The HUD Section 8 Program offers several benefits for investors and borrowers alike. The major upsides of the program include:

• Regular Payments from HUD: Section 8 landlords can expect a regular payment from the U.S. government for each and every month that their unit is rented. Additionally, rents don’t remain static-- in order to incentivize landlords to keep participating in the program, HUD will typically provide a rent increase of between 5-8% each year. (Source)
• Reduced Vacancy Issues: After getting approved for the Section 8 program, landlords are able to access a verified waiting list of Section 8 tenants in their area. Additionally, they can list their property on websites-- which enables tenants to actually reach out to them in order to rent out their units. In fact, there is usually a long waitlist for Section 8, so landlords typically don’t have to worry about a lack of interest. (Source)
• Reduced Capital Expenditures: While the property must still be kept reasonably well-maintained while renting to Section 8 tenants, landlords generally don’t need to make the more common large capital investments in upgrading the property’s aesthetic nature. Unnecessary things like fancy landscaping, brand-new appliances, and new flooring tend to be incredibly expensive-- but, since the Section 8 program brings tenants to the property, landlords will not need to invest in these things in order to keep the units rented. (Source)

The risks associated with Section 8 investing include bureaucracy and red tape, rent limits, tenant damages, no security deposits, and eviction challenges.

Bureaucracy and red tape can lead to delays in payments from HUD, or nonpayment. Rent limits are based on the Fair Market Rent (FMR) for the specific area in which a property is located, and may be lower than what a landlord could get on the open market. Section 8 tenants may be careless and cause damages, and landlords may not be able to collect security deposits. Evicting a Section 8 tenant can be a logistical nightmare due to HUD’s strict eviction rules.

For more information, please see Section 8 Investing: A Comprehensive Guide.

To become a Section 8 landlord, you must first visit the HUD website and fill out a Section 8 Landlord Application. This will involve providing personal information, as well as the current asking price of the units in your property. After your application is approved, your local public housing agency (PHA) will schedule a property inspection. In general, they will analyze the property for general safety and livability, looking at overall building quality, and attempting to ensure that plumbing, HVAC systems, and door/window locks are all in working order. Each public housing agency (PHA) has slightly different standards, so you should check prior to your inspection to ensure your property is up to par.

If you pass the inspection, you will then enter into negotiations over the rent. Section 8 offices will want to bring the rent as low as possible, while you will generally want the opposite. When a rent has been decided upon, you will receive a Housing Assistance Payments Contract. This contains a lease agreement that will be provided to all new Section 8 tenants.

It is also recommended that landlords do their due diligence and decide if Section 8 is right for them. For desirable properties in great locations with low average vacancy levels, Section 8 is typically not going to be the best choice. Additionally, landlords should manage tenants wisely, remove non-essential property, inspect their property regularly, and choose tenants wisely.

The best strategies for finding Section 8 tenants include running a background check, checking rental history, and evaluating tenant income and credit. It is also helpful to create a point system to add or subtract points for each positive or negative fact about a potential tenant. Property managers or leasing agents can also be outsourced to pre-screen tenants for final approval.

For more information, please see the following sources:

• Section 8 Investing: A Comprehensive Guide
• The HUD Section 8 Program: A Guide for Apartment Loan Investors

The most important things to consider when investing in Section 8 housing are:

• General Background and Criminal History: Running a background check can help prevent you from accepting a tenant with a serious criminal history. In addition, doing a simple Google search can also help you make sure you aren’t accepting a tenant that’s been involved in any suspicious activities-- which can save you a lot of grief in the long run. Source
• Rental History: Checking a person’s general history is important, but checking their rental history is also essential. If a tenant has rented long-term at other properties, it’s generally a good sign, while landlord issues and evictions are generally warning signs. If you’re on the fence about a tenant, you may wish to ask them if you can contact previous landlords to learn more. Source
• Tenant Income and Credit: While many Section 8 tenants have 100% of their rent paid for by the government, some only have 70-80% of their rent subsidized. For instance, a renter with $800 rent and a 70% subsidy would be responsible for paying $240/month. In general, a tenant should make 300% of their rent per month, so, to be safe, you would want this tenant to have an income of at least $720/month. However, income isn’t the only factor you may want to look at-- credit score is also important. Obviously, tenants with good or great credit (650+) are more desirable than those with poor credit. In addition to credit score, you may also want to look at the amount of overall debt they have. Source
• Decide Intelligently if Section 8 is Right for You: For desirable properties in great locations with low average vacancy levels, Section 8 is typically not the best choice. In this case, you can usually keep your property filled with tenants who will pay higher rents, without the hassles, risks, and bureaucracy of the Section 8 program. Source
• Manage Tenants Wisely: Managing your tenants can be one of the biggest challenges of the Section 8 program. In general, it’s recommended that landlords set rules and enforce them strictly; otherwise, serious issues could ensue. Of course, landlords may wish to hire a property management company with specific experience in Section 8 properties. However, this can be difficult, as many mainstream property management firms are hesitant to work with Section 8 tenants. Source
• Remove Non-Essential Property: Since HUD does not provide any kind of security deposit for Section 8 properties, you will want to limit the amount of things in each unit that can be broken, misplaced, or outright stolen. This includes appliances, screen doors, furniture, ceiling fans, and garbage disposals. These are not required by HUD, and will not affect the rents you receive, but will increase your expenses. Source
• Inspect Your Property Regularly: Even if you have decided to farm out many of your everyday responsibilities to a property management firm, you should still regularly do in-person property visits in order to check for problems, including utility issues (i.e. water leaks), which can be incredibly expensive over time.

Maximizing your return on investment when investing in Section 8 housing requires knowledge and understanding of the program. You should focus on learning as much as possible to help improve your property’s profitability while greatly reducing potential hassles and financial risks.

For example, you should research the different loan products available to you, such as FHA loans, HUD loans, and other government-backed loans. These loan products can provide you with lower interest rates and longer repayment terms, which can help you maximize your return on investment. Additionally, you should look into tax incentives and other benefits that may be available to you as a Section 8 landlord.

Finally, you should also consider the potential risks associated with Section 8 housing. You should be aware of the long wait times, bureaucracy and red tape, and the risk of obnoxious or challenging tenants. Taking the time to understand these risks can help you make an informed decision about whether or not to invest in Section 8 housing.