Should you accept Section 8 or not? Many new investors are nervous about the program as they have heard horror stories about it.
Tenants that are on Section 8 are the same in every way (and must be treated the same way), but some or all of their rent comes from a government source instead of their bank account. Section 8, also known as the Section 8 Housing Choice Voucher Program, exists to provide housing solutions for low-income families. The program provides families with a certificate or voucher that allows them to lease an apartment or home they otherwise couldn’t afford. Families pay some “reasonable rent,” which is a percentage of their income; the remaining rent is covered by the local housing authority. Total rents are determined by the local housing authority, and are capped by the Fair Market Rent (FMR), which is set by HUD (US Department of Housing and Urban Development). Typically, I find the rent is slightly lower than market, but still manageable.
In Minnesota, it is illegal to discriminate against anyone on public assistance. As a landlord, you have the option to not participate in the Section 8 program, but you can’t actually disqualify an applicant for being on Section 8 (notice the subtle difference). You should with work tenants and applicants with Section 8 just like any other tenants. They should follow the same screening criteria and process.
When working with a Section 8 applicant, get the name and number of the applicant’s Section 8 case worker to verify the applicant is indeed on Section 8 and can afford the rent that you are charging for that apartment. I have had situations where 2 weeks prior to the move in, the Section 8 worker calls and asks me to drop my rent by $100 per month so the tenant can afford the apartment. That is a tough decision to make (drop the rent by $100 and get the tenant or refuse and possibly lose a month of rent).
The unit must be inspected by a Section 8 inspector prior to Section 8 paying any rent. If the tenant moves in and then the inspection occurs, most likely the tenant will be responsible for the rent during that period. Work with the tenant and their coordinator to insure you are following all the deadlines. The inspections are generally straight forward, while usually the inspectors are just looking for health and safety issues and want to insure that everything in the apartment is in working order. Additionally, I always advise that you attend the inspection with a screw driver and 9 volt batteries in hand so you can take care of 2 minute repairs instead of trying to schedule a re-inspection for a missing battery in a smoke detector!
Be prepared to wait up to 45 days for the first check from Section 8 arrive. After the initial check, though, each payment will arrive on the 1st of the month or even the day before. Often you can also have multiple Section 8 tenants rents combined into one larger check.
You may be surprised to learn that I find that my Section 8 tenants are often my most stable tenants. They often stay in the same apartment for many years. To minimize the administrative work, Section 8 typically prohibits the tenant from moving during the lease. They will also require a decision, 60+ days prior to the end of the lease, from the tenant and landlord if the tenant will continue to lease the apartment for another 12 months.
Many of the above aspects of the program make it an appealing opportunity for the landlord. I believe the horror stories are because of the tenant, not the program.