How does Section 8 housing work?
After the landlord and tenant have been approved by the Section 8 housing voucher program, they enter into a lease agreement separate from the local public housing authority and Section 8 program. If a rental deposit is collected, it is paid directly by the tenant to the landlord and is not a part of the subsidy.
For example, say you own a two-bedroom single-family home in Orlando, Florida. You decide you want to rent the house for $1,225, which is close to the market rent for the specific neighborhood.
HUD's fair market rent for 2020 in Orange County is $1,248, which means the maximum allowable rent you could charge would be $1,248. Let's say you found a qualified tenant who had a voucher for $1,100. Each month your local PHA would pay you $1,100 directly, and the tenant would pay the remaining $125. If you found a tenant who qualified for the full $1,225, you could receive your entire $1,225 rental amount directly from the PHA each month.
How to become a Section 8 landlord
Landlords who want to participate in the Section 8 program should apply with the local public housing authority, providing basic information about themselves and the property include:
- Name and address of landlord
- Address of property
- Lease period or start date
- Proposed rental rate
- Included utilities
After reviewing your application, the PHA will inspect your property to ensure it is up to local health, safety, and building codes. The goal is not for the rental property to be in perfect, updated condition but for it to be "decent, safe, and sanitary housing" for a tenant. The property at minimum, should:
- Be free of chipped paint
- Have up-to-code plumbing and electrical
- Include heating or cooling units (depending on its location)
- Landlords who want to participate in the Section 8 program should apply with the local public housing authority, providing basic information about themselves and the property include:
If the PHA feels your asking rent is too high, they may require you to lower your rate to meet market standards. Once approved, you can find a qualifying tenant who meets your own tenant screening standards.
Pros of Section 8 tenants
Most landlords participate in Section 8 housing because all or most of the rent is guaranteed income. Landlords don't have to worry about late or missed payment for the approved voucher amount since it's paid directly from the PHA.
Partially prescreened tenants
The public housing authority has its own screening process for applicants which includes running a criminal background check, drug testing, and verification of income. It's helpful to know the applicants have met certain standards to qualify for Section 8, but it's highly recommended each landlord conduct their own tenant screening process as well.
Lower vacancy rates
In most areas demand for Section 8 approved housing far outpaces supply, which means when a vacancy does occur, it's filled quickly. Residents often stay in Section 8 housing for longer, as well, because of its guaranteed rental assistance, as long as there is not a dramatic change in their income or family size.
HUD and many local PHAs offer free websites to advertise housing specifically for Section 8 tenants. This reduces advertising costs and gets your rental in front of more applicants.
Cons of Section 8 tenants
Each year, the local housing authority will send someone to conduct an inspection of your property to ensure it remains compliant to their standards for Section 8 housing. If you fail the inspection, you will be required to fix the issues or you could risk losing your subsidy.
Rental pricing caps
HUD determines your maximum allowable rent, capping your rental income based on the number of bedrooms the property has for the designated area. Meaning if HUD says the fair market rent for a three-bedroom rental in your area is $1,387, you cannot charge more than that amount even if market rents would allow. If you are in an area that justifies a higher rental rate than HUD's defined fair market rent, it may not make sense to rent to a Section 8 tenant.
Delay in first month's rent
A common practice in rental real estate is to collect a security deposit and first month's rent before move-in. But with Section 8 housing, the first month's rent is not paid to the landlord until after the tenant has moved in -- and it can even be delayed by one to several months. However, once the initial payment is distributed, deposits are consistent. If you cannot financially sustain the property until then, renting to Section 8 may not be a good option.
Potentially challenging tenants
Tenants who participate in Section 8 are low-income families who qualified because they make no more than 50% of the median income for the area. Lack of job stability or earning just enough to support your family's need for food, shelter, clothing, and other basic necessities can make it difficult to pay rent on time -- even if it's a portion of the rent.
Some landlords feel lower-quality tenants are more common in Section 8 housing, leading to more problems, property damage, headaches, and evictions. While that statement can be true of any tenant regardless of their income, it is a risk. Quality tenant screening can help you avoid renting to a "challenging tenant."