Real Estate News
Top Landlord Concerns with Housing Choice Vouchers
Although the Housing Choice Voucher Program came into effect in the 70s, in recent years, more landlords have learned about the benefits of participating in the program and are keener to accept section 8 applicants. Despite that, many landlords still have their reservations. But before we get into that, let's get a little more background on today's topic.
The Housing Choice Voucher is a program that provides housing options for low-income households to curtail the social endemic of homelessness. It was introduced in the eighth section of the 1974 Housing and Community Development Act and is commonly referred to as section 8. If a prospective tenant asks whether you take section 8, they want to know if you're okay with receiving part of their rent through the voucher program. The program is backed by the federal government and run by the Department of Housing and Urban Development (HUD), who essentially becomes a third-party in your landlord-tenant agreement.
There are several types of housing choice vouchers, but the most common one is the tenant-based voucher which allows low-income households to meet up with the rent of privately owned apartments.
So, if you're looking for a landlord's guide to housing choice vouchers, stick around till the end of this article. Apart from deep-diving into landlords' top concerns with housing choice vouchers, we'll also be looking at the plus sides of being a section 8 tenancy, how to become one and how to mitigate the risks.
Major concerns with the Housing Choice Vouchers Program
Many landlords instinctively have concerns when it comes to housing choice vouchers. Housing voucher discrimination is a social issue, with property owners en mass turning away holders. But their troubles aren't unfounded. Here are a couple of reasons landlords have their reservations:
Mandatory Additional Inspections
A landlord's primary duty is to ensure their rental property continues to remain habitable. And while legal landlord-tenant agreement clearly outlines this responsibility, housing authorities require extra reassurance. As much as being a section 8 landlord is a form of service to the local community, voucher holders have as much right as non-holders to safe and decent accommodation.
These additional inspections typically occur yearly, where an inspector goes over your unit to make sure it complies with the expected housing standard. After the inspector reports back, the housing authorities will mandate all landlords who fail the inspection to repair the problem or risk losing their subsidy.
While you may view the checks as a way to keep you on top of your rental maintenance, many landlords find them to be a nuisance, especially when they fail to comply.
Rent Caps
One of the major drawbacks to being a section 8 Landlord is that you lose autonomy in some areas, including setting the price range on your units. The HUD will send a representative to assess your rental property and then determine what the fair market price for your rental apartment is worth. However, most of the time, they set this rate according to area codes. So if you're hoping to gain a little extra cash by adding some upgrades to your rental, you might come up short.
Also, with the recent spike in new home sales, if the HUD fails to do an updated review of their fair market prices, you could earn considerably less than other landlords in the same area as you.
Delay in First Month's Rent
The typical practice in real estate is for a new tenant to pay a fixed security deposit and the first month's rent upfront before getting the keys and moving into the unit. However, housing vouchers work differently. While the voucher holder is responsible for paying the security deposit, you shouldn't expect the HUD to pay the first month's rent until after that period has elapsed. And even then, due to some paperwork issues, you could encounter a delay on the housing authority's end for a few more weeks. But once it's all sorted out, you can expect timely payments moving forward.
Since the HUD is responsible for paying a significant portion of the monthly rent, it could present a problem for landlords requiring consistent monthly payments to maintain the property's maintenance and bills. Bearing this fact in mind, if you sign up as a section 8 landlord, you should prepare to tide your finances on your savings and the tenant's portion of their rent for a while.
Low-Quality Tenants
Another reservation landlords have when it comes to section 8 tenants is that they don't typically meet the ideal candidate standard. After all, one of the criteria to qualify for a voucher is earning less than half of the average individual in that area. That indicates that they come from low-income households with weaker financial strength than the average tenant. This fact is a major drawback considering you have to depend on them for a portion of the rent.
So, in addition to dealing with potentially lower rental rates and annual inspections, you could still face challenges with late and missed payments. Although, the HUD tries its best with a screening process to prevent saddling landlords with unreliable tenants. Some still slip through the cracks, making it a significant concern worth noting.
Biased Housing Programs
When you sign up to be a section 8 landlord, you essentially agree to bring in an active third party to your landlord-tenant agreement. As earlier highlighted, there are many ways the housing authorities intrude into a landlord's affair. Inspections and rental caps are some examples of the ways a section 8 tenancy can inconvenience property owners and even curtail their income.
That said, by signing away some of your rights, the housing programs become the defacto decision maker and will often side with the tenants in a dispute. Thus, the loss of some autonomy is a major turnoff to many property owners.
Benefits of the Housing Choice Vouchers Program
Despite the apparent drawbacks to accepting housing vouchers, it's not all bleak. There are also important reasons that make property owners willingly sign up to become section 8 landlords.
Assured Monthly Payments
One of the benefits of accepting tenants with a housing choice voucher is guaranteeing that you will promptly receive monthly payments. In a voucher program, the government subsidizes housing for the holder, sometimes by up to 70%, meaning the landlord receives a direct bank deposit once rent is due. You're also likely to receive the remaining balance, payable by the tenant, without delay. Holders of a housing voucher have to undergo some prior screening to ensure they can meet up with their end of the bargain. If they fail to do so, they risk losing their vouchers altogether, which provides another layer of incentive.
This setup provides landlords with the reassurance that their rental property will pull in a guaranteed continuous income stream.
Wider Pool of Tenants
Although sorting through several tenant applications can be hectic, having too few applicants can be a much bigger pain. Voucher discrimination amongst landlords may be rife, but there's no denying that section 8 landlords have a wider pool of tenant applicants. That increases their chances of finding the ideal candidate and can meet up with their rent payments.
By agreeing to list your rental property on a voucher program, you increase your exposure and reduce your vacancies. You essentially get free advertising for your rentals. Also, according to fair housing laws, you have to treat each application the same, so you're not obligated to choose a less ideal candidate because they applied with a voucher.
Pre-screening of Tenants
Voucher programs have strict policies about who they choose to back in their rental payments. So applicants have to undergo a rigorous screening process before they start applying for housing with their vouchers. That means every section 8 applicant you get has already undergone a thorough pre-screening by the authorities in charge.
One of the best ways to manage difficult tenants is to avoid them altogether. Nobody likes to deal with a renter who doesn't abide by the house rules, is destructive, and doesn't meet their rental payments. That's why screening your candidates is a necessity before signing a lease.
However, that doesn't mean the screening process is a simple one. On the contrary, it can be a costly and time-consuming task to hope that your search comes up with nothing to cause worry. During your background check, some questions you should ask include employment history, credit scores, criminal history (if any), and previous landlord references. As earlier highlighted, there's a level of reassurance that comes with voucher applicants because they've gone through the screening process and passed.
Lower Vacancy Rates
A vacancy is something every landlord has to deal with at some point. Some real estate tips even recommend budgeting your expenses to cover the cost of at least two months worth of vacancy. But you can simultaneously pad your finances to endure empty units while you maximize your exposure, so you don't have to. Accepting housing vouchers casts a broader net and increases your chances of quickly finding a candidate you like that can take up residency on your property.
Another reason section 8 landlords experience lower vacancy rates is that they also have a lower tenant turnover. Voucher holders are more likely than the average candidate to stick around when they find a place they can call home. So if your rental property is comfortable, you can expect them to commit to longer tenant leases.
Helping the Local Community
According to an article by policy advice, over half a million Americans live in a state of homelessness. The end of the Biden administration's eviction moratorium in July 2021 implies that that number is likely to go up as courts deal with a flood of backlog eviction requests.
While this problem indicates that the system requires a review, accepting housing vouchers can be your unique contribution to solving the problem. Landlords can take pride in giving back to their local community by preventing one or two households from sleeping on the streets.
How to Become a Section 8 Landlord
After evaluating the pros and cons of being a section 8 landlord, you might decide to give it a try. Although, if you live in a state where discriminating against voucher holders is illegal, you probably don't have much of a choice. Whichever category you belong to, being familiar with the process beforehand can help prepare you.
Here's how to become a section 8 landlord:
Market Your Property
Being a section 8 landlord is similar to the usual real estate practices. The first thing to do is attract your target audience. You don't have to specify that you're willing to accept voucher holders as they apply for housing like regular tenants. But if you're particular about providing aid to low-income households, doing so will attract more section 8 tenants, as many of them are wary of discrimination. So reassurance will undoubtedly be welcome.
You can also get free advertising by reaching out to the appropriate housing authorities, who will include your apartment in the listings they provide to eligible candidates. Some websites also display section 8 rental listings so you can contact them, fill a form and get the word about your rental property out there.
Screening and Selection
Depending on the success of your marketing, you'll start receiving calls, text messages, and emails about your listing. If you list your vacancy with a housing authority, many applicants will be people with section 8 assistance. At this point, you reserve the right to perform standard tenant screening on all applicants without the pressure of giving preference to voucher holders. So don't be afraid to turn down section 8 applicants if they fail to meet up with your screening process.
It helps if you have a tenant checklist or policy to ensure you treat each candidate equally. It can also help you avoid litigation from discrimination complaints, which we cover in detail in the next section.
The ideal screening process should include a thorough review of each candidate's application, an interview, confirmation of all the data provided, credit checks through the appropriate channels, and cross-checking the previous landlord references provided by the applicant.
Pass the HUD's Official Inspection
After a thorough screening and selection process, you should expect to fill in some paperwork if you decide to accommodate a section 8 household. Apart from drawing up a landlord-tenant agreement, the voucher holder will also give you a form on behalf of the HUD to set up a time and date for an inspection.
Your apartment needs to pass the Housing Quality Standards Inspections (HQS) before your new tenant can move into the house. The HQS is a set of codes that dictate a rental apartment's essential health and safety standard, and if your unit isn't up to code, you cannot be a landlord in the housing choice voucher program. The inspection merely assesses the condition of your home to ensure it is in habitable condition. The best way to prepare for such an assessment is to fix issues like missing steps, mold infestation, broken windows, and so on.
It would be best if you kept in mind that as long as you want to remain a section 8 landlord, your apartment is subject to annual inspections, and failing them leaves you with the liability of losing your subsidy. The HUD may also conduct checks on requests if the tenant complains, so it's in your best interest to perform routine maintenance and fix problems your tenants point out promptly.
Sign the Contract
Once you pass the inspection, the HUD will send over some more paperwork to make it official. It's at this point the HUD will evaluate your rental property and set a fair market rental cap on your rent. Your new tenant can then pay the required security deposit and start preparing to move into the apartment during this time. Once all parties have signed the necessary documents, you can keep a copy of the contract for record purposes.
Endeavor to treat voucher holders the way you would treat other tenants to mitigate the risk of liability. Maintaining an excellent landlord-tenant relationship with mutual respect can make your tenants more understanding, giving you more time to fix housing mishaps, and avoid failing a complaint inspection. But you still have to be ready for annual assessments to keep your subsidy.
How to avoid fair housing liability
Ligation is one of the risks that come with being a landlord. It's not uncommon to receive a summons due to the claims of a disgruntled applicant, but you can do your best to avoid it. Here are some tips on how to avoid fair housing liability.
Treat Section 8 Vouchers Like Every Other Applicant
Some states afford landlords the right to turn down voucher holders, acknowledging their right to not mitigate the major concerns that come with such a tenancy. If you live in a state that explicitly outlaws the discrimination of Section 8 vouchers, that you have to get with the program.
However, that doesn't mean you have to accept everyone with a housing voucher or stand discrimination trial. On the contrary, it's in your best interest to screen all tenants equally. Put your Section 8 applicants under the same microscope as every other candidate, and if they don't make the cut, you can turn them down.
On the flip side, don't overcomplicate the application process for them either. It might make sense to make the screening process for voucher holders more challenging to get the extra insurance to comply with their payments. But that's also against the law. Don't tie your tenancy to other protected classes; for example, you can't approve a voucher holder because they are Caucasian, practice a specific religion, or possess some other preferred socio demographic trait. Treating every applicant the same way will save you from a day in court.
Avoid Steering Section 8 Applicants
It's not unusual for some landlords to categorize their tenants and group all voucher holders together. For example, a property owner might only be open to having section 8 applicants on the second floor of their building, so they might lie when an applicant asks if there are any available spaces on the first floor. Or could also turn away section 8 tenants when there are no more spaces on the designated floor or building in a bid to reserve the vacant slots for higher-income tenants. This practice, known as steering, is illegal and could get you in trouble.
By limiting some tenants' decisions, you're violating their right to housing choice. It's also a form of discrimination against voucher holders, and the appropriate authorities could slap you with a hefty fine if you're caught.
Maintain a Consistent Policy
The best way to avoid a fair housing discrimination suit is to maintain a consistent policy. It would help to educate your employees on fair housing laws and mandate that they give all applicants seeking accommodation on your rental property the same reply. Better yet, you could also put your tenant application policy in writing. This document should contain a detailed account of your tenant selection process and vindicate you if an applicant complains about receiving unfair treatment. It's also crucial that you strictly adhere to your policy, as it will help you avoid discrimination claims and save you the legal fees of defending yourself.
Conclusion
You have to consider many things as a landlord, and of the most important things is your tenancy. Selecting ideal applicants that are compliant with their rent and well-behaved is key to the smooth running of your business. So the rental caps, loss of autonomy, and low-income tenants are understandable concerns for property owners.
However if you decide you can put up with the risks, or live in an area with bans against discrimination of section 8, you can bank on consistent payments from the program and lower vacancies. You can also work with a management company that understands the voucher process to avoid legal pitfalls and maximize your profits.
For more information, visit: https://www.baymgmtgroup.com
