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HIGHLIGHTS FROM THE PODCAST: 0:47 - Section 8 Introduction 3:07 - What do you need to know? 4:24 - Pros and Cons 6:07 - Our application process for S8 resident 12:18 - Process 17:47 - At what point can we decide to go with private pay? FULL TRANSCRIPT OF THE PODCAST AUDIO: Duncan Murphy: Hey, nobody likes moving and Section 8 is not easy to qualify for. So, when somebody finds a house that they love they're going to be sticking. You can expect a longer term resident. If you're holding up your end of the deal and the resident is doing what they need to do, yeah, it should be a good relationship. Spencer Sutton: All right everybody, welcome back to another episode of the Atlanta Real Estate Investor podcast. I am your host Spencer Sutton. I am excited to be here with you today and I've got a special guest with us today. We've had him on before when we were talking about areas of Atlanta to invest in. We have our Evernest team leader Duncan Murphy with us. So Duncan, welcome to the show. Duncan Murphy: Thank you, Spencer. Happy to be back. Spencer Sutton: All right, well Duncan is boots on the ground. He is the expert, so anything when we're talking about Atlanta real estate, especially rental real estate and investing, we are reaching out to Duncan. He's given us all of the inside information as to what's happening on the ground. Spencer Sutton: Today we're going to focus our discussion around Section 8. Section 8's obviously different in different markets. I'm here in Birmingham, Alabama. We do a lot of Section 8 here. It's very popular, so we're going to dive in to just some Section 8 information that you may need to know. So, if you are considering renting your property out via Section 8, we're going to talk about how you do that, so what's the process, what are the pros and cons? Duncan's going to give us that information, but first of all, Duncan why don't you kick us off by maybe giving us a 30,000 foot view of Section 8 in the Atlanta area. Duncan Murphy: Yeah, so Section 8, obviously it is a government program. The US of A really manages their underlying procedures, but every market just like Birmingham, has multiple different housing authorities. Atlanta, having more counties than peach tree roads, that means we have one of the housing authorities here. We have Atlanta, Marietta, College Park, all over the Atlanta area. They all do business pretty much the same way. Their procedures are pretty much the same, but they'll have intricacies of their own flavor for how they process a new participant into a new property. What is their inspection procedure and what are their expectations? In the end, if it's a qualifying participant, the qualifying property, the subsidy should be received relatively the same. Duncan Murphy: Atlanta doesn't really have too many quirks that differentiate it, but you definitely need to be at least savvy going into it of what the housing authority is going to expect from me as a landlord. Usually have a lot of resources on their website, so that's a great place to start. Spencer Sutton: Awesome. Yeah, that's really interesting because in Birmingham we do have different housing authorities and each of them behaves a little bit differently, but they're essentially the same. Spencer Sutton: Let me ask you this, if you wanted to rent your property to a Section 8 resident, are they in Atlanta or in Georgia, are they a protected class? Do you have to do that? What are the things that somebody needs to know going into it? Duncan Murphy: Yeah, so they are not a protected class giving that it is essentially income related. We always ask our owners and depending on the quality of the property, the neighborhood where you are, we can get a gauge of who's going to come knocking to rent the property. That's when we have that discussion. We have plenty of single property owners, plenty of investors, who are very hard and fast, yes or no, but realistically it is, I think, the starting point is to know what the qualifications are for a property on Section 8 because they are going to be a little bit above what everybody knows as code for housing. Having some knowledge there and then doing your own homework and deciding whether you do want to have a little bit more, call it micromanagement, in receiving rent, but you do receive a little bit of benefit of, "Hey, it should be more consistent if all the boxes are checked each month." Spencer Sutton: We have a lot of investors that come and ask us, "Should I rent my property Section 8? Should I not rent my property Section 8?" And we're essentially giving them advice. A lot of times we're just talking about the pros and the cons. What are the pros, the things that they need to consider when they think about this? What are the pros to renting Section 8? What are possibly the cons to renting Section 8? I've got my ideas, but I'd love to hear from you. What are the pros to renting to Section 8 resident? Duncan Murphy: Sure, realistically the biggest benefit that I see is that the perticipant, they have a direct relationship with the housing authority, the government, to receive their subsidy, and they are very dependent on that. We've seen some great stories of residents starting on Section 8 and improving and working their way off of subsidy, which is beautiful. Duncan Murphy: But their agreement, their voucher with the housing authority, requires them to meet certain standards. They have to check in with their case worker every so often. Don't quote me on this, but I believe unless they're physically unable, I believe they have to be in search of bettering themselves, to check in with the status of their family, if they have children. Spencer Sutton: With their case worker, essentially? Duncan Murphy: Yes. Yeah, with their case worker and I don't know the cadence of that. I know it's at least annually, but they have to check in depending on the family and whether dependents are included and what that might look like. It does basically add a few more ground rules for a resident. If you think about it, can protect the landlord in a way there because it's not just, "Hey, I have to make rent," but it's, "Hey, I have to play by the rules." Spencer Sutton: I think that's a great point. There's the initial qualification, essentially, running through that process, but then we don't just allow any Section 8 resident into a property for our residents. So what additional do we do? Talk about the application process for a Section 8 resident from our standpoint as well. Duncan Murphy: From our standpoint, we would underwrite that applicant just the same as any other applicant, except we understand that Section 8 is replacing our income requirement. Spencer Sutton: Gotcha. Duncan Murphy: So we still are going to run criminal background. We understand if the employment is not met, but it's again, Section 8 is going to replace that for us. We're still going to make sure they're a good resident. Section 8 has also done that background check, too. Spencer Sutton: Yeah. That's an important point because just like there's great private pay residents and not so great private pay residents, same thing applies with Section 8. There are wonderful Section 8 residents and then there are not so great Section 8 residents. Man, I had a rental house. It was a great house. I think the initial rent was $724. She was on Section 8 and Section 8 was paying $700. She was paying $24, probably for the first year. Every year that the contract renewed, they were paying less and less and less, so kind of like what you said, the success stories eventually ... Section 8 literally was paying $10 or $15 at the end of it. I was like, "Man, that is an incredible success story. She was a wonderful resident." I had a great experience in that case, but then you can also have poor experiences as well. That's the pro. So the pro is they kind of an initial screening process through Section 8. You're essentially guaranteed, we don't like using the word guaranteed, but you're going to receive that rent on a much more consistent basis. So what are the cons? What might somebody be worried about with the Section 8 process? Duncan Murphy: The cons are yes, there are requirements that the participant, your resident is now a subsidy or a Section 8 participant. The cons are what happens when they fall short of Section 8's requirements? The participant can have other income that they're not reporting to their case worker. They can have an issue of their familial status changed and they didn't report it to the case worker. Multiple different things that if they are misleading, then Section 8 will immediately just end the subsidy and they'll throw their hands up and say, "Hey, the resident is yours. You have the lease signed." Spencer Sutton: So you're sitting there with a resident in your house. Duncan Murphy: "But we're done paying, essentially." So it can add that different facet of, "Okay, now I'm stuck with a resident who I know is not gainfully employed and now I have to go through the process of getting my property back," or if the resident is trying to move and you want your property back, then maybe they're still on Section 8. Well, Section 8 can usually drag out the process of a move out. So if you're trying to get the house emptied very quickly, sometimes that can be delayed if Section 8 is facilitating the move. Duncan Murphy: That piece, and then really and truly, the Section 8, again, has to qualify the property. So you can definitely expect at least inspections annually. Again, their requirements are above code, so they're their own bylaws. Often times they can add pretty big chunk of work that has to be done in order to keep receiving your monthly subsidy payments. You can definitely expect some more upkeep where maybe a resident doesn't mind the squeaks in the floorboards or whatever they might write up, but Section 8's going to require that you get it done within a certain time period. So it's a little bit of a different management there from them. Spencer Sutton: So Section 8, essentially what you're saying is, you're kind of at the mercy of them keeping that resident qualified, keeping that resident qualified, and then you're also at the mercy of their inspectors. It actually can even link them the move in process. So private pay a lot of times, they can put a deposit down and they want to move in a week, but with Section 8 you've got to get them approved. You have to go through their entire process. They're going to have to do an inspection before the resident can even move in. Spencer Sutton: Then I'd say one other potential con or something to think about for an investor is the fact that if you do have a Section 8 resident, yes you're getting that income every month on a consistent basis, but if they're not working. Some of them have jobs and that's awesome, but if they aren't gainfully employed, then what they're doing is living in that home more. So they are flipping light switches more, they're flushing commodes more, there's more wear and tear on that house. If they stay in there four years, then you're probably at the turn you're going to have more issues to deal with just because the wear and tear. It's a lot like summertime or wintertime when people stay in their houses more, but with Section 8 it could be year round. Duncan Murphy: Yeah, and if an inspector were to write that up, that, "Hey, the light switches are all cracked or stained or something and it's now on my required repair list," you can't fight it. You can't say, "Hey, that's cosmetic. Hey, that would be a nice repair." Spencer Sutton: Yeah. Duncan Murphy: Can't fight it, so having a great relationship if you are in a Section 8 type leased property, having a great relationship with that housing authority and with that inspector if you were to meet them, is very important. We had great friends in Birmingham that we could call on and they would give us a heads up of inspections. It allows us to run through the property and us do our own kind of fine tooth inspection ahead of time and not jeopardize any kind of processes. Spencer Sutton: Yeah, we even had a Section 8 inspector who came and worked with us for some time, Wayne, and he was great. Yeah, he gave us all kind of insight into Section 8, which was wonderful. Spencer Sutton: Okay, so that's great. Let's talk about the process for getting someone signed up. What is the process? Let's say you are making your property available for lease with Section 8, you have a Section 8 resident that's interested in the property, so they fill out an application. Just walk us kind of step by step, what is that process? Because I mentioned there's a move in check and all this stuff, so let's walk everybody through that, so starting with the applicant and an application. Duncan Murphy: Sure. Typically, and we like to do it on our properties, if we know that an owner is not open to Section 8, we're going to put that on the listing because if your properties in a specific area and it's in a specific price range, you're going to get attention from Section 8 participants. It's good just announce it, whether it is or isn't open to Section 8 applicants because usually that's everybody's first question, because it is a very time consuming process and it really handcuffs the participant if they submit their voucher on a property because they only have one. So they're going to be very certain of where they want to be and which house it is. Again, our application, they would need to list on there that they are Section 8 participants and then that replaces our employment and income verification, but we process it just the same. A resident, or the application, is responsible for their application fee and they're also, if they are approved, they are responsible for their move in charges. So the security deposit, anything along those lines, I've never heard that Section 8 reimburses or pays those up. So usually those are always going to be the participant's responsibility. Duncan Murphy: Once they're approved, you're going to hear the word RFTA, which is short for, it's R F T A, short for Request for Tenancy Approval. That goes along with their voucher, which is written up depending on their situation of who's going to be living, who are the dependents, is there any income, basically how much is the government going to support and it breaks out, "Here's a total amount of the voucher. Here's the housing authorities subsidized amount, and here's the participant's amount to be paid." Then they have utilities allotted in there, and things like that. You'll see that on the voucher. So if you have your house listed for $1500 and an applicant comes with a voucher that's good for $1000, I would advise that participant, "Hey, check with your case worker. I don't think this is going to be worth your time. I don't think your voucher will support this property." Spencer Sutton: Right. Duncan Murphy: Or, "I'm not going to be able to accept $1000 for max rent your case worker gets that." Spencer Sutton: Right. Duncan Murphy: So check in to those numbers before you start the process. Spencer Sutton: So you want to know. Essentially what you're saying is you want to know what that voucher is for before you fill out paperwork on the RFTA. Duncan Murphy: Yeah, and all participants, they go through a training just like housing authority. They typically, if you're to sign up as a landlord, I believe they require you do some training. I've seen some of our housing authorities do that just so you're not completely blind to what's coming at you. So, definitely ask for the voucher and just make sure it's going to be somewhat reasonable to expect that the voucher, the RFTA, is going to be what you're looking for, what you're asking for in rent. The RFTA is going to ask tons of questions about who you are, your ownership in the property, do you have a property manager, is it landlord owned and manged, and then questions about the property itself, beds, baths, locations, what are the amenities. Spencer Sutton: Right. Duncan Murphy: What appliances come with it, year built, all those things, where it's located, if it's near bus stops, playgrounds, things like that. It can be at least sometimes 30 minutes to an hour, and we're well practiced. So it can take- Spencer Sutton: So it'll probably take a landlord who's not experienced with it, it could take them several hours. Duncan Murphy: Yeah, it could take a few hours to do that properly, but you do all that and you submit it back to the case worker, to the housing authority, and then they start their process, which is usually they qualify the property, then they schedule an inspection. So it can go easily three to four weeks before a resident's close a move in. Spencer Sutton: Gotcha. All right, so it can go three to four weeks and then in that initial inspection they could come back with some things that say, "Hey, this property is not up to our standards. You need to have these things fixed before the resident can move in." Correct? Duncan Murphy: Yes, and you always want to give that approved applicant, Section 8 participant, you want to give them a fair shake for their RFTA to go through the process. Spencer Sutton: Right. Duncan Murphy: Your house to go through the inspection, but call this another detractor or a con for Section 8, again you're hung out there for four weeks without any rent income. You're not really sure if it's going to come in that week five, so with a market as high as it is today for rentals, you might be able to get a private pay resident in week two of that RFTA processing. Spencer Sutton: Right. Duncan Murphy: You definitely need to weigh it out, maybe get it to first an inspection, and if it fails you have to make that hard decision of whether you give that would be resident the bad news of that you're going with somebody else. Spencer Sutton: Yeah, I was going to ask you, at what point ... Let's just take Evernest for example, at what point during that initial process do we have anything in place where we say, "Hey, we're going to give them three weeks and then we're going to reach back out to the owner and say we need to put this back up?" Or do we talk to the Section 8 resident and say, "Hey, if you're not approved within a certain amount of time, we're going to put it back on the market." Do we do anything like that? Duncan Murphy: We do. It's not set in stone, just depending on how it's developing, but our goal is three weeks. We take it off the market for three weeks. We've given everything we need to Section 8 and if we're not hearing back that, "Hey, your inspection is scheduled," or, "Hey, it's coming ready for inspection in a week or so," that's when we start talking to the owner to say, "Hey, are you okay with us putting it back on the market?" Of course we're going to let that applicant know that we, for the owner's best interest, we have to accept another applicant if they were to come. Spencer Sutton: Right. Duncan Murphy: Yeah, we do that for benefit of who's already done all the hard work, that applicant, and also Section 8 so you don't just burn your bridge with them. We want to give them the chance to follow through. Spencer Sutton: Awesome. Well, this has been great. So essentially what we've talked about are the pros and cons and then the process of how you get somebody through Section 8. From my experience, is that again, you're looking at typically a Section 8 residents going to be more on the low to moderate income areas of town, but what my experience is once you find a Section 8 resident, they tend to stay there for awhile, in my opinion. I know that I've had ones that have been there for quite some time. I actually had one that was a nine year resident. I approved her as private pay because she said she was getting on Section 8 program, but she never qualified for the Section 8 program. So she was just private pay for nine years. But whatever, I've also had Section 8's that have been fantastic. Spencer Sutton: Good decisions, those are tough decisions sometimes, I think, but they could end up benefiting you over the long run. Harder in the beginning maybe, but better over the long run. Duncan Murphy: Yeah hey, nobody likes moving and Section 8 is not easy to qualify for. So when somebody finds a house that they love, they're going to be sticky. They're going to be a long term resident because getting a new voucher, submitting a new RFTA, it takes numerous months, I believe, for these participants. So you're right, you can expect a longer term resident. If you're holding up your end of the deal and the resident is doing what they need to do, yeah it should be a good relationship. Spencer Sutton: Yeah, there's more demand for these vouchers than there is supply and so they do not want to get off this program if it's in their best interest to stay on the program. So yeah, I agree. Once you find a good one they're going to take care of your property and follow the rules. It could be a great relationship. Spencer Sutton: All right Duncan, well thank you for this. This has been great and I want to ask everybody, if you would, if you've listened to this, listened to any of our other podcast episodes, if you would go onto Apple iTunes, give us a five star review, let us hear from you. It is great to hear back from people. We do get emails. I know that Duncan was just talking to an investor last week and he was mentioning the podcast, so we love to hear those things, but it would be great for other people to also read what you think about the podcast on Apple iTunes because it helps them make a decision, "Hey, is this something I need to listen to or not." Spencer Sutton: That is it for this episode and we will be back next week with a new episode of the Atlanta Real Estate Investor podcast.