Approval by the city is fairly easy. I forget to mention that in my original post. Just make sure every fire detector works and double check that small stuff
Other than the tenants likely being a nightmare what are some of the common troubles?
Tenants are not always a nightmare. If the building is project based (e.g. the vouchers don't leave when the tenant does) then you end up with a pretty good tenant base, generally on par with market rate renters, because the opportunity cost of being evicted and losing access to the voucher is too high. Also, more generally, if you treat the building as an ATM and don't put money or work into it, your tenants will treat it the same way. If you maintain it and keep it in decent order, your tenants will generally be more respectful. Obviously exceptions to this in both directions, but worth thinking about - it's just expensive to maintain a building well.
Can you turn residential property into Section 8 if it's a poor neighborhood?
It is possible to rent to tenants with vouchers, which may require leaving units vacant for longer. It is exceptionally difficult, if not impossible, to create new project based housing.
For example, I'm considering buying some existing houses in Paterson NJ and turning it Section 8. Buffalo NY is also a very cheap market.
How tough is the approval process with the state? Any other pitfalls that you may fall into?
It's not really an approval process. You can rent to whoever you like as long as you stay within Fair Housing guidelines. However, given the geographic scope of your post, it sounds like you won't be very hands on, which means be very careful about costs.
Any and all comments or information is greatly appreciated!
Thanks
Again, a lot of this needs a little more detail and I'll be happy to give a more specific answer.
I’m not sure I follow the thesis, where’s the exit? It sounds like you want to coupon clip cheap duplexes and hope you don’t run into maintenance/tenant issues which seems like a lot of risk without much return
You're correct, coupon clip cheap duplexes for tenant based vouchers. There is no "exit" necessarily. Why no exit? Because Paterson is in such a mess already that it likely will always be the way it is and the demand for section 8 housing will either stay the same or increase. Coupon clip all day. Only problem is the maintenance and taxes (even in Paterson jersey taxes still high)
Why do you assume demand for Section 8 will continue to go up? Or rather, why do you assume rents will continue to go up?
The only advantage to Section 8 is the "certainty" of payment. Which is a huge asset, no doubt... but if you're in a bad market, what's the difference?
And yes, maintenance is a gigantic issue which it sounds like you are not at all equipped to deal with. As I've noted on other threads, you either need to be willing to self-perform a lot of the work, or accept that paying others to do it will eat up most of your margins.
Instead of buying in a distressed neighborhoods and then turn around and try to bring the apartments into Section 8, you should be focusing on the property first, buying in good locations with growing population, job growth, infrastructure, demographics, opportunity for value-add, etc and then work with the local HUD office for the placement of tenants. You can find little pockets of area's like this all over NY, NJ, and PA.
Management will be your biggest issue buying in D- neighborhoods and good luck trying to find an effective manager to keep things on course for these types of properties.
Regardless of collection of HUD payments, all of your income will be going to maintenance, capex, and tenant property damage.
I own property in PA with Section 8 tenants and the experience has been fine but it's in a gentrifying area and have good professional management in place.
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Similique provident quas non. Commodi consequatur aut officiis quia qui perspiciatis est ut. Qui repellat quam non sit.
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A lot, but first and foremost, what kind of Section 8? Project based voucher or tenant based voucher? Makes an enormous difference
Yes,
I purchased 2 large class C multi family complex’s.
It is an insane amount of work and they tend to ruin the unit or have drugs everywhere.
You will need a really solid property manager and maintenance team if you want to invest in this area
Approval by the city is fairly easy. I forget to mention that in my original post. Just make sure every fire detector works and double check that small stuff
Tenants are not always a nightmare. If the building is project based (e.g. the vouchers don't leave when the tenant does) then you end up with a pretty good tenant base, generally on par with market rate renters, because the opportunity cost of being evicted and losing access to the voucher is too high. Also, more generally, if you treat the building as an ATM and don't put money or work into it, your tenants will treat it the same way. If you maintain it and keep it in decent order, your tenants will generally be more respectful. Obviously exceptions to this in both directions, but worth thinking about - it's just expensive to maintain a building well.
It is possible to rent to tenants with vouchers, which may require leaving units vacant for longer. It is exceptionally difficult, if not impossible, to create new project based housing.
It's not really an approval process. You can rent to whoever you like as long as you stay within Fair Housing guidelines. However, given the geographic scope of your post, it sounds like you won't be very hands on, which means be very careful about costs.
Again, a lot of this needs a little more detail and I'll be happy to give a more specific answer.
Delete.
I’m not sure I follow the thesis, where’s the exit? It sounds like you want to coupon clip cheap duplexes and hope you don’t run into maintenance/tenant issues which seems like a lot of risk without much return
To piggyback supply and demand, IMO there are fewer apartment complex that offer 3+ bedrooms and many of the section 8 families need the space.
Delete.
Why do you assume demand for Section 8 will continue to go up? Or rather, why do you assume rents will continue to go up?
The only advantage to Section 8 is the "certainty" of payment. Which is a huge asset, no doubt... but if you're in a bad market, what's the difference?
And yes, maintenance is a gigantic issue which it sounds like you are not at all equipped to deal with. As I've noted on other threads, you either need to be willing to self-perform a lot of the work, or accept that paying others to do it will eat up most of your margins.
Delete.
This strategy honestly sounds like a disaster.
Instead of buying in a distressed neighborhoods and then turn around and try to bring the apartments into Section 8, you should be focusing on the property first, buying in good locations with growing population, job growth, infrastructure, demographics, opportunity for value-add, etc and then work with the local HUD office for the placement of tenants. You can find little pockets of area's like this all over NY, NJ, and PA.
Management will be your biggest issue buying in D- neighborhoods and good luck trying to find an effective manager to keep things on course for these types of properties.
Regardless of collection of HUD payments, all of your income will be going to maintenance, capex, and tenant property damage.
I own property in PA with Section 8 tenants and the experience has been fine but it's in a gentrifying area and have good professional management in place.
Tempore officiis esse quis excepturi accusantium et. Et repellendus explicabo qui aut vitae doloribus. Et accusantium dolores aut labore qui. Vel similique eaque numquam fugit magnam. Dicta ad eum illo libero ullam dolorum.
Similique provident quas non. Commodi consequatur aut officiis quia qui perspiciatis est ut. Qui repellat quam non sit.
Suscipit placeat accusamus enim incidunt porro voluptatem veritatis. Voluptatem eaque et autem et molestiae voluptatem incidunt. Ipsum nihil quas officiis est assumenda.
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