Why I Invest in Section 8 Apartments

in this video you're going to learn why I invest in section 8 apartments I know what you're thinking Pierre széchenyi are the worst tenants they destroy properties and that's the case that's your fault not theirs I'll explain that in a moment on the positive would you like to invest in apartments where the government pays and guarantees seventy two hundred percent of your rents or how about getting a five to eight percent rent increase every year or how about being able to choose from a large pool of renters on a qualified waiting list how about that or maybe are you interested in finding out how to find the best and most reliable section 8 tenants wherever you are hi I'm Peter Harris with commercial property advisors I'm author of this book commercial real estate investing for dummies I am author of my best-selling book my new book commercial real estate investing for beginners I'm also a coach and mentor to many commercial investors all the crosses great nation of ours in next few minutes I'm going to share with you the advantages of investing in section 8 apartment there's quite a few I may share with you that there are many disadvantages as well of investing in section 8 apartment I'm going to give you my best section 8 websites and apps ok these are great and number 4 for my personal experience I'm going to give you my best section 8 and betting tips that will save you headaches and a ton of money but here's the key number 5 is the key all right this is the key to being successful or not successful in section apartment investing here is how to screen the death especially can avoid the worst ones let's start off with what is section 8 all right okay well section a is a federal housing assistance program let's start it during the Great Depression this is what America was struggling economic and folks needed a place to live and they couldn't afford it so the government stepped in with certain programs they'll be fast forward to 1974 Congress started section 8 program were the tenants paying monthly 30% of their income towards the red and the government subsidizes or pays and rainy balance all right now especially the main freshening program is a voucher program and the volunteer program is broken up into two categories the first category is a project-based voucher where the voucher applies to the building I'll explain in a second and secondly there's a tenant based voucher where the boundary goes to the individual so the individual affectionate can take their voucher and apply for rent and different builders right now on the first one project-based right look at the background a project-based section 8 you'll hear of someone said they grew up in the projects well I live right outside the projects and I was a kid and the projects were someplace where we think go to play this quite dangerous right so that was the project's well the work the projects comes from project-based section 8 so as an investor in these capability which I have been it's quite management intensive lots of inspections lots of turnover not yet activity going on in the property right so that's project-based section 8 where you can dedicate your voucher for one building what this means as an investor is if I have a 50 unit apartment building that under the project-based voucher I'm going to be receiving one check for 50 units and then my tenants have to pay the remaining balance all right so that can be a good thing well we got to get them depends on the property and how it matters on the tenant based voucher program this for an individual take their voucher and apply to different buildings here's an example I'm a section 8 landlord for one of my properties I can apply a technique for one my units that are coming available to be in a section 8 pool the section 8 tenant potential tenant will see that the listing will contact me we'll talk I'll qualify them you're good the next thing to do is they'll set up a section with a section 8 office and the tenant they'll get together comes a property if they give you a thumbs up and 30 days later they move in typically if their rents are for our studio is $1,000 section 8 will pay $800 and it can it has to pay $2 this continues on and on and on okay so that is in a nutshell what section 8 is got it okay let's move on to something more exciting and that is what are the advantages or disadvantages of section 8 apartment investment let's jump into section 8 advantages and suctioning disadvantages just quite a few advantage number one for a section 8 is you're going to receive on-time payments from the government once you are signed up to 10 moves in you will receive your checks via check in the mail or direct deposit month after month after month until the tenancy ends all right that's a badge number one and that is number two is you're going to get protection from the tenants financial hardship let me share a story with you I have a tenant named Marcie the section he paid a hundred percent of her rent and she would disappear months on it all to only appear when her daughter a repair to her unit now had she been a regular tenant I probably would have evicted her because she's leaving her kids alone like that but because of section 8 and I got paid every single month and she would appear and the unit was okay I kept there as a tenant so that's a an advantage of having a section 8 tenant with a government pays pretty much all of her rent advance number 3 is free access to tenant pool on the waiting list here I'm going to give you the two websites that we use the most to put all my vacant fees on and they work quite well the first website is called go section 8 calm okay geo section 8 calm that's the first one the second one is called we take section 8 calm we take section 8 calm those two web sites are free use there's a premium level we can get more exposure but both those websites work very very well and they have other resources that may be useful for you as well as a section 8 investor all right okay number four is an advantage is you're going to get higher rental rates now this doesn't apply to every country in the US but in some of the smaller cities that section 8 rents are higher than what you can get in comparison to in walk you're a tenant right this is absolutely the case in a neighborhood that is not as great okay now if you want to find out what your ribs are in your city to see this higher than the private 10 on market mechanic you can google fair market rent get their work your way then your city so firm argument San Diego fair market rent Kansas City and then a hyperlink will appear click on the HUD link and it will show you what section 8 will pay for 1 bedroom 2 bedroom and 3 bedroom and you can compare it to what the market will pay for a private tent okay all right advantage number 5 is shoulder vacancies once you are registered recession 8 and your your unit has been inspected and it's on the market and you're in a system that they can seize over time will be shoulder and shoulder shoulder since you know the process right so there's great advantages being shorter you know in the process you have a waiting list alright so I believe these advantages will outweigh the disadvantages now let me jump into those real quick ok so a disadvantage number warning you really have to understand these if you are seriously considering investing in section apartments never long as government bureaucracy now you're dealing with the government here it's going to take you longer to get stuff done am I correct right they are understaffed underpaid and sometimes they don't care I sometimes I believe that just because I'm a landlord and they're not maybe they want to work hard for me I don't know what it is but I have to put up with this bureaucracy here every time that we have a vacancy sometimes it's a good experience sometimes not and the reason why is you're dealing with the government okay disadvantage limit unas delayed payments once your tenant moves in because of the bureaucracy it is possible you're not getting your first check for too much later for sixty days later however you're going to get two checks two payments at the one time but you have to make your mortgage payments without getting rid for that month so that's a disadvantage right number three strict instructions this is what section is known for so they will come in and make sure their client their section 8 tenant is going to have a safe and clean and sound apartment right they're going to look at the ceiling height the paint the car condition of the carpet all the appliances work utilities everything you name it windows all this stuff they're going to take a look at and if something is not up to section 8 standards they're going to have to have you fix it that could delay things or bit something simple they'll fix it they can move in but you are dealing with the government so watch out all right and number four is yeah number four is delinquent payments don't forget when you are making to a section a person they are on for a reason they can't afford a rent on the outside so the government's helping them out so most likely they they're going to have trouble making their repayments however small they are right just remember who they are sometimes when we speak about evicting exceptional tenants sometimes we prefer to work with that section intent on getting them caught up over a period of time rather than a victim because when you leave ictus Section eight you have to go through such an a all the bureaucracies it's a big mess right but because they campaign you know 70 percent 80 percent of the seven hundred percent of their read we're willing to deal with that right so don't have to get caught up but at least you might get happy too caught up with a full month or two months of rent like you would with the private tenant okay so that's what it disadvantages to is a delinquent payments number five no compensation for damages that's right when you put in it section it can enter your unit and they mess it all up you would not get reimbursed so the most you can do is complain to section eight they will most likely revoke the voucher of the tenants of it they're no longer in the program but the government is not going to reimburse you for damages that's on you number two if you think that you can go after the tenant you can you can file a claim against kenick taking the small claims court but collecting on them the chance is very small is again you know where they are financially all right okay so these are the advantages and disadvantages of section 8 I think we really have to understand both now I like to jump into tips giving you section 8 investing tips that come from experience and I think that they're going to save you a lot of headaches and hopefully seeing a lot of money next let's jump into sectioning and dusting tips these four tips comes from years of experience of owning and managing and dealing with section 8 on a daily basis right so tip number one is remove garbage disposals ceiling fans screen doors and storage areas these are all nice to have but they're unnecessary they will not get you higher ranks and it'll cost you more money all right so especially I could care less if you have these things the tenant will like them but there's going to cost you money to to repair so that unnecessary remove them all right tip number two is you need to do quarterly visits and one of the main reasons why you do them two reasons right one reason is to make sure that the tenants are clean and the pressures of no wreck number two is I look for water leaks right now let me show you this unrolling toilet can cost you up to $75 a month okay just roll on the cash flow when you own a lot of Units are--can faucet will cost you $20 a month I'm just a quick math for you let's say we have a 24 unit building and six of the units have leaky faucets and a running toilet so 95 dollars a month just in water bills alone for leaky faucets right so 95 dollars all right and I have six units that are leaking water that's five hundred and seventy five hundred seven dollars per month times 12 that is six thousand eight hundred forty dollars a year if you live in a city like I do where the cap rates are really low let's say it's a five cap all right let's find out if you're in a five cap market and you're throwing away six thousand eight hundred forty dollars a month on up per year in water look will it cost your property value on this devices by five cap and one hundred thirty six thousand eight hundred dollars so if you have six units with running toilet for leaky faucets and you don't repair them in my market okay six units will cost you in property value alone a hundred and thirty six thousand eight dollars right I hope that convinced you to view these monthly or quarterly visits right number three really important really important this is the mental aspect of the section eight game trying to get it okay you're the parent they're the child section 8 tenants are my children you have to train them without structure if you don't give a kid structure and train them guess what happens it go crazy right same thing here your section tennis will go crazy without structure in fact they they crave structure so that you know they can be good tenants give them that structures that there are rules and regulations that used to have your lease agreement that will give them that structure you need to reinforce it ok reinforce it don't play their games that they play with you play by the rules don't let your emotions get best to you the lease agreement is your doctrine of operation anything outside the lease agreement you come down on that simple if you don't antonio you're going to have problems all right okay number four the question is one enough to mentor section eight that's a great question right here's here's what you don't do that when you have an apartment unit that's in a good neighborhood in a unit in great shape you do not render the section eight you want to know why because the the market of a tenant their private tenant won't be able to pay you more rent than section eight with all right this is certainly so in larger cities and also to hopefully the the market rate tenant won't be as intensive or messy as a section 8 tenant okay so do not miss the section eight if you're in a great part of the city and your unit is in great shape you can probably get more width through the through the public market all right okay so that the next and last thing I want to go over with you is how to choose the best sectioning tenants and avoid the worst ones alright so that's the key to this whole game all right here we are part of the video I'm going to share with you how to choose the best section 8 tenants and avoid the worse ones basically we use a point system we take in the section 8 applicant information right we take certain questions they they answer we put it on a on a separate spreadsheet that has the point system on it and at the bottom of the sheet if they have X points therein if they have X minus 1 points their deny is that simple we have used as point system all across the country from the west coast to the East Coast and it has effectively turned around properties in order of months putting in giving out bad tenants and putting in the right tenants right so what the pump system does it removes any guesswork any motions you need confusion from the front office from the leasing agents when a potential section 8 tenant makes an application right and they bring along a great story we will ignore the story but pay attention to the point system right so what it does if even if the tenant has a great story of what they would be a great tenant but they have evictions they have felonies they have that present they have all this right but they have a great story as a leader in the company we need to figure out how to remove the emotions from tenant screening so we came up with a point system I can't take credit for by the way as developed by my partner's all right now ok it's easily trainable to anyone so anyone in the front office can do this anyone off the street easily trainable you can do it as well it's adjustable to your market right so my market where we invest and your market may be slightly different you can change the point system by the way in a minute or so I'm going to erase this board and give you the actual point system all right number four we use three simple measurements so again you know any beginning investor can do this right so the three measures that measurements that we use are rental history income and credit and debt that's what we do and we have we give points on certain levels of a rental history of their income and a credit and debt and at the end of the sheet they get told a point gives you an immediate yes or no is that simple all right so without further ado I'm going to erase everything in this board I'm going to come back and show you the pump system see there okay here we are I'm going to share with you how we screen for the best tenants and how we screen up the worst headaches I'm going to explain to you the point system that we have developed over the years that works very well in selecting the best tenants and denying the worst tenants okay specifically for section 8 now I'm going to use three categories here we use a rental history their income and their credit and slash debt to determine if they are a good tenant or a non desirable tenant and then I'm going to compile all the points I've I attained from the rental history the income and credit debt and I'm going to grate them according to my table here okay so rental history is if they have nowhere to go through they get zero points they have six to 18 months of months of history they get one point eighteen months and more emerging history at two points is they have the eviction they get negative three points negative if they have problems with the landlord they get negative when we call the previous landlord approves landlord doesn't give us good results they get negative three points okay so you see how this is set up income their income must be three times their rent let me explain up and section eight if the rent is $1,000 for the two bit for the two-bedroom the tenant probably has to pay two hundred dollars of that and sex mate will pay the remaining $800 so in this case if their tenants portion to pay $800 the requirements three times that or six dollars okay so if they can make and sell pay stuff fifty dollars a month for six months they get a point it's less than six months starting job to get half a point if you can't show it negative three points okay now credit debt I'm going to measure if they have excellent credit good credit Fair Credit poor credit bad credit no credit get to in commercial and a two levels of that and the composite points I quickly want to share with you what I mean by good credit and fair credit alright so actually a credit means no legs no charge-offs no collections in the last five years okay let me get three points for that good credit is two to four thirty days late one to two day late and 100 a later alright and they get two points they're fair credit is no more than 400 a lakes or 260 day late right and or or one page collection okay they get one point for that poor credit is no more than five thirty day late three tricks day links or two ninety day late one charge off or credit less than six months the application we get zero that credit means no more than the poor credit allows no bankruptcies they have a bankruptcy a lien or judgment in the last five years they get negative three they have as negative one if they have no credit and if their debt to income ratios greater than thirty five percent they get zero points it is greater than 50 percent they get negative three okay so that's the standard here let me run a quick example let's say Mary Jo has a couple of kids so most of in a three-bedroom and so she had some you know a couple of years of brittle history so two years let me see if she stops off with two points okay and let's say that she just started a job just started all right so so and she can show that she makes three times of her rent portion so she gets a half point here alright and let's say that she has a you know fair price okay your credits fair so she get one point here so what's the total three point five okay three point five points that Mary Jill gets right so we want to see a table and the minimum is three points so she has three point five so she gets in okay got it all right you know let me do another quick example for you let's say that Bobby Jo he wants to rent one of our apartments and let's say that he has an addiction right so in the last three years so his eviction Jesus minus three Bobby Jill's been on his job for a long time writes in here two point there and this point there but let's say he has you know fair credit right fair credit so Bobby Taylor ends up with what negative one points right negative one Bobby Jo doesn't qualify so Bobby Jo gets denied okay so you may run into different scenarios here let's say which is another random tenant who has been in the job for 18 months right just our new job so that's point five points right and then half spirit credit right so this person gets has two point five points pretty typical person I just described there right so with two point five points guess what they're there they're not exactly meeting the automatic yes but they fall within the two and the two and a half point range so guess what they noted to move in they need to give us a double deposit okay double a security deposit so they have more skin the game so we can make them be more committed to being a good venture okay all right so I'll just share with you who would qualify someone who is less qualified put in double deposit and what a good tenant looks like all right okay so hopefully you had enjoyed this video and now you get a better idea of why I invest actually apartments and how you can be successful too if you want more videos like this please go onto our website commercial property Viacom or simply subscribe to this YouTube channel thanks everyone and I'll see you at the next video

Channel: Commercial Property Advisors

Views: 113,375

Rating: 4.919414 out of 5

Keywords: Commercial Property Advisors, Peter Harris Real Estate, Peter Harris, Section 8, Section 8 Investing, Section 8 Apartments, Commercial Real Estate Investing, Commercial Real Estate, Apartment Investing

Id: 4OOH36r-3cA

Length: 26min 26sec (1586 seconds)

Published: Thu Jun 08 2017

Reddit Comments

[u/eliterun]

Oh God. That's the quantity over quality strategy. Only invest if you are well aware of the risks.

[u/nut_conspiracy_nut]

I am paying a full market price (ok a little lower than that). I was wondering why both the tenats and the landlord are both so retarded. Turns out there are section 8 vouchers at play. I can't underscore how dumb everyone is. They have not figured out how to use recycling and how it is different from regular garbage. Cops knocked on my door twice this year to inquire about some other tenant.

When section 8 tenats leave, they often open up the walls and take copper wiring and pipes with them. There are different laws in different states on how easy it is to get rid of them. These section 8 people are not net taxpayers and govt will run out of money, so your income is kind of temporary in the long term.

Other than that ... :)