Single-Family Rentals And Section 8: Five Reasons It’s A Great Option

Section 8, now called the Housing Choice Voucher Program (HCVP), is a federal government program administered by local housing authorities through the U.S. Department of Housing and Urban Development (HUD). It’s meant to give very low-income families, disabled people and the elderly access to suitable and safe housing. For many landlords, leasing single-family homes to program participants is an excellent way to maintain high occupancy with quality tenants and guaranteed rent payment.

Background On The Voucher Program

In the 1950s and 60s, the government’s primary approach to affordable housing was to build large complexes — a strategy that most people agree was unsuccessful. In the 1970s, 80s, and 90s, HUD shifted its strategy towards subsidizing tenant rents, and amendments to the Housing Act of 1937 created Section 8 and ultimately the voucher program. Today, participants in the HCVP are allowed to choose any housing that meets program guidelines and is not limited to subsidized housing communities. This means they can select from single-family homes, apartments, townhouses, etc., owned by private landlords, nonprofit corporations, and government entities.

The program is administered by local public housing agencies (PHAs) that ensure that tenants qualify for the program and that homes meet minimum standards for health and safety. PHAs determine an applicant’s eligibility for the program based on total annual gross income and family size. Over 2 million low-income families participate in the Section 8 program.

Single-family rentals are an important piece of the solution for communities struggling to find sufficient affordable housing for their residents, and the HCVP is an important tool that can help keep these properties affordable for tenants, and economically viable for landlords and investors.

Benefits Of Renting Single-Family Homes To HCVP Participants

Buying single-family homes, making a small investment in their upkeep and renting them to HCVP participants is a true win-win-win for tenants, communities, and landlords. It gives deserving families an opportunity to obtain quality housing in a variety of neighborhoods. And, at a time when housing prices are increasing faster than incomes, this counterbalances the buy-and-flip approach, which creates upward pricing pressure that can exacerbate the affordability crisis.

As for the advantages for landlords, they include:

1. Streamlined process: There is some time and effort involved in learning the program and getting properties initially approved, but once you learn the system, moving new tenants into a rental is a very straightforward process.

2. Low-cost marketing: In addition to general websites like Craigslist and Trulia, there are others that focus specifically on HCVP properties, but the local PHA is often your best source for free vacancy marketing. And because there is often a shortage of properties willing to accept HCVP tenants, even in soft markets, properties do not remain vacant for long, and rent concessions are never required.

3. Convenient, on-time payments: PHAs provide subsidies that generally cover between 65% and 90% of a rent payment, with the tenants paying the balance. Those subsidies are sent on time every month, typically via direct deposit.

4. Protection from tenants’ financial hardships: When renting to lower-income tenants, there is always the risk that their loss of employment or other financial hardship prevents them from paying their rent. Under the HCVP, the subsidized portion of the rent continues to arrive on schedule regardless of the tenant’s financial situation, and tenants are highly motivated to pay their share so as not to lose their HCVP benefit.

5. Consistent occupancy with quality tenants: While markets vary, overall there is a supply shortage of properties willing to participate in HCVP and a huge demand of voucher holders looking for participating units. This means landlords can very quickly fill vacancies in their units and quality tenants are reluctant to move, reducing the costs of vacancy turn-over.

HCVP: Challenges And Opportunities

Of course, no interaction with a large government program like the HCVP comes without its challenges. The requirement that there be an inspection before each new tenant moves in can delay occupancy. However, many landlords agree that having an extra set of eyes on the property on a regular basis is an advantage in the long run.

Another issue is that the program sets guidelines for rents based on averages in the area. It takes the program time to adjust for changes in that average, so if rents are on the rise, you may be getting somewhat less than you could get on the open markets. But if rents are dropping, you are the beneficiary in that scenario.

Ultimately, when weighing the challenges and opportunities, many landlords find that the financial pros of renting single-family homes to HCVP participants clearly outweigh the cons. Plus, the fact that you are helping your communities meet their affordable housing challenges while providing assistance to families in need is a bonus.

Source: forbes.com