Investing Answers Building and Protecting Your Wealth through Education Publisher of The Next Banks That Could Fail
Investing Answers Building and Protecting Your Wealth through Education Publisher of The Next Banks That Could Fail

A Landlord's Dream Come True: Government-Backed Rental Payments

The "sure thing" is passive income's holy grail. Unfortunately, when it comes to any type of investing and income, there are always risks, particularly with rental property.

As a landlord, you have to deal with delinquent and late payments regularly. But what if you could reduce those risks by being guaranteed a good portion of the monthly rate payment would arrive on time?

Becoming a Section 8 landlord can provide you with an interesting opportunity -- if you can handle it.

There is a perception that Section 8 housing and tenants are less than desirable, but the reality is that you can still screen tenants and still offer quality housing arrangements. Location matters as well. It's possible to be a Housing 8 landlord in a variety of locations and circumstances.

How Section 8 Housing Works

The Section 8 program is run by the Department of Housing and Urban Development (HUD). Tenants have to submit an application and receive approval. Approved tenants receive vouchers that indicate how much of their rent will be paid by the state or municipal government. (These governments receive money from the federal government for this purpose.)

Tenants are required to find their own housing, and they usually begin looking for properties that accept Section 8 vouchers. Once they find a rental unit, tenants go through the landlord's screening process and present the vouchers. When the appropriate paperwork is filled out, the landlord receives a portion of the rent -- anywhere from 40% to 100% -- directly from the government.

The tenant is responsible for what's left over. Depending on where your property is located, and your screening process, it's possible to find Section 8 tenants who are just as reliable as any other tenant. Tenants risk losing their vouchers if they don't abide by the lease agreement with the landlord, and the fact that their portion of the payment is usually affordable to them helps cut down on delinquencies.

When you have a Section 8 tenant, you know that a certain portion of the rent payment will be on time every month. Have your property listed with the housing authority offices in your town or state, and advertise your rental property as “Section-8 friendly.”

As a landlord, though, you will have some hoops to jump through. You need to apply as a Section 8 landlord, and you will be subject to inspection. On top of that, there are rent controls; you have to keep your prices within the median for your area. Plus, eviction of a Section 8 tenant requires a judicial action.

Screen Your Section 8 Tenants

The good news is that, even though there is extra paperwork and you are bound by some restrictions, you can screen your Section 8 tenants. While you can't deny anyone on the basis of what is considered discrimination under the Fair Housing Act or local and state laws, you are allowed to screen applicants in other ways.

You are still allowed to run a credit check and a background check (if allowed by your state law). You can check references on Section 8 tenants as well. Potential tenants still have to fill out your rental application and pass muster. No one says you have to accept every tenant who comes knocking.

Renters seek Section 8 housing for a variety of reasons. For example, Section 8 helps the elderly and disabled with low-incomes. In my area, many of the tenants on Section 8 housing are actually young student couples with small children; they are just starting out.

Even when you rent to someone with the best credit, you still run the risk of the tenant leaving without paying what he or she owes, or dealing with habitual late payments. The risk is always there, and you never know when a tenant's financial catastrophe will impact the ability to pay rent. With Housing 8, at least you have a guarantee that a significant portion of the monthly payment will arrive like clockwork.

The Investing Answer: Being a Section 8 landlord isn't for everyone. The rent controls and extra paperwork annoy some landlords. However, if you are willing to do the extra work to set it up, and you screen your applicants carefully, you can find a reliable source of rental income as a Section 8 landlord.

P.S. -- If you're not able to buy section 8 investment property, there's another special type of security that allows you to collect government-backed principal and income from properties -- and you don't even have to be a landlord. It's part of a group of investments we call "Retirement Savings Stocks," and it's the best way we know to earn a second income. To learn more about this investment and others like it, click here.