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The Housing Choice Voucher Program

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By Reggie Brooks

The Housing Choice Voucher Program, aka “Section 8” is a Housing and Urban Development Program that helps to insure that low income families, the disables and the elderly have access to safe and sanitary housing. These private market rentals would ordinarily be out of their financial reach but with assistance, these families can have access to housing where they can live with dignity.

Here’s How It Works…

In order to qualify for a Section 8 voucher, an applicant must apply to the program at a local public housing agency (PHA) that is an extension of the federal Housing and Urban Development (HUD) agency. The PHA will determine eligibility based on the applicant’s annual gross income and family size. Once the PHA has verified the applicant’s information with other families and approved the applicant for a voucher, the applicant becomes eligible for a voucher. In most cases, the need for assistance is greater than the resources provided to HUD and the family is placed on a waiting list until funds become available.

The voucher operates as a rent subsidy. Individuals and families who are approved for a Section 8 voucher may select a rental from the private market including an apartment, a townhome, or a single-family home.  While the PHA uses the amount necessary to rent a moderately priced home in the local market, recipients can choose to rent a home above or below that cost. They must make up the difference between the subsidy and the home’s rent. The subsidy does not cover the entire rent; recipients must pay 30 percent of their income toward their own rent.

What Does Section 8 Mean to You as a Landlord?

As a landlord, you may question whether or not you should accept a tenant with a Section 8 voucher. The program requires that the landlord must provide safe and sanitary housing for the tenant and adhere to the terms of the lease that both parties agree on.  As a landlord, these should be criteria you are already meeting. Additionally, Section 8 requires that rentals pass a housing inspection to be eligible for the program. The landlord is expected to maintain the property throughout the duration of participation in the program.

Participation in Section 8 has numerous benefits to a landlord:

  • Pre-screened tenants with verified income. The PHA verifies your tenant’s income and employment to ensure they can pay their portion of the rent. Some PHAs will turn away applicants with criminal histories. Combined with your own tenant screening process, you should be able to find excellent tenants for your rental.
  • High demand for properties. Due to a shortage of properties and an overwhelming number of applicants, demand for Section 8 housing is high.  Your property will also be listed on the Section 8 website for your area, providing free marketing to your target audience.
  • Guaranteed income.  Getting rent paid on time is one of the biggest hassles that a landlord faces, but in the Section 8 program, the rent subsidy is paid directly to you. Additionally, most voucher recipients will pay their portion on time as non-payment can risk their continuation in the program.

While there are some drawbacks for landlords, such as continuing with routine inspections to ensure the property is being maintained and some restrictions on how much rent can be charged, the benefits for a landlord are significant.

Reggie Brooks, is an international speaker, author and educator, dedicated to inspiring others to achieve personal success through real estate investment. He is also the #1 Vacant, Abandoned & Distressed Property Specialist in North America.

Having risen above a life of poverty, he has achieved what many people consider to be impossible. He went from making $36,000 per year at the local telephone company, to making over $40,000 per month in his real estate business. Today, Reggie delivers his personal philosophies for success at major business venues and expositions throughout the United States. Reggie attributes his success to faith, dedication to success, and to the invaluable coaches he has had along the way.

 

3 Unique Ways to Turn Your Property Into a Money-making Machine

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By Ashley Lipman

Almost any property is capable of turning a viable ROI if managed with savvy and foresight. Even bare vacant land can turn a profit if you know where to look for the right kind of customer.

Making money through real estate is as old as real estate itself (which is to say, “as old as dirt”), but we want to present here three often un-thought-of ways you can turn a profit from your land and/or building.

  1. Contract With a Cell Phone Company

There are some 300,000 cell towers in the US at present, and that number is growing by around 10,000 new towers per year. If you have vacant land in a strategic enough location, given the right zoning requirements are not an obstacle, you can make a lot of money by letting a cell phone company build a tower on your land and then collecting ongoing rent for the use of your land.

If a cell phone company approaches you with an offer, that makes it a lot easier (and gives you more “negotiating clout”), but you can also advertise or contact companies to make offers.

But don’t cut yourself out of a solid profit margin needlessly. Rent is this niche area varies greatly, from $100 to $50,000 per year (not month). In fact, you’re better off talking to an expert consultation firm to find out how to get the most cell tower rent before making any final decisions and signing on the dotted line.

  1. Run Your Rental “Empire” Smarter

Owning rental property is about as common a business venture as you’ll find, but the fact is, many landlords aren’t getting the full benefit out of their investments. There’s quite a learning curve involved in taking on land-lording, and so, it isn’t surprising if new landlords (and even experienced ones) have significant room to improve their profit margins.

The number one reason that property owners lose money on leases is, harsh as it may sound, that they lease to the wrong people. Having a unit sit empty can be frustrating, but you’re much better off being patient and upholding high standards. You need to combine two elements: an attractive “deal” to draw in good tenants and a thorough screening process to keep out bad tenants.

That means you make it clear that you will promptly respond to legitimate tenant complaints, make all reasonable and necessary repairs, don’t invade tenants’ privacy, provide (if possible) a tenant-only laundry facility and a game room/social lounge, and of course offer only well renovated and attractively decorated units. You charge slightly more than your target ROI, then you grant a year’s-end discount for paying rent on time or otherwise reward reliable, timely payers.

But also have strict rules for not disturbing other tenants, not destroying your property, and as to late fees and eventual evictions. Also monitor tenants for illegal subletting and other ploys. If all that sounds like work, don’t be afraid to hire a property manager: with the right policies in place, you can still do well. And you can still afford to be reasonable, patient, and generous with tenants with legitimate reasons for occasional late rent. It’s all a matter of having reliable, good renters in general, not perfect renters who never have a problem.

  1. Use Your Home to Generate Extra Cash

Another angle for homeowners is to simply use their home itself to generate extra cash. There are many ways to do this, so we can’t quite be exhaustive here. But here are a few prime ideas:

  • Set up a home office. Renovate, say, your attic or basement, or simply use a spare bedroom. If you can work from home even part of the time, you will save lots of money on transportation expenses. You’ll need a computer and Internet connection, but most people already have that anyway, so it’s not an extra cost. And you can typically deduct the cost of your home office from your taxes each year as well.
  • Offer storage and/or parking. Storage facilities are very popular these days, and they charge a hefty price monthly in many cases. If you have an extra shed, garage, or room, (or if you’re willing to put a new outbuilding up for the purpose), you may be able to attract people willing to pay a much-lower-than-normal monthly storage-space rental fee. Or, if you live in a neighborhood nearby a sports stadium, concert hall, or other popular venue, you may be able to advertise cheap, convenient parking and frequently get takers.
  • Take on a roommate. Anyone with a spare bedroom and bathroom, and who is willing to share their kitchen and living room with a “reasonable person,” should consider taking on a roommate. It’s easy to advertise online, in the newspaper, or on local bulletin boards, and you can save your new roommate money with lower rent at the same time you make extra money yourself and maybe gain a new friend.

 

Are Investments in Temporary Rentals a Good Investment?

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By Edward Brown

With the popularity in Air BNB [for discussion purposes, we are using Air BNB, but there are other similar companies that could be substituted in] gaining traction in the market place, many real estate investors have been looking at purchasing residential real estate for the specific purpose of renting the real estate on a short term basis similar to the hotel model.

Rather than attempting to garner a month to month tenant or a longer term lessee, some real estate investors have been looking at a model wherein they forgo the security of known monthly rent in exchange for the hope of higher income per month by renting to vacationers on a short term basis. This type of rental is especially the case in popular vacation destinations such as San Francisco and the Napa Valley as well as the outlining areas.

There are pros and cons to this model. From a pro standpoint, many times, renting to vacationers for less than half a month can earn more than a full month under a typical month to month tenant. In the Bay Area, monthly rental may be $3,000 on average, but the nightly rental of an Air BNB for the same house may average $300 per night. Also, eviction is not usually a factor in the vacation model. Most vacationers are not squatters by nature, and lessee evictions [especially in tenant friendly states such as California] can be expensive in time, aggravation, and money. Although there will always be the horror stories of the vacationer who does a fair amount of damage to the house, these instances are much less than the usual monthly renter.

On the con side of renting via Air BNB, there is no security of rental income surety. One never knows how many days the house will be rented. Also, some months may be more seasonal than others. For instance, attempting to rent your Napa Valley place out in February may rent for far fewer days than in August when the vineyards are more in bloom. Other cons include the movement by cities to either tax the income via a “transient” tax or to not allow rentals for shorter than 30 days. This has recently been a big issue as neighbors complain about noise, constant flow of traffic, and so many different renters coming and going as well as the belief that property values go down when living next to this type of rental. Since the number of renters using Air BNB for more than 30 days is much smaller, the odds of getting a renter for more than 30 days to make up for the lack of days being rented in totality as compared to the desired occupancy of the Air BNB rental are very slim. In addition, someone desiring to rent under these circumstances is usually not willing to pay the typical nightly rent for the whole 30 days. Either the “landlord” will advertise a bargain rate for 30 days, or the prospective renter will negotiate a lower rent. A typical $300 per night rental using Air BNB might go for $150 per night for a 30 day rental.

Security deposits are normal for both Air BNB and typical rental situations, but Air BNB will most likely have an additional cleaning fee that may or may not match the actual cost of cleanup. In addition, the Air BNB rental will need to be furnished including bedding, towels, and other necessities whereas most typical rentals usually come unfurnished. This adds to the cost of the set up and continuing maintenance of the Air BNB as well as having someone keep an eye on the rental to make sure the unit is in the same condition from tenant to tenant.

As with Uber, Air BNB has gained traction. With Uber, it took some time for the general public to see that this was similar to taking a taxi and, once people got the hang of it, it became the norm. With Air BNB many vacationers feel comfortable staying in someone’s house that they know has been prepared for them in the same way a hotel makes up a room. There is no room service with Air BNB, nor are the sheets changed on a daily basis, but the costs can be quite attractive to the renter as well as the usually much larger space they get by staying in a house versus a hotel room.

From a lending standpoint, most lenders will severely discount the anticipated rent expected from the borrower who wants to buy a house to place in the Air BNB system. In fact, many traditional lenders will not look at lending in these circumstances with unknown income. Traditional lenders may impute income if the rental is a typical leased situation [although usually discounted somewhat], but Air BNB income is not like a hotel that has many rooms. Either the Air BNB unit is 100% rented or 100% vacant. Hotels have the luxury [from a lenders point of view] that the hotel’s experience may show 60-80% occupancy.  Especially if the Air BNB owner is a first timer, most banks will be very wary of lending to borrowers looking to buy a house for Air BNB income. How does the new owner know how much to charge? These and other questions will make banks turn down more often than approve these types of loans.

If the buyer of an Air BNB house has experience and other rentals in their portfolio, the bank may be more inclined to take a closer look. Otherwise, the buyer of the Air BNB house will have to look for alternative lenders. If the buyer/borrower puts a significant down payment, the alternative lender may be able to be convinced to make the loan since this type of loan would be considered a non-owner occupied [no consumer] loan and not have as many restrictions in its lending practices due to Dodd Frank, TRID, ATR, and other regulations. The alternative lender is more willing to look at what can be done with the house upon a foreclosure. Can the property be sold easily to an owner/user? Can it be rented to a normal tenant lease? Most likely, the alternative lender will not look at keeping the house [upon foreclosure] as an Air BNB; that is a business rather than a rental and in need of more management.

The prospective buyer of an Air BNB should look at what a typical lease would look like should the Air BNB model not work for any number of reasons previously mentioned. If the typical lease income is too far below what is prudent from the standpoint of NOI, the buyer may decide to choose a different property to Air BNB if that model is so desired.

Edward Brown

Edward Brown currently hosts two radio shows, The Best of Investing and Sports Econ 101. He is also in the Investor Relations department for Pacific Private Money, a private real estate lending company. Edward has published many articles in various financial magazines as well as been an expert on CNN, in addition to appearing as an expert witness and consultant in cases involving investments and analysis of financial statements and tax returns