The Housing Choice Voucher Program: What Multifamily Investors Should Know
The HUD Section 8 program is the U.S. government's largest housing assistance program. In order to help low-income families find quality housing, a local Public Housing Authority (PHA), funded by HUD, will pay a private landlord part or all of the unit’s rent. The largest program within Section 8 is called the Housing Choice Voucher Program, which allows a family to choose their own unit from within the pool of Section 8 properties in their area. Landlords generally apply for the Section 8 program due to the fact that they will receive steady monthly rent payments from HUD, and because they will, in essence, have a waiting list of tenants lining up to rent from them.
Requirements for Section 8 Landlords and Tenants
Before getting approved for the HUD Section 8 program, the local PHA needs to inspect the unit and the property to ensure that it’s safe and suitable for tenants. Plus, it’s important to realize that the unit rental amount needs to be less than or equal to the FMR (Fair Market Rent) for that individual area. Fair Market Rent is a statistic published by HUD used to determine rents for the Housing Choice Voucher Program and other HUD programs. HUD will often pay around 70% of a tenant’s rent, leaving them responsible for paying the rest directly to the landlord.
Under the Housing Choice Voucher Program, when a tenant chooses a unit at an eligible Section 8 property, and the lease is approved by the PHA, the tenant must sign on to a minimum 1-year lease. After that period of time, the tenant and landlord may enter into another long-term lease, or go month-to-month. Most landlords require security deposits, though these are not generally large, due to the fact that Section 8 eligible tenants have very limited income.
Housing Choice Vouchers vs. Project Based Vouchers
While tenants with Housing Choice Vouchers can choose between a variety of Section 8 units, the Project Based Voucher (PBV) program offers tenants affordable housing in a specific unit. Unlike Housing Choice Vouchers, which tenants may generally use at any local Section 8 property, tenants generally lose their housing benefits if they move elsewhere. Like Housing Choice Vouchers, Project Based Vouchers often pay 70% of a tenant’s rent, leaving them responsible for the remaining 30%.
Section 8 Leasing Considerations
For tenants, Section 8 programs, such as the Housing Choice Voucher Program, are highly competitive, with some families waiting years in order to get a unit. In many situations, tenants must simply wait to get on a waiting list. While this isn’t ideal from a housing policy standpoint, the high demand for these properties means that there will nearly always be tenants waiting to sign a lease-- nearly eliminating the marketing costs of leasing a multifamily property. All landlords need to do is post on one of the Section 8 listing sites, such as GoSection8.com. Despite ease of marketing, tenant quality can be an issue, with some Section 8 landlords accusing tenants of disrespecting and vandalizing property. For this reason, effectively pre-screening tenants is essential, with an emphasis placed on background checks, income/credit verification, and previous rental history.
Due to these factors, Section 8 involvement is not usually ideal for owners of brand new, high quality properties, as they can often command higher rents on the open market, while avoiding the potential tenant issues and bureaucratic red tape that Section 8 is often known for. In the end, while renting to Section 8 tenants can be an excellent business for some people, it isn’t right for everyone, so investors considering Section 8 participation should do as much research as possible before making a final decision.
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