fbpx

How To Work With Section 8

As a rental property owner, you might think that Section 8 sounds great but find yourself jumping through many hoops and waiting around on paperwork. The upside, though, is knowing that once you get the tenant in your house, you know that subsidy will be paid every month.

But, have you ever asked yourself, how does Section 8 work? If so, keep reading for an in-depth look at what Section 8 is, how it works, and how to work best with it.

NOTE: This article is a mix of general insights and details on Section 8 and an interview between myself and a local investor and longtime house inspector, named Wayne.

Let’s go!

What Is Section 8?

Section 8 can be confusing, which is why it’s crucial to have a thorough understanding of how it works as a rental property owner. You’ll want to ensure you understand what it is, the different types, eligibility, and how to apply for Section 8. Lastly, you’ll also want to be mindful of your relationship with Section 8.

But first, what is Section 8?

Section 8 of the Housing Act of 1937 is often referred to as Section 8 and provides rental housing assistance payments to low-income households throughout the United States. These payments are made from the federal government to private landlords on behalf of low-income families.

Types of Section 8

There are two basic types of Section 8: tenant-based and project-based.

Tenant-Based Section 8 Housing

The tenant-based section 8 housing is the Housing Choice Voucher, in which the voucher is attached to the applicant. The voucher can be used at any property as seen fit by the PHA, and renters may search for homes in the same places anyone else would.

Project-Based Section 8 Housing

Project-based Section 8 housing is connected to specific properties. The vouchers are given at a fixed number to private property owners each year to reserve specifically for Section 8 tenants.

Section 8 Eligibility

To determine eligibility for Section 8, the Public Housing Authority (PHA) will look over four primary factors of an individual, including:

  • Income – cannot exceed 50% of the median income for the rental area
  • Family size and composition – minor children, disabled people, individuals over 62
  • Citizenship – must be a U.S. citizen or have eligible immigrant status
  • Eviction history – must not have any evictions or other serious lease violations

How to Apply for Section 8

Applying for Section 8 is as easy as following these three steps for renters:

  • Visit your local Public Housing Authority (PHA)
  • Fill out and submit your application
  • Once the paperwork has been reviewed, you will be accepted, rejected, or placed on a waiting list

My Experience with Section 8

Back when I was involved in buying/selling houses as an investor, I had a love-hate relationship with Section 8.

When I bought houses for rental, Section 8 sounded great. But I always ended up jumping through a lot of hoops and waiting on paperwork.

I’m not a very patient guy in that regard, so it was tough.

But once I got the tenant in the house, I knew that subsidy is going to be paid every single month.

I even had a tenant on Section 8 where she was getting a majority of her $724 rent paid through Section 8. But slowly she worked herself out of the system and she was paying 95% of the rent herself.

I believe this is the whole point of the program.

But Wayne, an inspector with Section 8 as mentioned earlier, has far more experience than I do having inspected some of my houses back in the day.

There are a lot of questions that investors have when it comes to working with Section 8.

In the following sections, you’ll hear snippets from a conversation I had with Wayne about Section 8 and how investors need to work with it.

How to Best Work With Section 8

Now that you have a better understanding of what Section 8 is and you are no longer asking yourself how does Section 8 works, the next step is understanding how to best work in these types of situations as a rental property owner.

SPENCER: Okay, Wayne…I’m an investor, I buy a house, what do I need to know about working with Section 8?

1. Build a Relationship With Them

If you want to have any kind of success within Section 8, you’ve got to build a relationship with the caseworkers and inspectors. Reach the inspectors on the phone and remember that they are your gateway to the caseworkers and how best to deal with Section 8.

Through that relationship, they will get you in front of those people first hand. They will line things up for you that you would typically not get lined up.

2. Do Your Homework on Their Guidelines

You can go online, and you can research the guidelines. Some things you might want to consider looking into include:

  • What the housing quality standards are
  • What the housing choice voucher is
  • How the housing choice voucher works
  • What Section 8 is paying every February in your area based on the bedroom size, subsidy size, and the tenant’s voucher
  • Find max subsidy averages in your area

So, whichever area you’re in, you’re going to see federal guidelines that come out every February. Once they roll out every February, you’re going to see the policies that the government has said are an appropriate standard for a two-bedroom, a three-bedroom, a four-bedroom, a studio, or one-bedroom. Whatever the case may be, you will see the maximum amount of rent you can expect for the home, regardless of the tenant’s income.

But, there is a cap on each of those that will help you understand when you’re looking at what you could potentially get through your house through Section 8 subsidy. You’ll know there’s a max there, so if you get the right tenant, maybe you’ll get the full subsidy.

How Does Section 8 Work?

So, does it depend on the tenant? That’s how you get the max amount, or does it depend on some other variation?

The truth is that anybody will tell you there’s a formula that not even the caseworkers or the directors understand. Ultimately, they plug it into a program, and the program spits them out a number. But, the best rule of thumb is that Section 8 will pay at least 1/3 of what the tenant has come in.

Or, the less amount of money that a tenant has come in, the greater the subsidy. So, sometimes a tenant who falls on hard times will go below that standard. The housing authority will raise the subsidy to meet the tenants’ needs so that the two can come together.

There is nothing dead set in stone about any of it. That’s why many people get confused because when they receive a voucher from someone, they receive an RFTA (Request for Tenancy Approval) and see that the tenant has a two-bedroom or three-bedroom voucher. They may be asking $750 for the house, but they don’t know if the tenant can come up with $750 for the home.

Pay Close Attention

The main point is you always want to pay attention to the max rent subsidy for that tenant. Your prospective tenant will show line item by line item how much they are subsidized for utilities, how much they are subsidized for their portion of what the government will pay, and it will show you what their share is towards the house contract. And they total that number up at the bottom, so you see a max subsidy.

So, if someone comes in and says they want to rent a $1,250 house and have a $1,250 max subsidy, then you know that there’s no way they’re going to be in the ballpark of that $1,250 that you’re looking for.

Then you have a choice. You can drop the price, or you don’t have to work with them at all because Section 8 is not a protected class.

Rental Property Owners Beware

Everything has to be clear-cut. It’s not a good idea for owners to take deals that sound like this, “I want your house, but I’m only approved for $650. Your house is renting for $750. I’ll pay you the additional $100 per month above and beyond the subsidy and what I’m approved for.”

The reason it’s not a good idea for owners is that it is illegal. It is breaking federal law, and you can be fined, and you can serve federal prison time for breaking that law. A tenant cannot pay over and above what their subsidy is for anything.

What the lease is and what’s in the HAP contract have to match. Everything you do needs to be upfront, ethical, and legal!

If you accept payment above and beyond the agreement, the tenant will lose their portion, they will lose their voucher, and you will end up with a tenant squatting in your house for a while until they find somewhere else to go. They won’t have anything to lose because there’s nothing holding them to your home anymore.

3. Ensure Your House is Rent Ready Before the Inspector Visits

There’s nothing that makes an inspector more upset than when an investor calls and says, “My property is ready for inspection,” but it’s not near ready to be inspected. For example, the inspector will go out, and all of the utilities in the home are off. Any utility, gas, water, power, or anything that’s going to be on in your name, the owner, has to be on when they do the inspection.

Most inspectors will turn and walk away if any of these utilities are not turned on. They’re going to feel like you didn’t take the time to do your job. Essentially you’ve just wasted their time. There are so many inspections that need to be done by the Section 8 inspectors. Some of them do 20 a day, and they don’t have time to keep coming back to the same property over and over. 

If your house is ready, they will see that you are trying to work with them.

The main thing that offends many inspectors is when they feel like you don’t care about working with them. That makes them feel like they’re an unimportant piece of the puzzle.

Again, it’s going back to building a relationship. If you don’t care about their part of the puzzle, they’re not as likely to care about your part of the puzzle when it comes down to it.

What Is The Formula?

Spencer: So does it depend on the tenant? That’s how you get the max amount, or does it depend on some other variation?

Wayne: Well, actually anybody will tell you there’s a formula that not even the caseworkers or the directors understand. You know, they plug it into a program and the program spits them out a number.

But the best rule of thumb is that Section 8 is going to pay at least 1/3 of what the tenant has come in. If your house is $700 per month, the tenant may pay $400 of it, and the subsidy maybe $300 of it.

Or the less amount of money that a tenant has come in, the greater the subsidy. So sometimes a tenant who falls on hard times will go below that standard. The housing authority will raise the subsidy in order to meet the tenant’s needs so that the two can come together.

I call it the magical formula. There is nothing dead set in stone about any of it. That’s why a lot of people get confused because when they receive a voucher from someone, they receive an RFTA (Request for Tenancy Approval) and see that the tenant has a two-bedroom or three-bedroom voucher.

They may be asking $750 for the house but they don’t know if the tenant can come up with $750 for the house.

Pay Attention!

The main point is you always want to pay attention to the max rent subsidy for that tenant.

This prospective tenant will be able to show line item by line item how much they are subsided for utilities, how much they are subsidized for their portion of what the government is going to pay, and it will show you what their portion is towards the house contract. And they total that number up at the bottom so you see a max subsidy.

So if someone comes in and they say they want to rent a $1,250 house and they have a $1,250 max subsidy, then you know that there’s no way they’re going to be in the ballpark of that $1,250 that you’re looking for.

Then you have a choice. You can drop the price or you don’t have to work with them at all because Section 8 is not a protected class.

Beware!

Spencer: I remember when I was renting out my own houses, Section 8 tenants would come to me and say, “I really want your house but I’m only approved for $650. Your house is renting for $750. I’ll pay you the additional $100 per month above and beyond the subsidy and what I’m approved for.”

Why is that not a good idea for owners to take?

Wayne: Definitely not a good idea for owners because it is illegal. It is breaking federal law and you can be fined and you can serve federal prison time for breaking that law. A tenant cannot pay over and above what their subsidy is for anything.

Everything has to be clear-cut.

What the lease is and what’s in the HAP contract have to match. Everything you do needs to be upfront, ethical, and legal!

If you accept payment above and beyond the agreement, the tenant will lose their portion, they will lose their voucher, and you will end up with a tenant squatting in your house for a while until they find somewhere else to go.

And they don’t have anything to lose because there’s nothing holding them to the house anymore.

Spencer: What are you going to do if accept that extra $200 because you want a certain amount for their house…and then all of a sudden the tenant stops paying that extra $200 every month?

You really can’t do anything about it because it’s not in the lease, it’s not on record with Section 8. And it’s against the law…at this point, you’ve got a problem.

That’s when you go ahead and accept a lower payment every month because you can’t evict the tenant for nonpayment. If it’s not in the lease, you cannot evict them for nonpayment.

In Closing

Hopefully, now, you no longer have to ask yourself, how does Section 8 work? As you can see, as a rental property owner, you may find yourself jumping through a lot of hoops and waiting around on paperwork, but you can rely on the fact that the subsidy will be paid every single month.

Want to learn more investor and landlord tips? 

Whether you are an investment property owner, someone trying to sell your house, or looking to grow your portfolio, we have the information you need. Check out the Evernest YouTube channel today to learn the ins and outs of buying and managing your rental property. 

Subscribe Today