Help! Section 8 lease to own?? - Posted by osupsycho (OK)

Posted by Steve-WA on June 09, 2005 at 16:43:20:

Mr. psycho, (if that is your real name)

you’re missing the point: S8 is all about rentals. Ain’t gonna be no payoff. You are renting it to her. Just calling it a RTO. If she wants to buy, then she needs to get some frickin’ money! $63 a month? That don’t buy gas!

She is a renter until she has income to justify buying. If the park will allow RTO, then consider it just a rental situation. But away from S8, you can do lese option, and put repairs on the T/B. Will that hold up if something has to go to court? I understand that it will not - it just makes your job very clear: ensure your T/B understands that doing their own repairs is just how it is - they will eventually be buying.

I like what Michael(KCMO) has told me - tell them you’ll rent for a year, and if it works out, then we can set up a contract to buy with identical money outlay.

Help! Section 8 lease to own?? - Posted by osupsycho (OK)

Posted by osupsycho (OK) on June 07, 2005 at 15:03:53:

Ok, I am working on my first deal and it just got complicated. I ran an ad to sell it with financing and got a call which is stumping me. The lady is renting a mobile in another park and wants out because of drug dealers (note to self- stay out of that park). She is section 8 but said she is approved to do a lease to own with section 8. I have never heard of this. I thought section 8 was just rentals, no owning. She said the biggest deal was that section 8 would send me the whole amount (with a little from her) and I would have to take care of the lot rent. I am trying to research this lease to own with section 8 but getting no where. One problem I see is what will happen with lot rent after the note is paid off? She does seem willing to accept any other terms I request though so it is intriguing. Any help would be appreciated.


Re: Help! Section 8 lease to own?? - Posted by Kim-OH

Posted by Kim-OH on June 07, 2005 at 17:41:18:

One of the Housing Authorities here recognizes lease to own. Call the appropriate Housing Authority and speak with them. Get the name of the woman’s case worker at the Housing Authority and talk to that person as well. The case worker will know if the woman has been okay’ed to purchase. Up here the purchase program is arduous and not many folks quality but those that do are often very responsible tenant buyers.

Would you do this deal?? - Posted by osupsycho (OK)

Posted by osupsycho (OK) on June 07, 2005 at 20:25:17:

Thanks for the info Kim I got the name of her case worker and will call her in the morning.

Here is the rest of the story to see if everyone thinks it is worth doing this deal.

She is on a fixed income (SSI disability) and has no husband or children (just two little dogs). She claims to not smoke, drink, or do drugs. Wants to move because of the drugs in her current park and wants to own her own home. She claims to be able to pay $450 a month with section 8 being most of it($387 section 8 + $63 her own part = $450). I will verify this tommorow (I know the property will also be a factor in how much section 8 will do). This amount though has to include insurance, lot rent, taxes, and all utilities except electric. Lot rent is $150, not sure on others but not expecting them to be over $100 month (I will found out tommorow though). So this means I will get about $200 month toward note payment. It is a lease to own though so I have to collect all the money and make the all the payments (just like a landlord). The other problem is that she only has $2-300 for down payment.

On the good side the home (which I haven’t bought yet only tied up) is going to be bought for $3500, $1500 cash and 10 monthly payments of $200 each. So that means for the first 10 months I won’t make anything, unless I can get her to do a promissory note for a few months to go toward a bigger down payment (ie, $50 month for 10 months to get to the $750 I was wanting originally). I did plan on doing the deal $7500, $750 down, $300 month (without lot rent, ins, taxes, utilities), 7% for 24 months. Since she can’t give me the down (unless promissory note works) and the monthly payment is going to be only about $200, I will have to extend the length of the note. She is fine with this. So using the following #'s:

I = 7%
PMT = $200
PV = $7275 ($7525 - $250 down)
N = 41

The good news is that I will basically be guaranteed the payment (at least section 8 part) and she seems to be a real good type of buyer/tenant. The bad news is she would basically be a tenant till it is paid off. I will also have to pass a section 8 inspection at first and once a year. I have checked with section 8 and once the note is paid they will continue to assist her with the other expenses so I can get out of the picture. Any thoughts would be welcome.


Re: Would you do this deal?? - Posted by Tom (WA)

Posted by Tom (WA) on June 08, 2005 at 13:30:59:

45 payments of $201.55 at 12% would be better.

Re: Would you do this deal?? - Posted by JT

Posted by JT on June 07, 2005 at 21:23:24:

HEY OSU!! Glad to hear you are moving on the first deal! I have never dealt with Sec. 8 and can only point you back to Tony C.'s wonderful book on land homes. Seems to me the home inspection could get interesting but heck I am willing to learn from your deal. Keep everyone posted on the progress. JTnOKC

Re: Would you do this deal?? - Posted by osupsycho (OK)

Posted by osupsycho (OK) on June 08, 2005 at 13:51:25:

Tom I agree it does sound better but I don’t want to charge more than 10% interest due to limits in my state. I don’t really know if usury limits would apply to me but taking no chances. I listed at 7% to attract people. It really doesn’t matter what the % is, the key is going to be sales price and # of payments. The tax commission put the value of the home around $8500 so I am thinking about raising sales price to this to account for the increased work. All this really changes is the # of payments as everything else is static.

The possible problems I am seeing are:

  • When (not if, but when) lot rent, insurance, or taxes go up can I change the amount that section will pay accordingly. Or will I just put more money toward this instead of house payment (which in turn would extend note).

  • What about upkeep and repairs since it will essentially be a rental? I want to inflate payments to cover these if needed.

  • Have to spend a pretty penny getting home up to section 8 standards. If this happens at first I will probably just back out but what about the yearly inspections.

  • Will section 8 approve the contract I want to use. It is real possible that I will have to change the contract at some point in the future (aka add payments on to the end to cover repairs, and other expense increases), will section 8 allow this.

  • Is there a limit on how long the note will be. When I asked this they said no but I find that hard to believe. I mean surely they wouldn’t let someone make the note $200 month for 20 years or something like that. Not that I would do something like that but I would like to know the limitations.

I am going to try and get the answers from section 8, but if anyone knows I would love to hear.


Re: Would you do this deal?? - Posted by kristina

Posted by kristina on June 08, 2005 at 24:28:16:

I’m experienced and very successful with MHs, MHPs, rentals and Section 8. It will be a hassle with the govt but this definitely sounds like a deal you should do.

Re: Would you do this deal?? - Posted by Tom (WA)

Posted by Tom (WA) on June 08, 2005 at 23:48:33:

I realize you used an interest rate in your calculations to get to where you wanted to be, but keep in mind, there is no interest rate in a lease so you do not need to consider usury laws.

You should not do a long term lease that does not make provisions for rent increases as your taxes, lot rent, etc. will increase. One possibility would be to make it $450. monthly the first year, $475. the next year, etc. Or you could say the rent will be increased by the amount the lot rent and taxes increase.

The payment must be large enough to have money set aside for repairs and maintenance - there will be some.

I do not work with Section 8 so I can’t speak to that.

Again, this is not a note, it’s a lease. If they have limits to the length of the lease, you will need to work within their limits. For example, if they will only go 2 years, you can do 2 years and give them another 2 year option with the agreement that they don’t get to exercise the option unless they pay for 4 years. If they stop after 2 years and have paid you $200 mo. or $4,800, that’s not all bad. Just do it again with the next guy.


Re: Would you do this deal?? - Posted by osupsycho (OK)

Posted by osupsycho (OK) on June 09, 2005 at 09:02:25:

Thanks for the input Tom. I think this may be considered a note by section 8. They call this program “lease to own” and from what I gather the “lease” payments are actually considered to be “note” payments. As soon as I can get her case worker on the phone I will get this out of him.

The key to this is that section 8 will have to allow me to redraw the note/lease contract as time goes on. If it is truly a lease and I am responsible for repairs (this may be true even if it is considered a “note” since she is not owner yet) then my plan is to have a clause in contract stating that any repairs under $50 are the tenant/buyers problem and anything that is over that I will pay and add the amount to the note total. Not sure if this will fly but going to give it a go. Either way there will be increases that will cause the contract to be changed. I could do as you state and just make the payment escalate, either yearly or as things go up, or I could keep the payment static (if section 8 won’t allow it to go up?) and just keep extending the length of the note to make up the $$ (that is as long as there isn’t a limit to the length of payments). It wouldn’t be bad to have the cashflow keep coming either.

It appears that this hinges on my conversation with section 8 (and the PM’s approval of course) so I will let everyone know the details after I finally get ahold of them (not an easy thing to do).


Re: Would you do this deal?? - Posted by osupsycho (OK)

Posted by osupsycho (OK) on June 09, 2005 at 11:37:50:

Got ahold of section 8 caseworker and got a lot of answers. As I suspected section 8 treats the lease to own just like a rental. In other words I am doing a rental but the payments the tenant is making are going toward buying the home. While this doesn’t thrill me as I will be a landlord it isn’t a deal killer. The good news is that the contract can be redone if there is an increase in lot rent, taxes, ins etc. I just have to show this to section 8 and it can be redone. Repairs do not qualify though so I will have to put some money in payment to cover possible repairs. The guy directed me to their website and it is real helpful with copies of their contract with the landlord and even an inspection list. The length of the contract does not matter to them as they only really care what happens on a year to year basis (I think that is what the contracts will be as well). So my thinking is that each year there will be a new contract and that each one will have a PV of whatever the remaining balance of the previous contract.

This might just work, now to convince the PM. Also the ad I ran in the paper is getting me some really good calls. One guy may even have a home he is willing to give me if I can get him in what he is wanting. This is great.


Re: Would you do this deal?? - Posted by Steve-WA

Posted by Steve-WA on June 09, 2005 at 12:08:33:

Does Suction 8 require 100% rent credit? That’s not a standard rent-to-own. Standard is the other extreme - 0% rent credit. Basically, they just want to call it something else - but if YOUR feet are going to be held to the fire as a landlord by S8 (and they will - YOU are landlording/fixing/getting phone calls/etc), then why shouldn’t you just sell on contract to someone else with no landlording hassles? What is the benefit to you?

If S8 cares not what your contract says, then don’t give 100% rent credit - make it less. 20%? 50%? Let your conscience be your guide - I’d keep the percentage pretty low, because I want to be compensated handsomely for my having to be a landlord.

Your call. Just make an intelligent decision, and be compensated for what you’re giving.

Re: Would you do this deal?? - Posted by Greg Hamilton

Posted by Greg Hamilton on June 11, 2005 at 21:02:49:

If the person collects disability checks each month, I can tell you that where I live anyway, they can NOT be sued if they stop making payments!

I know because it happened to me, I bought a mobile home, did a rent-to-own, she payed for 3 months, then trashed the place, moved out without paying anymore.

I called my lawyer, and there was nothing he could do, contract or no contract.

Just a heads up for future reference.

Good Luck

Exactly!!! - Posted by osupsycho (OK)

Posted by osupsycho (OK) on June 09, 2005 at 14:42:55:

That is exactly what I was thinking Steve. There is no way that I would give 100% credit in this matter. But section 8 doesn’t really seem to care. They seem to treat this as a rent payment but at some point she will get the title. I will verify this but I was thinking that very little of the $450 payment would go toward the actual note. In fact it may be better for the buyer/tenant to have the note go on much longer. She is only kicking in $63 of the $450 and after the note is paid I think she then must start taking care of lot rent and other expenses. I have gotten two different stories from different section 8 people but I think it is safe to say that once she has the title she will be out more money every month. I just don’t know how long to make it. I advertised 24 months but this is obviously a different scenario than the ad had.

I also have not quoted her an actual price on the home so I still have that to play with, but not sure if I will differ from the $7500 I was thinking.

The numbers I was thinking were this (monthly):

Total from HUD and tenant/buyer $450

Lot rent - $175
Insurance - $35
Taxes - $15
Repair allowance/managerial fees - $125
Note payment - $100 (22% of total)

Is this amount for repair allowance enough, too much??

This would make for a note that looks like this:
I = 0 (just to make it mesh better with rental idea)
PMT = $100
PV = $7200 (if she can do $300 down)
N = 72

That would make for a nice little 6 year deal. I would probably do 6, 1 year deals so that I can incorporate any increases. Any thoughts or changes are welcome.


thats 36% rent credit - Posted by Steve-WA

Posted by Steve-WA on June 09, 2005 at 15:09:43:

450 - 175 = 275, of which $100 is 36%.

Sure, whatever. How about 100% of HER contribution of $63? that’s 23%. How about half of her contribution, presented as a 50% rent credit, when it’s actually 31.5/275 = 11.5%. That seems a little more palatable to ME for what I am suffering, being a landlord.

Whatever, it’s all good - I just view S8 as a rent subsidy, so NONE of that should be credited toward ownership - and that makes sense to me.

Bored at work again Steve, lol - Posted by osupsycho (OK)

Posted by osupsycho (OK) on June 09, 2005 at 16:27:07:

I know what you mean about thinking section 8 as just rent subsidy. But I am trying to look at this one different. The part about the suffering landlord is the one drawback that concerns me. Of course I won’t have to worry about getting my payment. I am not sure if these are a good enough tradeoff. I give up hassling to get money but have to do repairs. If I do as you suggest and only credit $31.50 toward note it would look like this:

I - 0.0
PV - $7200
PMT - $31.50
N - 228.5 payments!!! or just over 19yrs

Not sure anyone involved wants this thing to run that long. Also how long would a 1983 single wide hold up. That note would end when the home is 41 years old!! I am thinking that I am going to have to have her give me more down to make it work. I will try and get her to do extra monthly payments to pay off my original $750 down (ie $50 for 5 months with the $250). If I do that and make the length 7 years it would look like:

I - 0.0
PV - $6750
PMT - $80.35
N - 84

That may be a better compromise. The other thing I am thinking is that I will not be using all of the $125 a month ($1500/year) on repairs, so this is extra is just my money.

I am starting to have second thoughts on this deal now. I have not gotten any other calls so far that are interested in this particular home (but might have some others that will work). I can still walk away since I have not bought the home yet but I don’t want to lose a moneymaker over being to greedy.

Nevermind - Posted by osupsycho (OK)

Posted by osupsycho (OK) on June 09, 2005 at 16:30:11:

I just got a call from the exact type of buyer I was looking for and am going to show it to her on saturday. So I won’t have to (want to) do the deal with section 8. But would it be worth finding another home for this lady??? I think I will go looking.