Q: Are there tax incentives for providing section 8 housing?

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Q: Are there tax incentives for providing section 8 housing?

Q: Are there tax incentives for providing section 8 housing?

Can I rent out my property as section 8 housing? Does the government have any tax incentive programs for providing section 8 housing? Would it be a good idea to hire a property manager for this type of property?

answer-icon-masterAre there tax incentives for providing section 8 housing?

The federal government loves to find new properties with landlords interested in renting under the Section 8 program, which helps low income families by subsidizing their rent payments. There’s a general shortage of quality low-income housing nationwide, and a continued need to offer such housing options. As such, there is a demand for landlords willing to participate in the program. 

To answer your first question, not every property out there is going to qualify for Section 8 status. All properties that apply for Section 8 have to comply with several quality standards. 

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There are 13 basic inspection points under federal housing quality standards for Section 8 purposes: 

  • Sanitary facilities
  • Food preparation and refuse disposal
  • Space and security
  • Thermal environment
  • Illumination and electricity
  • Structure and materials
  • Interior air quality
  • Water supply
  • Lead-based paint
  • Access
  • Site and neighborhood
  • Sanitary condition
  • Smoke detectors

You can find the official Housing and Urban Development Housing Quality Checklist here.

In other words, you must provide a useable and habitable dwelling that you could safely raise a child in. 

If your property meets these requirements, or you can repair it to meet these requirements, then Section 8 eligibility is a possibility. You can qualify for Section 8 if you are renting out an apartment, townhouse, single-family home, duplex or condominium. 

Pro-tip: Have a handyman present when the HUD inspector comes to look at your property. That way, you can have any minor issues standing in the way of approval corrected on the spot. This can prevent the need for making another inspection appointment and can get tenants in your property that much faster. 

Incentives

There are no particular tax incentives at the federal level to provide Section 8 eligible housing to low-income families. Some local governments provide some incentives to landlords to participate, such as New York City. But as a landlord you will enjoy some substantial advantages, nevertheless: 

You know you’ll get at least the voucher amount each month for rent. The government gives the tenant a voucher, not cash. So even if the tenant isn’t working or something happens to them financially so they can’t pay the rent, you’ll at least get the voucher amount.

Your property will be affordable to a much wider potential market. In certain markets where many of the landlords accept Section 8 vouchers, it makes sense to apply for this status. If you won’t accept Section 8 vouchers, someone else will – and you will be forced to either lower your rent to compensate, or you will have to risk an extended period of vacancy. Had you accepted Section 8 vouchers, you may have gotten a tenant a lot more quickly. 

Generally, the more landlords in your area that accept Section 8 vouchers themselves, the more desirable it is for you to accept it. 

The Role of the Property Manager

Should you hire a property manager? If you’re thinking about applying for Section 8 status or have recently been approved, I would suggest that you retain one if you can.

Here’s why: 

As with any rental housing, there are local, state and federal laws that must be abided by. Furthermore, you may not be up-to-speed on the proper procedures for screening tenants, handling tenant issues, and more. Each of these issues raises a number of property management issues that aren’t for rookies.  

Case in point: Did you know that federal law prohibits discriminating against housing applicants on the basis of familial status or sources of income? As with all rental housing, if you don’t keep good records concerning your Section 8 applicants and your approval criteria, it’s easy to run afoul of federal housing discrimination laws, even assuming the best of intentions. 

To stay out of hot water, and to avoid some heavy fines courtesy of the U.S. Department of Housing and Urban Development, you’ll want someone in your corner who has some experience renting to this market. 

Sure, the Department of Housing and Urban Development will direct deposit the rent right to your account, on time and pretty hassle-free. So your collection woes should be minimal. But the property manager can add a lot of value by helping protect you from liability and tenant headaches. 

Disadvantages

Renting your property under Section 8 status has some unique issues to tackle that can be seen by some landlords as disadvantages. 

Frequent Inspections. For those who are unfamiliar with Section 8 housing, the yearly inspections performed by your local Public Housing Authority can be an unexpected part of the equation. Each year a Section 8 inspector will come to view your property, even if there has been no tenant turnover. They will check to ensure your property continues to maintain the 13 inspection points we discussed earlier. If you fail an inspection, you will be provided with a list of items that need to be fixed. Once fixed, you can reschedule the inspection. 

Delayed First Payments. Due to frequent administrative backups, it is not uncommon to wait several months before receiving payment. Once you receive the first payment, however, consistent payments should roll in each month. This is something to keep in mind, especially if you do not have the financial means to wait. 

No Security Deposits. Section 8 only provides housing vouchers for the tenant’s rent; they do not include payment of security deposits. If you’d like to collect a security deposit, you must obtain it directly from the tenant. There are other agencies that Section 8 tenants can appeal to for assistance. As with any tenant, it is always advised to collect a security deposit prior to move-in. 

Property Wear and Tear. True or not, there is a stigma that Section 8 tenants are harder on properties than traditional tenants. With that being said, damage to property can happen with any tenant you rent to. This is why it is vitally important to screen all tenants properly.  

Rental Amounts. Be aware that there is a maximum amount that Section 8 will pay. Every year, HUD releases their list of Fair Market Rents; the amount you will receive is calculated using this data, as well as the number of bedrooms within the home. The amount of rent is typically between 90 and 110 percent of the Fair Market Rent. In some cases, depending on your property and the Fair Market Rent calculated for your area, you might be able to rent your property for a higher amount to a non-Section 8 tenant. On the other hand, many landlords report that they are able to charge slightly above-market rent. This is highly dependent on your area and property. A qualified local property manager can give you insight in this area. 

These are just some of the many pros and cons to consider. Thankfully, many landlords have had tremendous success renting to Section 8 recipients, and some find the process quite rewarding both personally and financially. 

Good luck on this journey – and thanks for reaching out with your question!

Author Bio
Writing about personal finance and investments since 1999, started as a reporter with Mutual Funds Magazine and served as editor of Investors’ Digest. He now publishes feature articles in many publications including Annuity Selling Guide, Bankrate.com, and more.
Author Bio for Jason Van Steenwyk

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