Jorge and Rafi explain Section 8 housing, while comparing it to private pay rentals and sharing surprising Section 8 investing examples. Investing in Section 8 housing takes patience, but it can be very profitable for knowledgeable real estate investors.
01:53 Rafi: Good morning everyone! My name is Rafi.
01:55 Jorge Vazquez: My name is Jorge Vasquez.
01:57 Rafi: We are here in another Graystone Brown Bag Session. Where you can find us?
02:02 Jorge Vazquez: You can always find us at Homes4Income.com. And that is homes, the number four, not three, two. Four.
02:09 Rafi: Homes, the number 4.
02:11 Jorge Vazquez: Income.com.
02:12 Rafi: Excellent. And today’s… Remember, please make sure that you share this on your timeline. So we’re gonna give them, we’ll give them, five seconds, you think? For them to share this. So make sure that you share this session in your timeline, okay? Five, four… And that means that you shared that in your timeline. Don’t forget also to follow us on notifications and make sure that you like our page. GraystoneInvestmentGroup.com, I mean, GraystoneIG.com. But, again, Graystone Investment Group in Facebook. Just search for us, like our page, and that way you know exactly what’s going on. Remember that these Brown Bag Sessions, we are answering one question from one of our viewers, so if you have a question, make sure you go there and ask a question, and you may be selected for next week.
03:08 Rafi: The topic this week, I think it’s very, very interesting. We had an article about it a while back and it was one of our top articles in terms of views and reads and all that kind of stuff. And I think the topic is great. Section 8. I think a lot of people have heard about Section 8 and they have some preconceived notions about it. This was a law that was enacted back in the 1930s, it’s a very old section of the HUD law and it has progressed from time to time, but today, it’s a very complex law. But today, we’re focusing on one particular thing from the Section 8, which is, which one is a, quote unquote “better tenant?” A private pay or a Section 8? So, Jorge, I know you have had a lot of experience with Section 8 here in Tampa Bay. First, talk to me a little bit about, what does a Section 8 tenant, is, in terms of managing that process?
04:17 Jorge Vazquez: Well, that’s a good question. Pretty much, a Section 8 tenant is a person that’s gonna potentially rent your property, so they’re looking for a property for rent and is assisted by the government. Nine times out of 10, it’s either the government is paying the whole amount of rent or a portion of it.
04:39 Rafi: So the tenant… It’s not that you go to the government and say, “Hey, I have a property that’s Section 8.” The tenant is the one that requests the Section 8 voucher to the government, right?
04:52 Jorge Vazquez: Correct, correct.
04:52 Rafi: Okay.
04:52 Jorge Vazquez: And sometimes there could be a waiting list of a year or two, depending on your financial situation, for that tenant. To answer the original question, a lot of people ask me this all the time. I have investors saying to me, “Should I invest in Section 8?” Or, “I’m afraid of investing in Section 8.” I believe the answer to that is it’s not so much which one is better, it’s that you’re open and understand the process to be able to be open for Section 8. ‘Cause it has it’s advantages and disadvantages, and we’ll talk a little bit about that today.
05:30 Rafi: Okay. So let’s first start with the advantages, let’s stay positive. What are the good things of having a Section 8 tenant?
05:41 Jorge Vazquez: Well, the number one thing Rafi, guaranteed payment by the US government.
05:44 Rafi: Woah, woah, woah, woah, woah. We all know, and if you go back to video two, we know that vacancy is one of the biggest expenses for investors. So when you say stable and guaranteed payments, talk to me a little bit about that, because that sounds like the solution to my vacancy problems.
06:04 Jorge Vazquez: Yes, it’s a more complex process than just, “Here is a check from the government.” But once the property has been approved, the property has to pass inspection, the tenant has to qualify, and in order to qualify, it’s not easy.
06:18 Rafi: Okay.
06:20 Jorge Vazquez: The tenant is given a voucher, as long as the voucher is valid, it’s up to date, then the government is gonna guarantee that rent and it’s gonna come into your account as direct deposit.
06:34 Rafi: So it’s not like me having to knock on doors or you know… Actually, the property manager, because remember, property managers for your properties always. It’s not like the property manager has to be chasing the tenant for the payment. Basically, once you get that arrangement with the tenant, the payments go directly to you. Now, I know, for example, with the tenant, with a private pay tenant, you got a security deposit and you start getting payments right away. Is that the case also with Section 8, that you start getting payments right away? Or it takes some time, because it’s government at the end?
07:07 Jorge Vazquez: Well, now you’re jumping to the disadvantages of Section 8, you know?
07:12 Rafi: Oh, I’m sorry.
07:15 Jorge Vazquez: The most important thing that you need to have with Section 8 housing is patience.
07:19 Rafi: Okay, so let’s do this. Let’s finish with the advantages and we’ll table this one as a disadvantage. So again, stable and guaranteed rents, I like that. I like the fact that there’s stable and guaranteed rents in Section 8. What would be another benefit of having a Section 8 tenant?
07:36 Jorge Vazquez: I’m gonna give you a scenario from one of my investors that purchased a property years ago.
07:41 Rafi: Okay.
07:42 Jorge Vazquez: Higher rents. And I’m gonna give you a specific scenario.
07:46 Rafi: Higher?
07:46 Jorge Vazquez: Higher rents.
07:48 Rafi: From government, higher rents?
07:50 Jorge Vazquez: Higher rent.
07:50 Rafi: Okay. I just wanna make sure that I understand right.
07:53 Jorge Vazquez: And the capability of increasing those rents periodically.
07:55 Rafi: Okay.
07:56 Jorge Vazquez: Every year the government says you could increase, you could…
08:00 Rafi: X%, 2%, okay.
08:02 Jorge Vazquez: X% and nine times out of 10, they’ll accept it, they’ll accept the increase.
08:07 Rafi: So you were going to give an example.
08:08 Jorge Vazquez: To give you an example, I had a friend of mine, and I’m sure he doesn’t mind if I say his name, Tony, he bought a property in [08:16] ____ City about seven, eight years ago and the going rent for that property was a 5:2. The going rent for that property, the market rent was about $1,100.
08:28 Rafi: Okay.
08:28 Jorge Vazquez: And he had the option with the private pay, plus the Section 8 tenant, he ended up getting the Section 8 tenant.
08:36 Rafi: Okay.
08:37 Jorge Vazquez: Four years later you know where the rent was at? $1,700 a month.
08:40 Rafi: Wow.
08:43 Jorge Vazquez: $1,700 a month.
08:45 Rafi: Okay.
08:46 Jorge Vazquez: So, as long as… There’s more risks with Section 8, because it takes extra steps, but as long as you understand the system, you understand the psychology of the tenant and how to deal with the whole thing, it could potentially get you higher returns.
09:03 Rafi: So I think, again, remember that our recommendation is always to have a property manager. I think then, the key thing is to find a property manager that has experience with Section 8. You know, we just had, for example, right now, we’re working with one that he has experience with Section 8. He knows the ins and outs, you know, Tampa HUD office and all that kind of stuff. So it’s important to get a property manager that knows those things, and, for example, knows the fact that, “Hey, every year you can ask for an increase on the rents.” And stuff like that. What would be another benefit of having a Section 8 tenant?
09:38 Jorge Vazquez: So because we’re tight on time, we’ll go over the next three very quick.
09:43 Rafi: Okay. Oh, so you have five?
09:44 Jorge Vazquez: Yes, it’s five. Five of them.
09:47 Rafi: So, not four in this case, we have five. We should have four, that way, it’s always four income. [laughter] And we give them four benefits, but that’s okay.
09:53 Jorge Vazquez: Makes sense. So number three is the incentive to maintain… The tenant’s incentives to maintain the property, because, obviously, they’ll get kicked out of the program, obviously.
10:03 Rafi: Oh so they can get kicked out of the program if they don’t do something? So that’s a big advantage there, you know that? Because they will keep your house in better shape, all that kinda stuff, because you can report if they don’t, to the government and they take the voucher away. Okay, that’s very important. What else?
10:19 Jorge Vazquez: The next one is, you have a larger pool of potential tenants because in the US, there’s about two million people with vouchers right now. Two million people with vouchers.
10:28 Rafi: Wow. Okay, okay.
10:30 Jorge Vazquez: So it’s very easy, typically, Section 8 has a website, once you register into the website, you put the property in there, and immediately you start getting calls.
10:40 Rafi: Got it. Got it, got it.
10:42 Jorge Vazquez: Number five, typically, like I said, if you take care of the client, if the client is… You know, you take care of the property, there’s a chance of having a longer term tenant in the property because they don’t wanna go to the process of re-inspecting a new property, getting that voucher again for the new property. So it’s more… It takes more work, also, for the tenant. So then it’s like, “As long as I’m okay here… ” They’ll stay in the property.
11:12 Rafi: Okay. So you’re telling me that higher rents, longer term tenants, and they take care of the property better?
11:20 Jorge Vazquez: Yes.
11:22 Rafi: It’s a no brainer, right? But, but and this is where the experience of this guy comes in, there are disadvantages to Section 8, which… Let’s give them four, that way it’s homes4income. Let’s give them four disadvantages of Section 8 tenants. What would be the number one in your view?
11:44 Jorge Vazquez: Number one, number one is dealing with the government, the red tape, the regulations, dealing with that a lot of times. To be honest with you, Rafi, if you have a good looking property, nine times out of 10, that’s what I’m saying, it’s not so much which one you pick it’s more to be open for Section 8, because nine times out of 10 you’re gonna have a private pay ready to move in, in two, three weeks on [12:14] ____ before you get a Section 8 voucher to be approved.
12:17 Rafi: Okay.
12:19 Jorge Vazquez: Rephrasing that, it’ll be a lot faster getting somebody private pay. You could get them in and out in a week and they could bring you the money, you could do the background check on a Friday, they could be moving in in a weekend. Section 8…
12:31 Rafi: Takes time.
12:33 Jorge Vazquez: It could take 30 days.
12:34 Rafi: Okay.
12:35 Jorge Vazquez: And they’re picky with the inspections.
12:37 Jorge Vazquez: So it could take you two or three inspections. It could take you 60 days.
12:41 Rafi: Got it. Got it. Okay. So dealing with the government, definitely it’s the number one, and we’ve all been there, DMV, permit office, all that kind of stuff, so it’s definitely a biggie there.
12:51 Jorge Vazquez: So you gotta have patience, you have to have reserves on the side and say, “Okay, this is my strategy, I’m gonna start renting Section 8.” It’s like, you’ve got to become an expert on Section 8 in order for it to make sense.
13:04 Rafi: So reserves, you mean because that first payment is not gonna come right away?
13:07 Jorge Vazquez: Yeah, right. If you have a mortgage payment just account for two mortgage payments.
13:12 Rafi: Okay. So at least… Besides the maintenance reserves, at least two to three months of reserve, because you know that that first payment is gonna take a while. Now, once that first payment comes in, they pay the first… They pay anything that is…
13:26 Jorge Vazquez: They catch up.
13:27 Rafi: They catch up. Okay.
13:27 Jorge Vazquez: They catch up. They catch up.
13:29 Rafi: So, they catch up. But, you have to be ready, hey, maybe one, two, maybe three months.
13:33 Jorge Vazquez: Three months, sometimes.
13:34 Rafi: And again, because we’re conservative, three months, then, three and then go from there. What else would be a disadvantage for Section 8?
13:43 Jorge Vazquez: We talk about the delayed payments, it’s something that we talked about. No need to talk about that any more. We already experiencing that with one of our tenants right now. [chuckle]
13:50 Rafi: Yep. Yep.
13:52 Jorge Vazquez: That we’ve been waiting for 90 days for a payment. Accounting delays, this is the same thing that we’ve talked about.
13:58 Rafi: Same thing, same thing. Yep.
14:00 Jorge Vazquez: And the most important part is that Section 8 inspections are brutal. I’m talking about, you could fix a property and have it rent ready for a private pay and the tenant could look at the property and say, “It looks beautiful, perfect.” An inspector could come in right after and say, “We have to demolish this house.”
14:23 Jorge Vazquez: They’re really strict.
14:25 Rafi: Okay.
14:27 Jorge Vazquez: The one big item I could think of is windows. So if the windows are not 100% functional, let’s say they’re 95%, they open, close, but, you know…
14:36 Rafi: They have a little shimmy here and there?
14:38 Jorge Vazquez: Right, you gotta replace the window. Insulation issues, if there’s gaps on the doors, they’re extremely picky, so be ready. I always say, “If it’s a block home, maybe do Section 8. But if it’s a wood framed home, because of insulation… ” So if Section 8’s so important, be ready to put some money into that.
15:05 Rafi: Got it, got it, got it.
15:06 Jorge Vazquez: Because they’ll test the AC and how cold the house is getting, if it doesn’t meet the standards, they’ll make you insulate the toilet. They make you insulate everything for sure.
15:18 Rafi: So again, so to summarize, definitely some advantages. We talk about higher rents, we talk about longer term tenants, but I think the key item from today, it’s be prepared. You have to be a prepared investor, prepared landlord to deal with Section 8. Now if you’re prepared and you really do your homework, have a property manager that has experience with Section 8 and have those financial reserves, guess what? There is a potential higher cap rate. I’ve seen some Section 8 homes with 15%, 18% cap rates. But understand that there is some additional work at the beginning, especially, with those reserves that you have to have, with that inspection that you have to have, but you can get a lot of benefits on the other side. Again, you mentioned the home is in the neighborhood of $1,700 right now. And I think also the fact that you feel good that you’re helping someone, you know?
16:20 Jorge Vazquez: Yeah, absolutely.
16:20 Rafi: You have that one part that’s saying, “You know what? This family’s struggling.” The government is saying, “I’m gonna give you a hand.” And guess what, you do the same by being open to Section 8 tenants in your properties. So, I think that’s good.
16:35 Jorge Vazquez: A couple of things worth mentioning, the increased wear and tear, because the tenants are not invested in the property as much, is gonna occur more often on a Section 8 housing than not.
16:45 Rafi: Oh, okay.
16:47 Jorge Vazquez: Little recourse for damages. It’s very hard for Section 8 to go… They’ll kick the tenant out of the program, but seeking for the compensation for any repairs…
17:00 Rafi: Oh, got it.
17:00 Jorge Vazquez: It’s a dead end. It’s a dead end.
17:02 Rafi: Okay.
17:03 Jorge Vazquez: And, sometimes the tenants, if they have a portion… I always say if it’s Section 8 you want 100% rent or don’t do Section 8, because sometimes when you have that, where the government is paying a portion of it 70%, that 30% left is so hard to collect. So hard to collect.
17:22 Rafi: Oh, okay. So, if the voucher doesn’t cover the whole rent…
17:25 Jorge Vazquez: Right.
17:27 Rafi: Then it’s better if it’s a voucher that covers the whole thing. So again, there are significant advantages to having Section 8, like I said, but you need to make sure that you’re ready for those things. Again, reserves, time, patience, and all that kind of stuff.
17:46 Jorge Vazquez: Absolutely.
17:47 Rafi: So that’s it. Wow, we’re almost at the 18 minute mark this time. Thank you very much, everyone that joined. I see Josie and Raymond joined there. And I see no comments or questions this time, so make sure that… Oh, I saw Robert too there, that, Joan at one point. Make sure that you ask us in comments and if you go to Facebook to our page, Graystone Investment Group, you like our page, and then remember, every Friday, around lunch time, we will have these Brown Bag Sessions. Now, where can they contact us?
18:23 Jorge Vazquez: They could always find us at homes, the number four, income.com. That’s homes4income.com.
18:31 Rafi: Excellent, excellent.
18:32 Jorge Vazquez: And we have a question from Josie, last minute.
18:33 Rafi: And remember that, again, homes4income.com, in Facebook, Graystone Investment Group, like our page, and please make sure… Oh, we have question, Josie. I’m reading the question in Spanish.
18:49 Jorge Vazquez: That’s a long ass question, Josie.
18:52 Rafi: Yeah, but that’s okay, that’s okay. Yeah. Again, like Josie says, it’s an investment that you do with Section 8, but the potential gains are there. You have to be a patient investor, you have to be a prepared investor, but the potential to make more money definitely is there. So I promise I’m not gonna hit the 20 minute mark. Again, homes4income.com. That’s home, the numbers four, income.com.
19:21 Jorge Vazquez: You can’t be doing that, that’s my thing.
19:22 Rafi: Oh, that’s you. That’s right. Then you say the Facebook Graystone thing. Say it, like us on whatever.
19:28 Jorge Vazquez: No, no, no, you go ahead and say that.
19:29 Rafi: Okay, I’ll say that. Make sure you like us, Graystone Investment Group in Facebook, and see you next week. I am Rafi.
19:35 Jorge Vazquez: I am Jorge and thank you so much for being on. Appreciate it.
19:38 Rafi: Thank you very much and don’t forget to share on your timeline.
19:41 Jorge Vazquez: Bye-bye.
19:41 Rafi: Bye.
Graystone Investment Group
Graystone Investment Group is an experienced real estate wholesaler in Tampa Bay. We serve clients who flip homes in as little as 30 days, as well as clients who hold high cash flowing rental properties.
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