apartment they wish to provided the rental unit meets HUD’s standards for the Housing Choice Voucher program.
The way the voucher works is HUD sets fair market rents annually (link contains 2009 rents which were just released) for each metropolitan area. For the most part this rent amount is based upon what the average rent is for moderately priced rentals in that area. The local PHA then has the discretion to set the actual rent amount at 90% to 110% of the HUD fair market rent. .
The PHA then determines what the tenants share of the rent will be which is normally equal to 30% of the tenants adjusted income less the cost of utilities. The PHA will then pay the difference between the rent they have established for that size unit and what the tenant pays.
Some of the benefits of renting property to Housing Choice Voucher tenants are:
*A portion (usually more than 1/2) of the rent is paid to you directly by the PHA thereby essentially guaranteeing that part of the rent
*Tenants have worked with a counselor through the PHA and have had their income and expenses reviewed. The amount determined that has been determined the tenant can pay as their share of the rent is manageable for the tenant unlike many market rate tenants that have to commit a larger portion of their income to rent.
*Tenants under this program are highly motivated to comply with their responsibilities (including payment of their share of rent and upkeep of home) as their failure to do so can result in them losing their voucher. As I mentioned above the demand for vouchers exceeds the avilability of them by 4 to 1 so the people that are lucky enough to have received a voucher are usually very careful not to lose it.
The other benefit to a landlord is knowing that they are helping people by providing quality housing to families that need help. One of the keys is selecting the right property in terms of area, price range and amenities. Like any other rental the quality of the location and the home or apartment will largely dictate the quality of the tenant you get. Since the housing choice tenant pays the same amount for rent no matter where they choose to live they are of course going to want to get the best they can get for their money. Some things to keep in mind when locating property to buy to rent section 8 are:
*Price range. First, use the chart I linked to above to determine what the rent is going to be for homes in the area you are in. Then, based upon the rents do the math and determine how much you can be in a house for and have the return be adquate to make sense. I would then try to buy homes that, after including the cost of any improvements you will need to make, will leave you in the house at the maximum price you have computed will work. I would not skimp and try to buy cheaper property as you want to have the best property possible to get the best tenants.
*Home size. I would suggest for the most part sticking with 3 bedroom homes as there is the most demand for that home size. I would also suggest homes over apartments as most tenants would prefer a house over an apartment. Plus, when it comes time for you to sell the home later you are not trapped into just selling it to investors, you have the option to sell a home to someone that wants to live in it.
*As with all rentals, maintenance will kill your cash flow so I would focus on trying to buy homes or apartments that will be lower maintenance, this includes:
>Younger homes instead of older homes when possible
>Homes with modern, up to date mechanical systems
>Vinyl siding or other exterior siding that will be relatively maintenance free
>Vinyl or Aluminum insulated windows.
>Hardwood or tile floors (you may not be able to avoid having some carpet but I would avoid it as much as possible…carpet is a high maintenance item even with good tenants)
>Normal size yard (too large of yard may make it difficult for tenant to take care of)
>Location. As I stated before, the tenants can choose where they want to live so make sure your location is desireable. Remember, the tenants will have children so the more “kid” friendly the location is the better. Many section 8 tenants have to rely on public transportation so a location within walking distance to this would be a plus.
Once you are ready to rent your house or apartment I would suggest listing it on socialserve.com. This is a good site for posting your rentals. I have used it in the past with success. You should also contact your local public housing agency to have them add your unit to their list of available units which many PHA’s publish and provide to tenants. This would also be a good time to tell them you are new to leasing through the Housing Choice Voucher program and request an appointment to visit with a counselor to review the paperwork and the process.
Good luck!
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