Section 8 Property Investment

Does anybody on here have experience in owning / operating Section 8 housing in NY or NJ?

Other than the tenants likely being a nightmare what are some of the common troubles?

Can you turn residential property into Section 8 if it's a poor neighborhood?

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?

Any and all comments or information is greatly appreciated!

Thanks

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Comments (12)

Oct 13, 2021 - 10:12am

Friedmaneconomics

Does anybody on here have experience in owning / operating Section 8 housing in NY or NJ?

A lot, but first and foremost, what kind of Section 8?  Project based voucher or tenant based voucher?  Makes an enormous difference

Oct 13, 2021 - 11:27am

Friedmaneconomics

O

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.

Most Helpful
Oct 13, 2021 - 10:30pm

Thanks for the input everybody.I should have put this originally, but the GENERAL investment idea is as follows:

  • Buy multiple cheap duplexes in the ghetto (not war zone area ghetto but undervalued because it's part of the horrible local housing market due to the crime rate)
  • Fix them up to livable conditions but very bare
  • Put tenant vouchers into them

Thesis:

Now, why Paterson? Well, Paterson is unique. Paterson is a city in north Jersey that is almost entirely "ghetto" no matter where you go. Some parts worse than others but the whole city is pretty much a dump. The median income is low, crime is high, employment opportunities are minimum wage unless you own happen to own one of the beat up store fronts. The exception being maybe the mechanics or the physicians that practice there. Where am I going with this?

The next piece of information I plan to research is the demand for section 8 based on current supply and where the trend is going. Bureau of labor statistics should also help in determining the direction of city but from what I can see just driving through and checking it out, the place is horrible. Next is to dig into the numbers obviously and then check some places out. But from a high level, definitely see some possible opportunity.

Lmk what you guys think

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Oct 14, 2021 - 8:34am

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)

Oct 14, 2021 - 12:14pm

Friedmaneconomics

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.

Oct 16, 2021 - 1:21pm

Great point and addition to this. My assumption for the rise of Section 8 in a market like Paterson is based on it's lacking of economic opportunities within the city and then the areas surrounding it. The economic gap is wide for the people of Paterson as well as in the surrounding areas. The surrounding areas such as Haledon, Clifton, Wayne, if you live in those nicer areas it is likely that you own business in the area, work for a healthcare group, or commute to the city which the common folk in Paterson cannot due to variety of reasons one of them being lack of degree obtainment or even finishing high school. I agree with the maintenance aspect as well (which I would 100% create a separate property management LLC for). Another great threat to the business would be the growth in the tenant based voucher dollar amount from the state. Would this correlate nicely with the growth in property taxes in Jersey? Probably not given the current trajectory.So far from my research and speaking to some people who have done this, I find this to be not as attractive as I originally thought. It's also just a dirty business to be a slumlord and deal with the likelihood that these houses will just become drug dens. Paterson has a big problem with drugs.

Oct 17, 2021 - 10:28am

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.

Oct 17, 2021 - 10:00pm

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