- by MAMJODH on Flickr
This post is two parts: 1 part advice, 1 part politics.
If you don’t know what Section 8 is, Wikipedia gives a good little explanation and history here.
Advice
A lot of folks look at Section 8 as a gauranteed way to ensure rents. Section 8 rents can often be higher than market and get paid directly by the government rather than the tenant. This takes away the hassle of trying to chase down tenants for rent. All this is nice, but there is a yin to every yang.
When people are not personally paying for something, there is a certain respect that is lacked. This is just human nature. Ever get a free t-shirt from a concert or a convention? Do you take it home, hang it up, make sure it is drycleaned ony, and wear it carefully? No. You probably wad it up, throw it in your bag, wear it while painting or working on your car. The point is, you didn’t “pay” for it and so you don’t respect it.
Translate this human nature into apartment leasing. Though you have tenant paying on time at an above market rate, get ready to make repairs. Expect the unit to get torn up. And move outs… those will be even more costly as most everything will need to be replaced.
There are two things you can do to compensate for this and get the best of both worlds. First, vet out the tenant like crazy: find out how long they have been on Sec 8, talk to them about their situation, ask them the same penetrating questions multiple times to see if they are apt to lying, and get previous landlord input. Second, make the unit indestructible: tile or vinyl instead of carpet or hardwood, high gloss paint that can be easily wiped down, heavy front doors with strong frames, and caulk every nook and cranny in the entire place. Some thing you should just expect to replace like appliances and countertops, so be sure to find a low cost supplier for these things.
“Politics”
Let me initiate this by explaining that I am an economic libertarian. I believe in minimal government involvement in all things: religion, crime, health care, regulations, and most importantly – business. As a general rule, I stay out of politics. But when it impacts my investing strategies, it is important to comprehend.
Government continues to get involved in free enterprise, often knocking it off course. The idea is to aid those who are considered low income, give them the chances that might not normally be afforded to them. Like most ideas, the essence of it is great – helping people – but the execution is and will always be flawed.
Government assistance is based off taxes, the amount the government collects is in direct relation to how much they can give out. The flaw occurs when they increase taxes to create a new program. The intention is to take money from those with lots of it and give it to those with less. However, most folks who make lot of money are smart enough to work within tax laws and structure their businesses to avoid having to pay those higher taxes and the burden falls to the next level of income class. Furthermore, these programs that are designed to give assistance to low income are sought out by the high income folks who then build a way to get that money back (like building indestructible apartments) - in turn getting richer.
This is the case with Section 8. This is the case with food stamps. This is the case with welfare.
The only question is which side are you going to be on?
