Did you know that the average Section 8 household stays in the housing program for six years? This can be a bonus for many landlords, as that means an average of six years of uninterrupted tenancy. The benefits are stable rental income and far fewer move-in, move-out, and vacancy costs.
If you want to become a Section 8 landlord, you have to rent your property out at a "reasonable" rent. Find out how the Department of Housing and Urban Development (HUD) and your local Public Housing Authority (PHA) set this figure by reading this brief guide.
HUD's Fair Market Rent Calculation
The "reasonable" rent value is the product of a calculation that rests on two figures. The first of these is the fair market rent for the area.
An area's fair market rent is equal to the 40th percentile rental price of the area. HUD calculates this number by surveying the rental prices of all rental units in the area except for luxury units and units that are less than 15 months old. The fair market rent is the price where 60% of the area's units cost more to rent, and 40% cost less.
The PHA's Payment Standard
The second figure underpinning the reasonable rent evaluation is the local PHA's payment standard. The payment standard is the maximum amount the PHA will pay per number of bedrooms. This means that you're able to charge more if your rental unit is larger.
The payment standard tends to be 90 to 110% of the fair market rent for the area. This is only what the PHA contributes in the form of the Section 8 voucher; the tenant must also make a contribution.
The Final Amount and Benefits of Section 8
All in all, the final value of "reasonable rent" will end up being a little higher than the fair market rent. So if Section 8 landlords are restricted to below-median rent prices, are there other benefits?
Yes, there are many extra benefits. Firstly, tenants must qualify for and go through the background check in the Section 8 housing process. This acts as a tenant screening process that the government does for the landlord.
Secondly, the landlord is guaranteed to receive most of their rent each month. Even if a tenant defaults, the PHA still pays the landlord, and their payment constitutes most of the rent. The Section 8 rental guidelines also give landlords a standardized process to follow if they need to evict a Section 8 tenant.
Lastly, Section 8 tenants usually stay in the same rental unit for the duration of their time in the Section 8 system. This drastically reduces the unit's tenant turnover.
Making Good Strategic Decisions With Your Investments
Letting your property to Section 8 tenants can be a smart strategic decision in the right circumstances. Usually, this means that it's wise if your property is worth a rental price that's close to reasonable rent in terms of the Section 8 rent criteria.
For rent to be reasonable according to Section 8 standards, it has to be in the bracket calculated on the HUD's fair market rent and the PHA's payment standard. This tends to be just below the area's median rent.
PMI Foothills can help you with your rental evaluation, real estate investment portfolio, and more. Contact us today to benefit from almost two decades of property management experience and professionalism.
