Section 8 Property - Posted by Stan(TX)

Posted by HR on March 12, 2002 at 07:51:25:

Thanks for the kind words, John.

Stan, I rehab properties in horrible, blighted shape. The stuff with nasty structural problems that I can buy for 5-10k. If the property is in a decent neighborhood, I resell to a homeowner. If it is a good rental neighborhood, I keep for section 8.

I love section 8. You will hear all kinds of horror stories – and many of them are true – but there are ways to profitably master this niche, like any other.

The pros are: HUD advertises your property for you (no add fees); huge competition for properties in good shape; tenants tend to stay a long time; federal gov pays the rent (wired directly into your bank account each month); very low probability of discrimination lawsuits against you (since all your prospective tenants, including the one you will choose, are minority single moms); disproportionately high rents to market for properties with lots of bedrooms; greater leverage with tenants (evicted 8s can lose their voucher, which makes them amenable to working with landlords; they DONT want to lose that free rent voucher!)…

Cons: Someone else you didn’t invite (HUD) is in bed with you in your investment, and they are neutral at best; annual property inspection (got one today and Monday, in fact; should go fine…); properties sustain greater wear and tear due to high number of kids; HUD sets max rent rate, which is too low at lower bedroom count but high at higher bedroom rate (3+ bedrooms); properties often in marginal neighborhoods with minimal appreciation or gentrification…

Those are some thoughts that come to mind. I absolutely love it, and will take the cons because the pros far outweight it. If you can rehab and keep some as section 8, you get UNBELIEVABLE cash flows.

For example, I’m rehabbing a property right now that I bought about a year ago and I’m finally getting around to renovating (it’s been a good, busy year). It’s 4000sf, has two 3 bedroom apts on the second floor, and has 2000sf of storage space on the unfinished first floor. I bought it from a bank for $2000.

It has EVERYTHING wrong with it: 7 holes in the ceiling, cracked slab, past fire damage, termites, ground settlement, is a block from a major housing project, major blight, etc. Who cares! The roof cost (and I’m remembering this from memory, so forgive me if my numbers aren’t as exact as I’ve reported in the past) @700 to fix; the vinyl on the outside was a few thousand; the cracked slab and fire damage are no big deal and we will leave; termite treatment fixes the bugs, etc.

I bought this as a storage facility, and the apts are a bonus. I’ll be into this thing about 40k total when I’m done, and the two apartments will bring in about $620 each a month rent. Taking out a $100 each side for vacancy and repairs, and another $100 for taxes and insurance, I figure I can count on $900/month +cf off this baby – and that doesn’t include the free storage for my renovation corp!

(Actually, this gets even more fun, in that a LLC owns the building, and leases the space to my C corp to create another deduction, etc but that’s a different angle on the deal for another day…)

In fact, here’s another HUGE pro I forgot to mention: in my area, landlords supply NO appliances in rentals. None. Nada. Tenants bring their own stove, fridge, window units, etc. So: what’s to break? My new electrical wiring? My new plumbing? I don’t think so. The stove? Fridge? Window units? Not my problem.

I LOVE these low end ATMs… I mean, rentals. While they will never significantly appreciate, they cashflow like MAD.

Consider them. And good luck.


Section 8 Property - Posted by Stan(TX)

Posted by Stan(TX) on March 11, 2002 at 09:35:17:

What are some of the pros and cons of purchasing rental property with section 8 program(HUD) tenants? Does anyone have experience? Enlighten me.

Re: Section 8 Property - Posted by JHyre in Ohio

Posted by JHyre in Ohio on March 11, 2002 at 10:45:26:

Post this on the main News Group, “attention HR”…or better yet, run a search for section 8 and HR.

John Hyre