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Why Buying Into Section 8 Myths Is Leaving (Big!) Money on the Table

Why Buying Into Section 8 Myths Is Leaving (Big!) Money on the Table


Let me cut to the chase. For BRRRR investors, Section 8 is the best thing since sliced bread!

Take a deep breath. Believe it or not, I’m not crazy. What I’m about to reveal to you is not a magic formula, even though the results sound almost too good to be true.

This strategy allows me to buy and hold property in some of the country’s hottest zip codes—while enjoying both cash flow now and long-term appreciation later.

I’ve been a landlord in Washington, D.C., for 30-plus years. My biggest regret? Not embracing this strategy sooner.

Related: Big City BRRRR-ing: Why It Might Just Be the Holy Grail [With Photo Tour!]

Busting Section 8 Myths

You’ve heard them. I’ve heard them. Stereotypes about Section 8 tenants abound.

Among the most common warnings about Section 8:

  1. They won’t care for your property (i.e., they will trash your house).
  2. They’re unstable and won’t pay their portion of the rent.
  3. They’ll attract drama and crime.

Sure, there will be cases where these hold true (especially if you don’t screen well—more on this later).

With that said, let’s address each of these stereotypes individually, and I’ll explain why I’ve found them to be more myth than truth.

  1. They won’t care for your property.

First, 30 years’ experience tells me that bad tenants come in all shapes, sizes, income groups, and professions. I’ve known wealthy people who have trashed homes, just like I’ve known college students who have trashed homes. Therefore, just because somebody has a good job or makes a decent income doesn’t mean they will take care of your house. Don’t kid yourself!

As a strategy, I purposely choose not to buy in what are commonly perceived as “Section 8 neighborhoods” (i.e., high crime and blighted areas).

What I’ve found is the voucher holders I’m trying to attract prefer not to live there also—especially if given a choice. Because there’s so much demand for quality affordable housing in desirable areas within D.C., I have the luxury of choosing from a large pool of tenants for my properties.

When I find a potential tenant for one of my single family homes, I do something you might find unbelievable: I ask to visit them at their current residence. Why? So I can see how they really keep their home. I apply this screening step to all qualified applicants.

Why do I take the time to visit a person’s home? From my experience, this one activity is hands down the best way to predict the condition of your property in three to six months’ time.

You may be surprised that the types of tenants who fill out my application form do not object to me visiting their home. In fact, many have “pride of rentership” and are happy to showcase it to me.

Sometimes, when I call to schedule a visit, I am told, “It’s OK to come anytime—even right away!”

This tells me the applicant doesn’t need to spend any time cleaning or patching things up. In fact, I find that these tenants keep their homes clean and orderly with low to no damage. The main issue is they live in a problem-plagued neighborhood—a neighborhood they desperately want to move away from.

word myths on colorful wooden cubes

I’ve rented to over 50 Section 8 tenants over the years, and I’ve found that they generally care for the property just as diligently as my market-rate tenants.

The majority of voucher participants are families with children. We know that some kids, especially younger ones, can be a bit harder on the property. But that is not always the case, especially if the parents train them appropriately.

Either way, with five-, 10-, 15-, 20-year tenants, a little extra wear and tear doesn’t necessarily hurt my bottom line because I deal with so little turnover.

Related: 8 Myths About Section 8, Corrected: Here’s the Profitable Truth

  1. They’re unstable and won’t pay their rent.

It’s tempting to think someone on government assistance is likely to move around a lot. From what I’ve found, this couldn’t be further from the truth.

As mentioned previously, I buy properties in relatively safe, quiet, and peaceful neighborhoods. Most of my Section 8 tenants are escaping neighborhoods that are quite the opposite.

Therefore, a housing voucher is their golden ticket to a neighborhood free of drugs, gangs, and other negative influences. Their voucher is a gateway to a better quality of life for the entire family. So when they move into one of my houses, they usually stay for many, many years.

Consider this fact. If I rent one of my houses to a couple and/or family making a combined $200,000/year income (which is very common in Washington, D.C.), here’s what’s likely to happen: they’ll stay for one, maybe two, or possibly three years, then leave to buy their own house.

But because my tenants do not earn high incomes, they are priced out of the market. The only way they can live in D.C.’s nicer neighborhoods is by renting through the city’s voucher program.

At this time, my longest tenant has rented their home for 22 years. I have many 10-, 12-, 15-year tenants!

question mark on a sticky note against grained wood

As a buy and hold investor, turnover and vacancy is by far the biggest expense—especially if not carefully managed and controlled. Since my tenants tend to stay in my homes for a very long time, my turnover and vacancy costs are minimal. What this means is the cash flow goes directly to my bottom line.

Now, regarding rent. In Washington D.C., the portion paid by the tenant is a tiny fraction of the overall rent I collect. For example, take a five-bedroom house I recently rented to a family in a B+ area. The total rent I receive is $5,462. Of that, only $200 is being paid by my tenant.

Even if my tenant were to fall behind on their portion, I’d still be collecting 96 percent of the total rent amount. If this were a non-Section 8 tenant? I’d be collecting a big fat zero.

Finally, my tenants are highly motivated to stay on top of their payments. As mentioned, their housing voucher is their golden ticket. Not paying rent is a great way to get that voucher taken away and spoil their chance at keeping their family in a safer and more prosperous neighborhood.

  1. They’ll attract drama and crime.

Here’s what I’ve found. Many people—especially parents—living in underserved, low-income neighborhoods are no different than you or me. They don’t want to be shot at any more than anyone else. They want to put their kids in good schools and live near desirable amenities (e.g., shops, buses/subways, parks, rec centers, etc.)—just as you and I do.

During the screening process, I find that a large number of Section 8 tenants have no criminal history or onerous red flags (evictions, complaints, housing violations, etc.). They just want their family to live in a quality house in a nice area and to rent from a good landlord—just like you would if the tables were reversed. This is not rocket science.

With that said, I am by no means a charity. Believe it not, I really enjoy working with this tenant group because it allows me to “do good” and “do well” at the same time.

Related: The Tenant Screening Process: The Application

Before and After BRRRR Section 8 Photos

Before I go, I’ll leave you with these photos from one of my recent deals:

Exterior

Before staging: Exterior Front

After renovation and Staging: Exterior Front

Living Room

Before staging: Living Room

After renovation and Staging: Living Room

Dining Room

Before staging: Dining Room

After renovation and Staging: Dining Room

Kitchen

Before staging: Kitchen

After renovation and Staging: Kitchen

Bedroom

Before staging: Bedroom

After renovation and Staging: Bedroom

Bathroom

Before staging: Bathroom

After renovation and Staging: Bathroom

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Need a way to up your real estate investment game? Author and investor David Greene shares how he expanded his real estate business from two houses per year to two houses per month with the BRRRR strategy. Pick up your copy from the BiggerPockets bookstore today!

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Have you had any good or bad experiences with Section 8 tenants? What do you think of this strategy?

Let’s talk in the comment section below!

 





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