What is the Section 8 Program?

Section 8, part of the Housing Act of 1937, provided affordable housing to low-income families across the United States by covering up to 100% of their rent. The Section 8 program was retired and substituted by Housing Choice Vouchers, but the processes are similar: families that qualify receive vouchers, which can be used to rent any eligible property with governmental support. This allows families to choose a housing unit that meets their needs while landlords are assured fair market rent prices. Properties in the program must comply with specific evaluation  criteria for each division to ensure quality standards are met. These are as rigorous as ensuring window, wall, ceiling and floor quality, good functioning of smoke detectors and other safety measures and things such as paint quality and production materials. The property has to be in very good condition before a tenant is allowed to move in.

Read More at:
Department of Housing and Urban Development’s Office
Affordable Housing Online

How Section 8 Works

Low-income renters can apply to receive Section 8 rent vouchers, which will pay up to 70% of their monthly rent and utility costs. These vouchers allow renters to keep their housing costs at a reasonable rate, compared to their income.

The program is managed by a local public housing agency (PHA) and supervised by the Department of Housing and Urban Development (HUD). In Los Angeles County, for example, the LA County Development Authority (LACDA) is the local public housing agency that administers the program. HUD, as the supervisor, ensures that local PHAs are compliant with the program’s rules. HUD also distributes funding to the local PHAs, which use these funds to pay the appropriate renter subsidies to landlords and utility companies.   

There are two different programs for Section 8: 

  1. Tenant-Based. With tenant-based S8, the housing vouchers move with the tenants. This allows renters to choose their units from any landlord willing to accept their vouchers, rather than staying exclusively in specific S8 developments.   
  2. Project-Based. With project-based S8, vouchers stay with the units. This means the entire development must be rented to Section 8 participants, and renters cannot use their vouchers to relocate to new units.

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Challenges of investing in HCV properties

For landlords/investors:

  • bureaucracy: navigating the program’s administrative requirements can be complex.
  • rental demand caps: there are limits on the amount of rent that can be charged.
  • occupancy delays: preparing properties to meet program standards can delay occupancy and the arrival of tenants.
  • legislation: in places like Cook County (Chicago) for example, laws prevent evictions on any day in which the temperature is below 15 degrees Fahrenheit or “regardless of temperature, any day when extreme weather conditions could endanger the health and welfare of the people being evicted”. This can create an immense backlog, which sees lawful winter evictions being postponed until the spring or even the summer and leaves landlords/investors with reduced total yields as rental income for this time period may be lost (Source: Kovitz Shifrin Nesbit legal services).

For tenants:

  • discrimination: some tenants may face bias when searching for housing, given some of the issues landlords face.
  • limited options: the price range they can afford may restrict their choices, when coupled with other factors.
  • bureaucracy: navigating the program’s bureaucracy can be as challenging, if not more, for tenants as it is for landlords/investors.

It is important to keep in mind that Bricksave investors bypass most of these challenges, as we take care of property administration on your behalf, handling everything from the purchase, insurance and maintenance of the property (including the reserve, or the property’s very own “savings” that cover maintenance issues), to attracting and managing tenants throughout the whole investment cycle and theultimate sale of the property. All investors need to do is watch their money grow and reinvest their funds when the right opportunity arises.

How much rent does the Government cover?

The answer to this question is dependent on many factors, all of them tied to the tenant. The US Government covers between 20% and 100% of the tenants’ rent, and the exact amount is defined by the tenants’ life circumstances. These include, but are not limited to: employment status, monthly income, family size and tenant conduct.

This amount goes directly to the landlord/investor’s bank account, and the remainder must be paid by the tenant, who has these amounts clearly stipulated when they sign their lease. This means that the tenants are still required to pay their share of the rent, which will not be covered by the HCV program should it be missed.

The yearly reviews might also significantly reduce the amount paid by the HCV program, which can, at times, catch the tenant by surprise. Many are not able to take the financial hit and end up getting evicted from the property over continued missed payments.

Some tenants might also lose their HCV entirely for not conducting themselves properly (e.g. failing to pay their share of the rent, not taking care of the house). This would make them liable to pay the full amount of the rent overnight, which would inevitably lead to payments being missed, eviction and, subsequently, the unit being vacant.

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Conclusion

Investing in Housing Choice Voucher/Section 8 properties offers both social and financial benefits. It provides affordable housing to families in need, creating healthier, wealthier, and safer communities. For investors, this can mean more rent stability, higher returns, and improved chances of property appreciation. From the perspective of a real estate crowdfunding investor, Section 8 presents a highly attractive option where the benefits outweigh the challenges for everyone involved.