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An investment in real estate can come in a variety of flavors, sizes, styles, and strategies. A very profitable strategy that works for many investors is to focus strictly on residential Section 8 tenants.  

Section 8 tenants are low-income tenants that supplement their rental payments of market rate units using government vouchers to off-set their low income. I (Alan) have several properties and tenants using Section 8 vouchers to pay for all or some of the rent and I'll break down the pros and cons for you so you know what you are in for.

You ready for a real deep dive on this?

Something like that, yeah.

1. Pro High Demand, Con Red Tape

There is a strict criteria to qualify and get approved to be a Section 8 tenant. There is often a waiting list to get approved and if you ever break a lease or fail to hold up your end of the agreement as a tenant, you get kicked out of the program forever. This often creates incentives for tenants to be respectable and follow leases to a T, which is an excellent perk for landlords.

However, the majority of areas have more tenants looking for a place to live (demand) than there is Section 8 approved housing for them to live in (supply). The con is the red-tape associated with getting your property to be Section 8 approved. It can take forever with multiple rounds of inspections and loopholes and waiting on the right people to put the right stamp on the right document.

Most find the hurdles and time worth it, but it can be frustrating when you have a vacant property sitting for months until you are officially qualified to accept vouchers from the HUD Section 8 program.

Oh, so you know the feels already!

2. Pro Guaranteed Rent, Con Strings Attached

It's great that during Covid, financial crashes, or natural disasters your rent will still come in when other landlords may be struggling. The good news is that yes, the government will always pay their portion of the rent (i.e the vouchers which will cover 30-100% of rent depending on the tenant's income.) There's nothing quite like having reliable income on your investments.

The con is you have to do whatever the government says in return. You have to fix everything they want you fix, even if it feels inane or non-sensical. The craziest thing is that you may have to fix the neighbor's property to stay in the program! That's right. The government doesn't want their tenants living on streets that have overgrown yards or boarded up windows on the street, so you may have to become "landlord of the block" to keep things moving.

It's a decent exchange for guaranteed money from the government. So let me check in with you, is this a deal breaker?

Well, if that's the only way you'll take money, then maybe sing some "Bye, Bye, Bye" to Section 8.

3. Pro Cash Flow, Con Appreciation

Properties that attract low-income tenants are usually in neighborhoods that are lacking in some other form: public education, public transportation, private amenities, and so on. This often means that home prices are lower than in comparable areas nearby. Why is this a pro? Well, low purchase prices and market rent mean great cash flow! Ding, ding, ding!

However, of course, there is a catch, which is that your chances are often on the low side for home appreciation for this same reason. Your property is slightly less liquid when it comes to selling as you often are going to have the best chance to selling your property to another Section 8 investor rather than primary home-buyer or short-term rental investor.

Yes, billionaires like appreciation on their invested capital, but we all can't be Michael Bloomberg. With enough cash flow, this is a con outweighed by its pro.

In other words:

• All investments have pros/cons and risks/rewards
• Section 8 is for cashflow over appreciation
• Free money has strings attached
• Red tape ain't for everyone