Back in April, I told you I’d get more details about my rental properties and how I’m managing since this crisis hit. Well, other than driving my wife crazy and being stuck at the house for several months, things are pretty good. I’m having some issues with collecting rent from some of my tenant buyers, but this training is going to be all about my Section 8 tenants. This crisis has been very challenging mentally as there doesn’t seem to be any expert, guru, entrepreneur, politician or physician that can give us some clear vision on what the future of the Covid 19 virus holds for the world. We all thought the real estate market was going to tank, but it’s holding on. We all thought stocks would drop to zero, but they’re bouncing back. It seemed like some businesses and employees would be hopeless, but most businesses are moving right along. Have we underestimated the American spirit & economy? Has the trillion dollar bailout given us false hope? Will the virus come back stronger in the fall of 2020? So many questions in my head I don’t have an idea where to begin. But, the one thing that keeps me grounded during this time is the fact that I can almost guarantee my Section 8 housing payments coming in. Years ago every first of the month, I got this knot in my stomach staying up late in my bed wondering when or if the rents were coming in. It was like going to the casino every month pulling the slot machine gambling to see which tenant would be paying. It wasn’t a good space to be in mentally and further it wasn’t healthy for me or sustainable on my end. So I got educated on working with the government to provide them a service.
Bar a government shutdown or bankruptcy(which isn’t out of the realm of possibility) our politicians have already set aside the money to pay for the assisted housing in this country. Years ago Housing Urban Development(HUD) decided to offer living assistance to low income families. This assistance, generally speaking, was huge housing projects that were terrible to live in. They turned into drug & crime infested buildings many people loathed living in. HUD also opened to pay private real estate owners as well which is where we get the Section 8 housing from. Today it’s referred to as the Housing Choice Voucher Program, but we still commonly refer to it as Section 8. This is where the gov’t pays all or a portion of an approved tenant’s rent. We call it subsidizing. The housing specialist will determine what that portion is, so we have no control over that. Each tenant has a different portion of the rent to pay, depending on family size, income, medical expenses and other things I have no idea about. I have some tenants the gov’t pays ALL the rent, and some where the tenant pay up to 80% of the rent. I haven’t figured out how they come up with those numbers yet. I’ve noticed I get more complaints from the tenants that pay nothing. From my experience, they’ve been programmed to the point where they feel like they actually deserve to live in this wonderful environment without earning it. Sometimes I wonder if they’ve traveled outside of the US to see the living conditions of other countries. I had a prospect tell me one time “I need central heating and air for my kids, I can’t rent here”. I’ve traveled to places where people live in tin huts with tin roofs and the closest running water was a few hundred feet away at a pumping well. Americans are so entitled sometimes it makes my stomach curl. We have no idea how lucky we are to be born at this time, in this country. But I won’t make this an entitlement lecture, let’s keep this on the income we can generate for you. Keep in mind, you may be dealing with some really twisted thinking people. I LOVE my section 8 tenants, but the entitlement philosophy has really hurt some of them and I’ve seen them pass that down to their kids. Yes, I’ve had generations of Section 8 tenants. The mother will rent from me, then the daughter has a baby and now they’re looking for a place to live with her Section 8 packet as well. This can be a real curse for some..
So let’s talk about how all this section 8 stuff works. Keep in mind there are good and bad in conventional tenants as well as Section 8 tenants. The fact is there’s no silver lining to ANY TENANT. They all have ups and downs and you must be vigilant with screening them before they move in. My secret to getting a great section 8 tenant is being willing to let my place sit empty until I find my ideal tenant, and you should too. There’s an old saying I heard years ago from the old investors “An empty unit is better than having a bad tenant.” Think about it, once the bad tenant’s in, it’s very hard to get them out and it takes time. Further you can’t show it to a good tenant while they’re living in your place so be prepared to let your unit sit for a while until a good tenant comes along..
Let’s start by talking about who we’re looking for. Since 2007 I’ve been renting to Section 8 tenants so I have some long term perspective with this. From my research, the best tenant you’re looking for is the person that’s been in their current home for more than 3 years. I say more, because I’ve rented to people that lived in their current home for 7 years, but I’ll settle with 3. If they only lived in their current house for a year or two, this tells me they don’t mind packing up and moving. This means they may move into your hose and in a year or two decide they want to move again. This will put more stress on your unit and further cut into your income. You want long term money. Gone are the days of thinking short term and month to month. The longer the tenant’s lived in their current place, I’ve found the longer they’ll live in your place. Sure, you’ll be tempted to overlook this rule as tons of my inner circle members do because they think they need the money. PLEASE DON’T! Each and every time this rule gets violated, my client calls me with a horror story. So just make this a non-negotiable, stick to the time frame.
Next you’re looking for a person that’s clean. I’ve only had one person slip past this rule because she was pretty much homeless when I took her in. She’d moved out of her place and was living w/ her mother so I couldn’t enforce this next rule. Take the time to do a short home visit after they’ve turned in the application and paid the app. fee. You’re going to be so happy you did this because then you’ll know how they currently live. If the applicant keeps their current home dirty, how do you think they’ll keep yours?! Don’t be scared to go out and visit people. If they ask why, simply tell them your company requires you to come by for a short visit to get to know people we do business with. I’ve only had a few people say no to this. One time a tenant told me I was breaking the law by asking to come by and refused to allow me in. Needless to say, I didn’t rent to them. I can still hear them screaming in my ear telling me about all the boxes they’d already packed to move and the home was in disarray from them packing. I was cool with the house being dirty with clutter, but my gut was telling me there was more to the story. Why would a person not want me to see their house? Well, I can only think of one reason. In my mind they don’t want me to see their place because it’s in such terrible condition they’re embarrassed to show it. Once they said I couldn’t come, I threw that application in the trash.
We also do a soft background search on evictions and judgements. Since the gov’t is paying most of the rent, I don’t care about judgments or their credit score rating. It doesn’t matter if they have a car repo, medical bills or any type of bad credit reporting. On a conventional or private pay tenant, judgments would be a deal breaker. But I let them slide since the tenant is only responsible for a portion of the rent. I’ll even let some tenants move in with a discounted or NO security deposit. Think about it; would you rather lose $1k a month for 12 months just because the tenant can’t come up with a $1k deposit? Not me, sometimes I’ll waive the deposit or allow them to make payments on the deposit IF they’re a great applicant and have good rental history. I look up their name in the state court website to see if they’ve ever been evicted. In Virginia it’s www.state.courts.va.us to see if they’ve had any court filings against them. If they have an eviction, I’ll overlook it as long as it was BEFORE they received gov’t assistance. There should be no reason they have an eviction once the gov’t is subsidizing their rent. If they do have one while they’re getting assistance, you better pass on that application. The big thing I’m really looking for is criminal charges. Be very certain you check for criminal history because they could bring some problems to your house if they constantly break the law. I recently had a tenant move in with no deposit and we agreed she’d do all the work to get the unit ready to pass the inspection. This was a dream for me because all I had to do was install new carpet. She and her team did all the other little repairs like stain the cabinets, fix windows, change electrical outlets and switches, fix doors, clean the unit & and ton of other things. This was the 1st time I let a tenant move in with no security deposit and so far it’s been great. I learned years ago it’s best to lower or even waive the security deposit IF the tenant can help with repairs. Sometimes we must take our eyes off the little picture, the security deposit, and focus on the big picture, 12 months guaranteed rent, in order to keep our business growing. I figured if she was willing to sacrifice her time and money to get the house ready for the section 8 inspection, then she must be an asset to my business. Instead of getting $1k from her for a security deposit, she saved me several thousand dollars in time and materials. I could care less about the deposit. From what I can tell, if you show these tenants empathy, compassion and humility, they’ll love you for it. I told her we didn’t have the manpower or the money to do the repairs, but to make up for that there was no security deposit. Luckily she works for an apartment complex where she has many onsite repair men that can fix things. She asked them to come by and help her with the repairs and I’m guessing they did the work for a super cheap price or maybe even for a favor for a friend. Either way, all the repairs got done(not by me) and she moved in with no issues. She’s been one of my best tenants to date. She hasn’t called me for anything else after she moved in. Time will tell as she’s only been with me for about 10 months but so far, I love her. To do your own background/criminal checks just google (“Your state + General District court”) it’ll come up in all 50 states. You’re looking for the “Civil division”. Believe it or not I’ve actually never used the paid background check services, but you can google that if you think you need it.
After you’ve done your home visit and your soft background check, it’s time to move forward. Be sure to let the tenant know you do 3 year leases ONLY! If they don’t plan on staying for at least 3 years in your unit, they may not be for you. I’ve found if you make it very clear before you move forward, they rarely have any problems. Just like when the lady sets the standard on a date to make sure the man is CLEAR on how things will end that night, well this is no different. If they know you expect 3 years, then they can decide to pass or play on your unit. DO NOT skip this part of the conversation when you approve their application or you may have a person move after the first year. That’s a BIG no-no in my world. You see, it’s very hard on a house when a person moves. They can knock holes in walls, scrape flooring, stress door hinges & knobs, break cabinets and a bunch of other things that create more than usual stress on a house. My mentor Greg Pineo told me this back in 2007, and I’ve tried to be mindful of it ever since. This is why I don’t do 1 year leases. They usually break something when they move.
There’s a trick to doing 3 year leases as the Housing Department isn’t going to allow you to write up your lease for 3 years. They’ll reject your lease IF you turn it in with a 3 year term. So you’ll have to be very specific with your wording. You’ll have to be a little tricky with the wording in your lease. You make the lease for 1 year, but include language that makes it automatically renew at the end of that term for a term of two years. Or you can make it automatically renew for two 1 year terms. So you’re building your 3 years into the lease without the Housing Dept. questioning it. I’ve never been asked about this and you shouldn’t bring it up so write it in and forget about it. There are tons of other little clauses in your lease you better include, we’ll go over some of that stuff next week. Until then, if you have a vacant unit, why not think about working w/ our great government to provide them with a service they desperately need. You’ll be helping your community and making a nice profit while doing it. Be safe out there!!!