Thoughts on Section 8 housing rentals...

As many of you know, I am selling my house and buying a new one.
I was talking with an agent who gave me this idea and wanted to get some other opinions:

Put 10% down on my new house, buy out my mortgage insurance so I wont pay PMI on the new house.

Take the remaining money I have left over, put it through a Corporation (I would need to start a corp) and buy a rental property with 25% down.
The property would qualify for Section 8 based on the area its in. I was told section 8 will give you first, last, and 3 months rent upfront.
After all said and done, I would be netting roughly $600 per month.

I have heard mixed feelings about section 8 tenants so I am wondering if anyone else had any experience with this.

Any and all info/advise would be great!

I've owned numerous Section 8 housing properties.....All of them ended badly..........you have my number and I'd be happy to discuss it with you Brian.....Gimme a call :D

At least a portion of the rent will be on time every month. :D

Sometimes you get a good person but even that diamond in the rough will always revert back to coal at somepoint. Don't do it with a good house.

It is/was a tax haven for the rich. Like you said, you need to incorporated to make it work at all.
Magic Johnson was/is? one of the largest section 8 housing landlords in Los Angeles. You MUST have a property management company handle shit for you, or you will be married to property full time. My sister worked for the property management company that handled Magic's stuff. Section 8 renters know "renter's rights" forwards and backwards and you need someone that knows them just as well on your side or you'll get eatin'

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Originally Posted by Paul65K

I've owned numerous Section 8 housing properties.....All of them ended badly..........you have my number and I'd be happy to discuss it with you Brian.....Gimme a call :D

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Thanks Paul, I will give you a call this weekend.

To be more specific, this would be a townhome/condo in the North Long Beach/Paramount area. Not the best of areas but def a high demand for rent.

You brought up a very good point about a mgmt company GN7. Since I would only have 1 property I figured I could manage it myself but that is something I am going to look into now. Thanks!

Is there a way to find out if a specific property is a section 8 rental?

I have a neighbor (renter) who has turned that rental place into a used car lot. I use to see the landlord / owner on a monthly basis to collect the rent but since this new renter has been renting the landlord is nowhere to be found. If this place is a section 8 rental I'd like to give the housing authority a piece of my mind...

I went through this twice and it's a pain in the ass. Like Matt said, you'll get a portion on time, but it's highly unlikely that you will get the other portion on time or at all. When I would drive out to my rental to pick up rent, the tenants would cry poor mouth, yet they had new spinning rims on their car or Air Jordans on their kid's feet. They make promises to pay you payments and even that rarely works out.

By the way, I HATE Long Beach. Not the city in general, I just won't ever buy anything there again unless it's in a pimp area. I had nothing but head aches and lost money on a property there that I recently sold. If at all possible, stay the hell out of the inner cities. Invest in areas where you will not have head aches or where the police will respond to a squatters call in less than two hours. There are some pretty good rental deals in the IE where you live, look there. make sure you are working with a RE agent that actually knows what they're doing when it comes to buying/selling rental properties. Most RE agents are full of shit and pretend to know what they're doing.

Oh and don't worry about netting money, let the rent pay the mortgage down(get out of debt)! You also need to save some of that money for vacancies, repairs and etc. Keep it in your corp.

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Originally Posted by gn7

It is/was a tax haven for the rich. Like you said, you need to incorporated to make it work at all.
Magic Johnson was/is? one of the largest section 8 housing landlords in Los Angeles. You MUST have a property management company handle shit for you, or you will be married to property full time. My sister worked for the property management company that handled Magic's stuff. Section 8 renters know "renter's rights" forwards and backwards and you need someone that knows them just as well on your side or you'll get eatin'

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I have known a few slum lords while I was practicing R.E. (my broker was one) and now my wife works part time for a property mgmt company that owns/manages many of their own places...

The stories are enuff to make you :schreck:

Is there any reason he is suggesting a corporation? Can you get financing for a corporation without giving up a PG (personal guarantee)?

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Originally Posted by C-2

Is there any reason he is suggesting a corporation? Can you get financing for a corporation without giving up a PG (personal guarantee)?

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From what I understand it is for taxes. The corp would get the rental income as opposed to me. The corp can depreciate the house and I can take a draw if needed from the corp. this is hear say right now but it's what I was told. I'm going to be looking into it a lot more once my house sells.

Sounds like Paul, Matt or Dennis may know a bit more why a corp is a better option.

Better off to buy a Kings View Condo (or 2) and bank the rental $$ plus use it...

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Originally Posted by shueman

Better off to buy a Kings View Condo (or 2) and bank the rental $$ plus use it...

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Can you elaborate? Kings View Condo??

It just seems odd, a single investment property (and not an apartment building) being placed into the name of a corporation. Even if it is owned in your own name, you still get depreciation write-offs and the property is much more easily managed. Using a corporation, there is paperwork, quarterly taxes to be filed, commercial insurance, minimum franchise taxes due - you're going to need an accountant to take care of it. Usually too, most RE investors use LLC's to hold title, they are more flexible, they are referred to as single purpose entities since the LLC's single purpose is to own and manage real estate.

Also, I always look at things from a fubar perspective. If the lender requires you give a PG, then you are pledging additional personal assets for a piece of real property that would otherwise be protected by the one-action foreclosure rule. Say the shiat hits the fan, the property is falling apart, renters are not paying and you are upside down on the property. In a non-judicial foreclosure, a lender can take the property back, but that is their only remedy - they cannot also pursue any deficiency or costs. Or they could pursue a judicial foreclosure, where they can obtain a judgment for foreclosure, plus costs and deficiencies (very unlikely, most lenders use non-judicial foreclosure). They can't choose both options, it's only one or the other and most likely they would take the property back and call it a day (non-judicial foreclosure).

But, if the lender has a PG in hand as part of the new corporation financing, and they foreclose on the corporation, even non-judicially - you have made a personal guarantee and they could sue you personally to collect on the PG. So even if the property is owned by the corp, you have exposed/tied yourself to that property, whereas if it was held in your name without any PG, the lenders only remedy would have been repossession of the property itself. They have a defense to that type of lawsuit, named a "Sham guaranty" defense...but why go there?

I work cases all the time for SBA lenders who pursue defaulted/foreclosed borrowers who offered PG's since their corps could not qualify for financing on their own.

Just some things to think about, a good CPA could pencil out some numbers to also help you.

Good luck with it :)

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Originally Posted by C-2

It just seems odd, a single investment property (and not an apartment building) being placed into the name of a corporation. Even if it is owned in your own name, you still get depreciation write-offs and the property is much more easily managed. Using a corporation, there is paperwork, quarterly taxes to be filed, commercial insurance, minimum franchise taxes due - you're going to need an accountant to take care of it. Usually too, most RE investors use LLC's to hold title, they are more flexible, they are referred to as single purpose entities since the LLC's single purpose is to own and manage real estate.

Also, I always look at things from a fubar perspective. If the lender requires you give a PG, then you are pledging additional personal assets for a piece of real property that would otherwise be protected by the one-action foreclosure rule. Say the shiat hits the fan, the property is falling apart, renters are not paying and you are upside down on the property. In a non-judicial foreclosure, a lender can take the property back, but that is their only remedy - they cannot also pursue any deficiency or costs. Or they could pursue a judicial foreclosure, where they can obtain a judgment for foreclosure, plus costs and deficiencies (very unlikely, most lenders use non-judicial foreclosure). They can't choose both options, it's only one or the other and most likely they would take the property back and call it a day (non-judicial foreclosure).

But, if the lender has a PG in hand as part of the new corporation financing, and they foreclose on the corporation, even non-judicially - you have made a personal guarantee and they could sue you personally to collect on the PG. So even if the property is owned by the corp, you have exposed/tied yourself to that property, whereas if it was held in your name without any PG, the lenders only remedy would have been repossession of the property itself. They have a defense to that type of lawsuit, named a "Sham guaranty" defense...but why go there?

I work cases all the time for SBA lenders who pursue defaulted/foreclosed borrowers who offered PG's since their corps could not qualify for financing on their own.

Just some things to think about, a good CPA could pencil out some numbers to also help you.

Good luck with it :)

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^^^^ What he said :biggrin: I think.... ;)



I feel like there are ALOT of IFs in buying (paying interest) to obtain a rental property VERSUS the guy that plops down the cash OR moves a bunch of equity from a home sale (or tax deferred exchange) into obtaining said rental property free and clear (or close to it)...

By the time you get done jumping through all of the hoops (paying for upkeep, managing, interest, more complex tax schedule filing fees, etc) your margin gets really thin with little room for error... Most of the guys that I know owning rental or investment property don't really look at the profit the stand to make along the way as they do the increase in value on the back end so putting some thought into future values 10+ years down the road is as important OR more important than the "cap rate"...


Back to RR's original post, OR you could just set up a Charles Schwab account and start investing in the Schwab index fund (SFLNX, SFSNX, SFNNX)... On a very strict schedule with a really good budget and set up a college fund/rainy day fund while your at it with anything you have set aside for little Johnny... And watch your money grow grow grow...

I think you would sleep better at night buddy... my 2 cents... :idea: