As a Detroit real estate investor, it’s important that you understand all of the options available to you. Do you want to invest in multifamily properties, or do you prefer investing in a single-family home? Do you want to get into commercial real estate that involves renting a space that’s zoned for commercial use to a business, or do you want to focus on working with people who need to rent a place to live? In addition to these options, you should also spend some time evaluating the options available in each sector, including Section 8 housing. Section 8 housing provides its own unique set of challenges but also offers plenty of benefits to Detroit real estate investors.
What is Section 8 Housing?
Section 8 Housing is the result of the Housing and Community Development Act of 1974, which was put in place to help low-income families find affordable housing. Each state, including Michigan, has its own Public Housing Agency (PHA) that oversees Section 8 housing in their state, but the program is run on a national level by the Department of Housing and Urban Development (HUD).
Each state also has requirements that make a potential tenant eligible for Section 8 Housing. For example, some requirements in Michigan include:
• Income lower than 50% of the area’s median income
• Less than $1,000,000 in countable assets
• No access to a home the family could live in
• US Citizenship or eligible immigrant status
These requirements and the foundation of the program make it obvious that Section 8 housing focuses on tenants who don’t have the financial means that some other potential renters may have. This fact alone makes some investors assume that there is no good reason to invest in this area. That’s simply not the case. Let’s begin by taking a look at some advantages of investing in Detroit Section 8 housing.
Benefits of Investing in Section 8 Housing
Perhaps the most appealing aspect of investing in Section 8 housing is the fact that you’re guaranteed to collect some rent every month. Many people assume that renting to low-income families means that they’ll have a hard time collecting any money, but that’s untrue. Since the Section 8 program is government-subsidized, you’re guaranteed to collect 70% of your rent every month. Each month, the government deposits a minimum of 70% of the rent in your bank account. Additionally, the Michigan PHA works with the renters to make sure that the remaining 30% of their rent is an amount that they can afford. While you may not make as much money from Section 8 housing as you could make renting out a property in an exclusive Detroit suburb, you don’t have to worry about not making any money each month.
You also won’t have a hard time finding renters for your Section 8 investments. In fact, HUD reports that the number of Section 8 applicants is higher than the number of eligible homes nationwide. If you have any experience in owning rental properties, you know that there are few things worse than having a property sit vacant for months while you wait to find an eligible renter. You won’t have to worry much about that with Section 8 housing. There is a waitlist in Michigan of families looking for Section 8 housing, so if you choose to accept Section 8 vouchers, you’ll always have a steady supply of renters.
Additionally, each state’s PHA administers rental increases every year to account for rent inflation. Depending on the exact area that you own a rental property in, you may even find that these annual rental increases outpace the market in that area.
Drawbacks of Investing in Section 8 Housing
As is the case with any type of real estate investing, there are some drawbacks associated with investing in Section 8 housing in Detroit. No investment is without its own unique set of obstacles. As a real estate investor, you must decide what hurdles you’re willing to jump over in your quest to become a successful real estate investor.
Perhaps the biggest drawback of Section 8 housing is the amount of bureaucracy involved in the process. Anything that is run by the government, both state and federal, is going to come with a certain amount of red tape. Before you can put your first Section 8 tenant in a Detroit home, you’ll have to do quite a bit of paperwork and wait for it to go through the process that’s required. Additionally, potential tenants have to fill out plenty of paperwork, which can make the process a bit slow, at least at the beginning of the process.
Additionally, you’ll have to be willing to forfeit some of the control that you have in other rental situations. For instance, the process of tenant screening for Section 8 housing goes through government agencies instead of the landlord. This means that you won’t be involved in choosing your tenants. Additionally, you’re not responsible for setting the rental price of the property (or properties) that you rent out. Instead, all of these decisions are made by government agencies. Your asking rate is considered, but the Michigan PHA has the final say.
Finally, it’s important to understand that there is going to be a limit on the profits that you generate from any single property. This is why some Detroit real estate investors don’t get into the Section 8 housing sector until they can rent out multiple properties. If you’re looking for opportunities to generate a lot of profit from a single home, Section 8 may not be the best fit for you.
Is Section 8 Housing in Detroit a Good Investment?
Ultimately, what you consider a good investment depends on your personal investing style and the goals that you have for your Detroit real estate investing business. Section 8 housing certainly provides plenty of benefits, and if you believe that those benefits outweigh the potential drawbacks, we’re here to help. Contact Upside Investments today to find out how we can put our knowledge of the Detroit rental market to work for you.
