The Section 8 Housing Voucher program started as an experiment in the 1970s and has since evolved into a major driver for uplifting disadvantaged families and individuals. Not only do Section 8 voucher recipients enjoy the benefit of a roof over their heads, but they also experience a better quality of life through this initiative.
Importantly, this housing program also offers several advantages for landlords who agree to participate by making their properties available to Section 8 tenants.
In this article, we’ll examine the pros and cons of these housing assistance programs and discuss how being a Section 8 landlord can be a smart choice for Memphis property investors.
Understanding Section 8 Rentals in Memphis
The federal Housing Choice Voucher Program is run nationally by the U.S. Department of Housing and Urban Development and overseen by local housing authorities. In Memphis, the MHA (Memphis Housing Authority) operates the voucher program on behalf of the HUD.
The process is fairly simple to understand and works as follows:
- Prospective tenants apply to the MHA for participation in the Section 8 program
- The MHA vets each application
- Tenants must find affordable housing opportunities in their desired area
- The landlord applies to the MHA to participate in the HCVP
- The MHA approves the housing based on affordability criteria
- The tenants sign a lease agreement with the landlord and move in
- The landlord signs an agreement with the MHA
- The MHA pays 70% of the tenant’s rent with funds provided by the HUD
- The tenants pay the balance of the rent due
Although the process is straightforward, the sheer number of applications means prospective tenants encounter long waiting lists. Landlords must also meet certain criteria before they can accommodate Section 8 tenants.
The red tape involved might seem tedious, but the program would not be as successful without adhering to high standards. It’s important to note that the city of Memphis Fair Housing Ordinance prohibits discrimination based on source of income, i.e., a Section 8 voucher, so landlords can’t turn down a Section 8 application based on that.
Becoming a Section 8 Landlord in Memphis
Landlords who want to benefit from the housing voucher program can contact the MHA to express their interest. The MHA welcomes applications and will assist landlords with the information and guidance they need to participate.
Alternatively, landlords can fill out the relevant forms if a Section 8 voucher holder applies to rent their unit. The forms include details about:
- Utilities
- Lease terms
- Proposed rent
- Property details
The next step for landlords is to ensure their property meets the minimum Housing Quality Standards as required by the HUD.
Eligibility and Property Requirements
The HUD’s quality standards are no different from the warranty of habitability standards laid out in Tennessee landlord-tenant laws. To accommodate HCV tenants, the landlord must ensure their property is sanitary and safe.
The MHA will inspect the property to ensure it has:
- A sound structure
- Smoke detectors as required by law
- Functional utilities
- Satisfactory kitchen and bathrooms
- Safe water and waste disposal systems
If they identify any issues, the landlord should address these promptly and notify the MHA when they’ve done so.
Reasonable Rent as Determined by the HUD
Reasonable rent in Memphis is based on Fair Market Rents for the area. The housing authority calculates these amounts annually based on an analysis of rent prices in the local market.
The MHA sets payment standards for the Housing Choice Voucher Program between 90% and 110% of the Fair Market Rents. This is the maximum subsidy a family can receive.
When a landlord applies to house Section 8 tenants, the MHA compares their proposed rents against these standards.
Benefits of Accepting Section 8 Tenants
Being a Section 8 landlord requires minimal effort beyond what you would normally do for a tenant, but it does have significant benefits for landlords. These include:
A Massive Pool of Prospective Tenants
Listing your home as Section 8 approved means you can expect many more applications and fill vacancies promptly. This reduces your marketing costs and holding costs associated with vacant rental units.
Guaranteed Rent Payments
Landlords are assured of a steady income and minimal risk of missed or late payments when they house HCV tenants. The Memphis Housing Authority pays its portion of the rent by the 5th of the month every month.
Most Section 8 tenants make every effort to pay their rent on time to avoid losing access to their housing vouchers.
Reduced Tenant Turnover
Thanks to the stability provided by the HCV program, tenants tend to renew their leases. They don’t want to risk ending up on a waiting list for years.
For the same reason, Section 8 tenants usually abide by the terms of their lease agreement and take excellent care of the property.
Pre-Screened Applicants
The MHA does comprehensive background and affordability checks on prospective recipients. Despite this, landlords should still screen tenants according to their usual policies.
Common Challenges in Section 8 Rentals
Despite your best efforts, you could still encounter issues when you welcome Section 8 tenants to your investment property. The following are common disadvantages of Section 8 rentals:
Initial Rent Payment and Security Deposits
Due to administrative delays, the landlord only receives their first month’s rent weeks after the tenant moves in. The MHA does not pay a security deposit, and it’s difficult for landlords to secure one from cash-strapped Section 8 tenants.
Frequent Inspections
Annual inspections are mandatory with Section 8 tenants. Landlords must ensure they address any violations promptly to retain their tenants, and this can increase property maintenance costs.
Control Over Rent
Landlords have no control over the rent they charge. The amount is pre-determined by FMR standards and is not negotiable.
Maximizing Profit and Success as a Section 8 Landlord
The Housing Choice Voucher program is an excellent federal initiative to reduce homelessness among low-income families. Partnering with an experienced property management company is one way to maximize the benefits of being a Section 8 landlord while minimizing the risks.
Reedy and Company can assist you with tenant screening tips, rental income strategies, and landlord rental agreements to ensure success as a Section 8 landlord. We have more than two decades of experience in Memphis real estate and manage a portfolio of over 3,500 properties in the city.
Reach out to us today to experience friendly, best-in-class service and reap the rewards of our property management expertise.
