Have you had any luck in finding an insurance company that will provide you insurance that will kick in in the event your tenants lose their jobs? Me either, but that is just one of the benefits that SEC 8 offers landlords who participate in the program. Especially in times like these, with a national eviction moratorium in place, the guarantee that SEC 8 will pay the rent if your tenants lose their jobs offers landlords tremendous peace of mind.
At PMI Virginia, we have participated in the SEC 8 program since about 2010, have worked with 7 different Housing Authorities, and have had over 1000 voucher paying tenants. Currently we manage 105 leases with some or all of the rent paid with a Housing Choice Voucher, which represents about 1/3 of our tenant base. With this volume, we have learned a lot about what landlords can do to maximize their rents and minimize repair costs, tenant turns, and vacancies. Especially in low-income neighborhoods, landlords are significantly better protected financially with a SEC 8 tenant than a non-SEC 8 tenant. I pulled together some information that may help you decide if SEC 8 is right for your portfolio.
SEC 8 ACRONYMS
- HA - Housing Authority – This is what HUD calls the local SEC 8 offices.
- HAP - Housing Assistance Payment Contract – This is the contract between the landlord and HUD that will be sent to you after you send SEC 8 the signed lease. You will receive your first rent payment after this is returned to the Housing Authority office.
- HCV – Housing Choice Voucher – This is the official name of the SEC 8 program.
- RFTA – Request for Tenancy Approval – This is the package the tenant will bring for you to complete to submit to the Housing Authority.
SEC 8 MISCONCEPTIONS
- SEC 8 tenants are all users who are cheating the system.
- SEC 8 tenants “tear up” properties.
- The SEC 8 inspections are onerous.
- SEC 8 pays lower than market rents.
- SEC 8 tenants live for free.
SEC 8 REALITIES
- SEC 8 tenants are required to have a job unless they are disabled or retired.
- No adult on the SEC 8 lease can have a drug or felony conviction.
- When a SEC 8 tenant gives their landlord notice that they plan to move, SEC 8 sends a form to the current landlord giving them 10 days to respond saying the tenant is or is not in compliance with their lease – IE – owe any money for rent or repairs. If they do, and the landlord responds within the 10-day allowance, that tenant’s voucher can get placed “on hold” until compliance is made with the current landlord.
- If a SEC 8 tenant has an outstanding landlord judgment, HUD will not reissue their voucher so they can move until the judgement is satisfied or a payment plan has been agreed upon.
- SEC 8 tenants are educated in the process of home inspections and are quick to call if they see a problem that may compromise the house, such as a water leak.
- In most markets, SEC 8 pays “market rent” based on comparable non-SEC 8 units that have rented in the same city within a 5-mile radius, within the last 6 months.
- After the first 12 months, SEC 8 will consider a reasonable rent increase, regardless of the lease term.
- SEC 8 tenants almost always pay a portion of their rent. SEC 8 sets their subsidy based on the premise that the tenant can spend 30% of their income on rent and utilities.
SUGGESTED LEASE CLAUSE
(DISCLAIMER – I am not an attorney and recommend anyone wanting to borrow this lease clause get it vetted by a attorney familiar with your state lease requirements.)
THIS LEASE IS CONTINGENT ON TENANT REMAINING IN GOOD STANDING WITH THE HUD HOUSING CHOICE VOUCHER PROGRAM. SHOULD TENANT BE TERMINATED FROM THAT RENTAL ASSISTANCE PROGRAM, THIS LEASE TERMINATES ON THE SAME DAY. IF ANY REQUIRED INSPECTIONS SCHEDULED BY THE HOUSING AUTHORITY ARE MISSED BY THE TENANT, LANDLORD WILL ATTEND THE 2ND SCHEDULED APPOINTMENT AND A TRIP FEE OF $______ WILL BE CHARGED TO THE TENANT.
TAKE A RESERVATION TO HOLD A PROPERTY FOR A SEC 8 APPLICANT
(DISCLAIMER – I am not an attorney and recommend you verify that charging a lease reservation fee is allowed by your state landlord tenant laws.)
If all goes perfectly and you pass inspection the first time, you can usually move a SEC 8 tenant in 20-30 days from the day you submit their package to the Housing Office. If you don’t pass the inspection the first time, or if anyone in the HA pipeline is out of the office for holidays or personal time, this time span could be longer.
Property Reservation Fee Receipt
$___________ was received from __________________________________
(applicant) on ___/___/___ as a Property Reservation Fee to take the property at
___________________________________ off the market and hold it for the applicant to occupy. Upon lease signing, this Property Reservation Fee (referred to as application deposit in the VRLTA) will be applied towards the rental deposit required in the lease. If the applicant fails to sign the lease, applicant will be liable for any expenses and damages that are a result of tenant’s failure to sign the lease. If expenses and damages, exceed the amount of the Property Reservation Fee paid, the entire fee will be forfeited by applicant. If Property Reservation fee paid exceeds expenses and damages, Landlord will provide applicant with an itemized list of damages and will refund any remaining fee. A Landlord’s expenses and damages include but are not limited to lost rental income, real estate commissions paid, and any other expenses related to the accepted applicant. Fees paid by the applicant in cash, certified check, cashier's check, or postal money order shall be refunded within 10 days, and all other forms of payment will be refunded within 20 days.
Housing Choice Voucher Recipient Holders - If tenant is a Housing Choice Voucher recipient holder, and the Housing Authority denies the requested rent, this Reservation Fee will be 100% refundable to the applicant. A failed inspection is not grounds for the reservation fee to be refundable unless the landlord refuses to cure the inspection fail items.
Applicant SignatureLandlord/Agent Signature
HOW RENTS ARE DETERMINED
- HUD dictates the maximum amount they will pay per bedroom size per market. This is what the HUD chart shows for max rents allowance for every city in our market.
- You can find the Fair Market Rent amounts for every Housing Office in the country on the HUD website at this link. https://www.huduser.gov/portal/datasets/fmr.html
- Below is an example of the data that will be displayed.
- Reasonableness Rent Test. SEC 8 compares your requested rent to non-SEC8 properties of the same bedroom size, same property type, similar size and age, same city, within 5 miles.
In Hampton Roads all of our cities pay 100% of market rent. Ask your Housing Office what their allowance is so you know how to guesstimate what your rent will be based on rent comps.
Some HAs use an outside vendor to determine their comparable rents. Most HAs, however, do their own comparable rent test analysis by using rent comps from similar units that have rented outside of the SEC 8 program in the same city within the last 6 months. If you can pull rent comps, print them and use the cover sheet on the next page to submit them with the RFTA.
Comps used should be within 5 miles of the subject, within the same city, same number of bedrooms (as the unit, not the voucher), same or similar property type (single family, town home, apartment, condo, etc), similar size and similar age. The closer you can get your comps to the property you are submitting, the more likely your HA will use them.
- Affordability Test. For this test the voucher holder cannot spend more than 30% of their income on housing – rent + utilities.
You could meet your requested rent amount based on comparable rents, but not get approved because the tenant does not have enough income at the time the application is submitted.
To find out more, call your local Public Housing Office to sign up for their next landlord orientation.
Try it, you just might like it!
RENT COMPARABLE COVER SHEET
RENT COMPARABLES FOR: _______________________________________________________
Tenant Name: ____________________________________________________________________
Date Comps Were Pulled:_____/_____/_____
- Rented within the last 6 months
- Located in the City of ______________________
- Located within 5 miles of Subject
- # of Bedrooms = __________________________
If this information was helpful you may also want to listen to an interview with Jim Ingersoll’s Investor Success Blog.