Section 8 Housing Funds
Are there any real estate funds focused on Section 8 single family homes ? Not familiar at all with affordable so excuse my ignorance.
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Based on the most helpful WSO content, there are indeed real estate investors and property management companies that specialize in Section 8 housing. These entities often have a deep understanding of the program and its benefits, such as the government subsidy that covers a portion of the rent. However, it's important to note that there can be challenges, such as tenants falling behind on their share of the rent.
As for real estate funds specifically focused on Section 8 single-family homes, I don't have that information at my fingertips. But I'd recommend doing some research and reaching out to professionals in the field for more insights. Remember, knowledge is power, especially when it comes to investing!
Sources: Why are you buying?, Anyone own any property on the side?, Multi Family Investing - New York City
I know that there are local developers who specialize in Section 8, but I've never heard of anyone with reach beyond one or two markets. Not sure why. My guess is that it requires a lot of understanding of the specific housing authority that issues vouchers, so you don't have the same benefits to scale.
There was a group doing a scattered site, SFR, Section 8 strategy. Seemed pretty compelling. With where lines of credit are pricing now and where the securitization market is, the economics may make less sense today.
Interesting. So the space isn’t very institutionalized yet, I’m assuming? And do these properties benefit from appreciation much, or is it more so very durable cash flow ? Mind sharing the name of the group who was executing that strategy?
Section is an incredibly institutionalized space. But most people aren’t running around trying to roll up SFRs under section 8 with tenant based vouchers. They are trying to buy project based section 8 voucher assets. Same business - but one is designated affordable housing while the other isn’t. One scales much better from a few and profit perspective than the other (buying large buildings) which is why people focus on it.
In terms of degree of institutionalization, I was specifically referring to scattered site, SFR, Section 8 in the sense that “are there any large, institutionally backed funds pursuing such a strategy”. SFR scattered site acquisitions are a common institutional strategy, but I haven’t seen that to be the case with the Section 8 twist added.
Second question for you and the group here. It seems that each year you can apply for a rent adjustment for rents to be increased in line with new market comps that you can present as the owner of the property. So to get the rent increase you have to “apply” for it in a way. In light of this, How susceptible are you to downward pressures in terms of rents decreasing at fair market rent comps? Does the gov automatically adjust or would they leave as is assuming no application was submitted for a rent adjustment. If they leave as is, seems as if the cash flows are incredibly durable with your main risks being taxes and insurance as the owner. This is in reference to scattered site.
You're confusing two different things, though it's complicated so it's not surprising. Most Section 8 contracts allow you to take an annual increase called an OCAF (Operating Cost Adjustment Factor), which is generally more or less tied to inflation. This is to make sure your expenses aren't wildly outpacing revenues. As a data point, OCAFs in New York State were historically around 2.1%, and then when inflation hit, popped up to 7.6% in 2023 and I think 5.4% for 2024. So not exactly inflation, but close enough. The second way to increase rents, which is I think what you're describing, is a Mark Up to Market (or Mark to Market, depending on the contract), which you can do every five years. Theoretically you can apply more often/sooner than that, but for the purpose of this conversation call it every five. The MUTM is meant to allow your rents to catch up to rent growth in the wider market, and these can be pretty enormous, especially if you're doing rehab work and tying that in. Like... 30-40% rent increases, in some cases.
Depends on the contract. A mark up to market contract, as the name implies, only ever adjusts upwards. Mark to market contracts can adjust downwards. As you'd expect, you pay a premium for assets with the former contract versus the latter. Of course, if you own an asset with a MTM contract, nothing is forcing you to ask for a change in your rents beyond your annual OCAF.
And insurance is the big one. Usually municipalities are happy to encourage affordable housing, and so tax abatements/exemptions/PILOTS/etc are available (if not always easy or simple!). So you often end up with some certainty around tax liabilities.
But yes, one of the ways I've heard Section 8 pitched is that as long as you trust your operating partner, you're basically looking at a treasury bond. HUD pays you every month, so as long as you don't let your costs balloon and you make sure your tenants are compliant with the regulatory structure, it's a very dependable cash flow
Nothing institutional. Plenty of funds focused on Section 8, but as with many investments, the focus is on assets that scale. Very difficult to achieve that with single family rentals, since by definition none of them have Section 8 contracts and thus are way more management intensive and less financeable than their Project Based multifamily counterparts.
That being said, if that's a strategy you're pursuing locally there is probably appetite to fund it... I just don't have a specific idea of who
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