Friday, February 22, 2013 / by Sandra Wimett
There are three parties involved in a Section 8 transaction, the tenant, the property owner and the government. If any one of these parties steps out of line, the other two can refuse to continue to do business with that non-conforming party.
The government sets the requirements for how they want their ‘clients’ to be treated when they show up on the landlord’s door with a voucher. If the landlord decides that the requirements for Section 8 are too difficult or that the requirements for being in the program won't work for him, he can choose not to accept those residents.
The resident gets a voucher that they can use to lease whatever meets theirs and Section 8’s needs and guidelines. The resident must abide by the terms of the lease or the landlord can evict them and the resident will lose their voucher. Once a voucher is lost, it is very hard to ever get it back. Powerful incentive to abide by the rules.
If you are looking to buy multifamily property and you know, this type of property qualifys for Section 8 residents, but the rent roll shows that there are no residents using Section 8 vouchers. What does this mean?
Here’s what you need to do. When you realize that there are no Section 8 residents, ask the broker why not. I can almost guarantee you that the next thing you hear will sound something like this “oh, the owner does not like to deal with Section 8.”
Don’t believe it. Here’s what that is code for in my book . . .
The property is in such disrepair that even Section 8 has blacklisted it and has refused to allow any of their residents to move there. But doesn’t this create an opportunity for you?
Maybe, maybe not. The next phone call you make should be to the Section 8 office, or if you happen to be in town, bring them bagels and get a good relationship built with your local Section 8 Office.
Ask them if the property that you are looking at is ‘in abatement’ with their office. This is the ‘kiss of death’ for a property. If we hear that one of our units is in abatement with Section 8, the maintenance man had better have a very good explanation and plan for getting that fixed immediately. When a property is in abatement, Section 8 will not send any more potential residents.
The owner does not like to deal with Section 8 because his property cannot even meet the basic minimum requirements for qualification. Not a good position for the new owner to be in.
Now, let’s get back to this being a value-play. What if you came in and fixed all the problems and went back to Section 8 and asked to start having their clients come looking at your new property. What then?
Remember that the people in the Section 8 office are just like you and me – once bitten, twice shy. You may be the new owner but the reputation of that property hovers over that office like the Bubonic Plague. Overcoming that will take years of reputation management .
Maintain strong relationships with Section 8 and you will run a very successful multifamily real estate investing business. Step out of line and the other two people at the table will stop dealing you in.
Section 8 can definetly be your friend and you can earn great rents but you need to follow the rules to the game and your properties need to be kept up to standards.