Across the US, approximately 2.3 million renters are taking advantage of HUD Section 8 subsidies for rent. This makes up about 5% of all renters in the US.
Thousands more wait years to get an approved voucher so they can look for a Section 8 rental. Many more seek a Section 8 rental property that is available.
If you're involved in real estate investing, you must decide if you want to apply to become a Section 8 landlord and then again decide on rental rates for the property.
Read on to learn more about setting rental rates for Section 8 housing that will meet HUD guidelines.
Rent Limits in Section 8
If you're in property management, it's essential to understand the rules related to Section 8 rentals. These include rent price limits in place by HUD.
While there are some advantages to becoming a Section 8 landlord, the rent limits are often considered a negative to using a property as a Section 8 rental.
HUD uses a system called the Fair Market Rents (FMR) based on the local location of the property. The area's median income is considered, and the rent is set from there.
It's not uncommon that a landlord could get a higher rental rate on the open market renting a property than they might from a Section 8 rental. While HUD pays the subsidies for the Section 8 rental, the actual control, monitoring, and management is handled by local public housing authorities (PHAs).
Section 8 is not mandated in Michigan to property owners and landlords.
HUD Controlled Rent Increases
Once rent is established for a Section 8 property, it doesn't stay at that rate forever. HUD does allow a landlord to raise rates on the rental property yearly.
Depending on the housing market and local income levels, the property owner or manager is given a yearly 5-8% rental rate boost.
While this is a positive for the landlord, it often still means that the Section 8 rental rate is far below local going rates.
How Do Section 8 Real Estate Managers Get Paid Rent?
As a Section 8 rental property manager or landlord, knowing how to expect rents for your properties is essential.
You already know you're paid a HUD subsidy. Significantly, HUD doesn't pay the total rent amount for a property. The renter must also put in funds towards the rent.
Generally, the renter must pay 30% of the rental rate, and the remaining amount is subsidized by the government. The renter pays directly to the landlord based on the expectations of the lease. HUD sends the remaining rent directly to the landlord or property owner.
It's worth noting that landlords can still collect a security deposit before renting a property. There are not generally limits on security deposits, yet pricing them too high will mean most Section 8 renters can afford to pay them.
Set Your Rental Rates for Section 8 Properties
Choosing to become a Section 8 landlord comes with some advantages and challenges. If you price your property fairly, you'll need almost no property marketing because of the high demand for these properties.
If you're a property investor who needs assistance managing your Grand Rapids area property, we can help. Learn more about our management services and use our free rental analysis.