What Is Section 8?
The Section 8 program helps low-income, elderly, and disabled tenants afford decent and safe housing outside of the public housing system. With traditional housing assistance, many of these renters had to live in public housing facilities often located in rougher neighbourhoods, with very few other housing options.
Using the Section 8 Housing Choice Voucher Program, tenants receive a housing voucher they can use for any privately owned apartment, townhouse, or house that has qualified for the Section 8 program.
To start working with the Section 8 program, landlords and tenants must receive approval from the local housing authority. Requirements to become a Section 8 housing landlord
and qualifications for renters vary by area. Approved applicants are put on a waiting list, unless housing is immediately available.
Public housing agencies can give some preference to families that are homeless, living in substandard housing, involuntarily displaced, or paying more than half of their income on rent. Landlords, tenants, and the public housing agency then enter into a contract that outlines the roles and responsibilities for each of the parties involved.
How Section 8 Works
Each year, every state receives a block grant from the federal government to cover housing assistance costs. The states use a portion of this funding to cover the cost of the Section 8 program and to pay for a portion of the tenant’s rent and utility costs. Usually, the housing authority will pay around 70% of the tenant’s costs but in many cases can pay 100% of the tenant’s costs.
As an example, consider a Section 8 tenant who has a monthly rent of $700 and averages $150 a month in utility expenses. Based on the 70% calculation, the housing authority would pay $630 of the tenant’s living expenses each month, divided between the landlord and the utility company. The tenant will then pay the remaining 30%.
How much rent does Section 8 pay ?
The Department of Housing and Urban Development (HUD) requires all housing authorities to determine an appropriate rent amount for all properties leasing in the Housing Choice Voucher Program.
When the Request for Tenancy Approval is submitted, CMHA will check to make sure the rent is affordable for the family and reasonable for the area and amenities.
The gross rent for your units (ie., the sum of rent and tenant paid utilities) must be reasonable. Rent reasonableness is defined as one that does not exceed gross rent charged for comparable unassisted units in the same market area. CMHA determines rent reasonableness by comparing the proposed unit to two comparable unassisted units in the area. CMHA takes many factors into consideration in determining rent reasonableness, including:
Location Amenities Size/Type Utilities
In addition to being reasonable, the gross rent must be affordable for the family. Affordability is determined by several factors: voucher bedroom size, payment standard, utility that the family is responsible for, and family income.
For an initial contract, the total tenant portion (the monthly rent paid directly to you by the family) can be no more than 40% of the family’s monthly income. If the rent is not affordable because the family share would be more than 40% of the family’s monthly adjusted income, HCVP will negotiate with the owner to reduce the rent for the family so it is in compliance with HUD guidelines.
Payment Standards
CMHA’s payment standards are based on Fair Market Rent (FMRs). CMHA has established payment standards between 90% and 110% of the FMRs established by HUD.
Please note: The payment standard is NOT the maximum amount that the landlord can charge; it is the maximum amount of subsidy that the CMHA will pay toward each tenant’s rent portion.
Fair Market Rents and Payment Standards Fiscal Year 2024
CMHA established exception rent payment standards for well-resourced communities and for communities where HUD has identified by zip code the fair market rent as being greater than the fair market rents indicated in CMHA’s “Primary Fair Market Rents and Payment Standards FY 2024” table. In 2024, CMHA will continue to offer exception payment standards based on 2024 FMRs and Small Area FMRs. CMHA has done this to offer greater and more competitive housing opportunities to its voucher holders and landlords.
The following is a guideline for current FMR/PS ( Fair Market Rents / Primary Standards )
Source – CHMA Government Housing Authority 2024
The above figures are current 2024 guidelines. Monthly rents can differ slightly from various ZIP codes.
What are the benefits of Section 8 housing as an investor ? 1. Consistent, stable and guaranteed Rent Payments
Once the Local Housing Authority inspects the property and clears the tenant for the rental assistance program, the landlord can expect to consistently collect monthly rent. This can be much more reliable than any other tenants because the housing authorities are government agencies and will make sure that the rental units are paid for. The rents are paid direct to the landlord via the City each month.
2. Pre-Screened Tenants
Another great benefit of investing in section 8 housing is that the tenants are already screened. This is because, in order to qualify for the housing vouchers, the tenants must meet certain requirements.
So, the local Public Housing Authority will conduct thorough background checks on every tenant to make sure that they meet all the requirements. If they uncover something, such as a criminal history, they will not be granted a voucher.
3. Low Vacancy Rates
Vacancy rates in Section 8 real estate can be lower because tenants tend to stay where they are and renew year after year.
If you would like to enquire more specifically in relation to purchasing a property with Section 8 tenants please feel free to email our team – invest@globalinvestmentsincorporated.com
