I saw an ad for a Section 8 speaker touting their
government-sponsored rental assistance program as “Free Rent” for landlords. I had to laugh. As we’ve been told our whole lives, nothing
worthwhile is free. And the Section 8
program is not an exception to the rule.
For the uninitiated, the Section 8 housing program allows
people who earn under a certain income to receive a housing voucher to
partially subsidize or pay for their rent in full. This seems like a boon for landlords.
The process looks like this: For the tenants, they need to
scour rental home ads and find landlords who are willing to accept Section 8
vouchers. For the landlords, they need
to willingly accept them. The problem is
that many landlords choose not to accept them, which seems strange. The landlords do not want government-guaranteed
“free rent”?? Well, maybe free isn’t
always so free…
A big misconception is that the tenants are the reason
landlords hesitate to accept Section 8 vouchers. To me, this is patently false. Some of our nicest and best tenants use
Section 8. Really, on our rental
applications for Section 8 tenants, we run them the way we typically do, but
deemphasize income and credit score requirements as Section 8 has them
partially backstopped.
So, if the tenants are good, why not accept Section 8? The 5 main reasons many landlords choose not
to accept Section 8 vouchers:
1. Too much
paperwork. It’s not easy for landlords,
especially non-real estate professionals, to navigate the process.
2. The governmental
standards for housing are really high and your house will fail the
inspection. Slum lords (ex: the type of
people who ask if tenants really need clean, running water) are not the only
people that fail; almost everyone fails the inspections. I can speak from personal experience,
anecdotal evidence, and conversations with the inspectors. I asked one inspector what percentage of
homes passed their first time and he laughed.
“Seriously? Zero percent. I’m not kidding.” He went on to say that his own house wouldn’t
pass a Section 8 inspection. Our latest
fail report had paint splatter on a strike plate and a loose electrical outlet
as reasons it failed. When there are
hundreds of items that the inspectors are looking for, you are behind the eight
ball.
3. Customer service is
typically unresponsive. I don’t really
blame the employees. The workload that
is saddled on them is immense. I asked
an inspector the other day a question about a failed item on the inspection
report and she exhaustedly told me she couldn’t remember- she conducts 15
different home inspections every day!
So, bottom line, getting anything accomplished with them takes a lot of
time, energy, and follow-up.
4. Waiting is the
hardest part. We had a house that took 5
weeks to get an initial inspection. So,
for 5 weeks, we ate the rent and utilities as the house stood vacant. There was no “free rent” or sympathy. After the home inevitably failed, there was
another 2 week wait for a reinspection. The
combined 7 weeks of non-recoupable utility and mortgage payments hurt. So did the vandalism that occurred as the
house sat empty.
5. Re-inspection
failures and rent abatement really hurt.
So, let’s say you pass the initial inspection and the tenant moves
in. At the ten-month mark of the tenancy,
there is a reinspection where the Section 8 inspectors look for housing
violations. We used to occasionally pass
these, but that hasn’t happened in the past few years due to stricter
regulations. The inspectors will find
new things that happened during the tenancy; sometimes they find things they
missed on the first inspection. Our
latest fail was partially for a loose banister.
The problem with failing reinspections is that you are given
one chance to fix the items. They
provide a punch list so it should be as simple as giving it to a handyman to
fix, right? Well, the descriptions
detailing what is wrong are nebulous and getting the inspectors on the phone to
ask them to remember your home and a specific issue is not likely. The handyman does the best he can, but when
it fails, you enter into the unfriendly world of rent abatement.
Rent abatement is how property managers get fired and cash flow
becomes difficult. It starts with the
failed second inspection. This letter
comes a week after the inspection letting you know what items you failed. You are instructed to fix the outstanding
items and then schedule a final reinspection.
During this time, not only is rent deducted for the abated period while
waiting for the final inspection (your bank account is debited the following
month on the 1st when payments are made), there is no rent paid for
the coming month. For example:
Your rent due is $900/month and your abated 2-week period costs
you ($450).
On the first of the month after abatement, not only do you not
receive the $900 due (and the tenant is still living in your rental home and
the bank wants your mortgage payment), you are clawed back $450 (payable
immediately). This essentially puts you
in the hole $1,350 (not counting the funds for the repairs on the home). Cash flow becomes a big issue. This is when “free rent” becomes “free rent”
for the government. You’re a great
citizen to do this, but you don’t feel so great when this happens.
If you pass on your final reinspection, you will get the $900
back the following month (the $450 is gone forever). If you fail, your contract with Section 8 is
terminated and the tenant is free to leave.
This presents a much bigger problem as the tenant usually doesn’t have
money to pay rent, Section 8 is not paying you, and the tenant needs to enter
the arduous, time-consuming process of finding a new Section 8-eligible home
(while living rent-free in yours).
In closing, Section 8 can be a good program if you know it well
and have repair people very familiar with their changing requirements. However, “free rent” for landlords is a
gigantic misnomer and is about as far away from the truth as you can get. It can be intelligently argued that Section 8
vouchers are much more risky than working with non-subsidized tenants. “Nothing is free” is the true mantra!
Brett Furniss is President
& Owner of BDF Realty (Charlotte Residential Property
Management), the trusted real estate advisor for Charlotte
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