Guest Post: Should Durham Landlords Consider Accepting Section 8 Vouchers?

A house rehabbed by today's guest post author!

Every two weeks or so, I post to this website. I always have something to say or some topic to explore related to Durham's built environment. I recognize that I run the risk of being too far removed from the day-to-day of issues in Durham, which is why I asked investor Jonathan (JT) Smith to write a guest post today.

JT is a local real estate investor in Durham who participates in the Section 8 (public rental assistance) program, meant to make housing in the area more affordable to residents who qualify and are selected. It would be easy for me to say that landlords should participate more in the program, but the reality is that these landlords don't want to expose themselves to undue risk. They have their own finances, families, and businesses to think about.

JT is a thoughtful landlord that has strategies and an understanding of the system here in Durham that helps him mitigate that risk. I thought a guest post would be enlightening for understanding his thought process to explore ways that Durham can get even better at incentivizing more affordable options. Without further ado, here is JT's post:

Should Durham Landlords Consider Accepting Section 8 Vouchers?

The Housing Choice Voucher Program (commonly known as "Section 8") is often a matter of intense debate among landlords, with apparently the majority coming down on the side of being against participating in the program. Now for some, this is just a matter of their long standing social political position on any sort of government assistance program - their being hard against all of them. But for others, their position on Section 8 is based more upon the negative stigma of the program and stereotypes of its participants (voucher holders), that they will just cause problems and damage the property.

I'm a regular participant in the landlord Forum of the real estate investing website, BiggerPockets.com - and I have keyword alerts set for "Section 8". This allows me to jump into those conversations to add my input, of which I tend to be able to see the matter from both sides.

I've been a landlord since 2015 and have 15 rental units located in the city of Durham, North Carolina - with number 16 under contract for purchase next month. I've participated in the Section 8 program since late 2016, starting with my 4th rental property. At this time, about half of my rental units are occupied by tenants who are aided by the Section 8 Program. And since I now look primarily to make my homes available to Durham residents who are Section 8 voucher holders, I expect that balance to be on the other side very soon – with most of my tenants being on Section 8.

Now I happen to be very much in favor of the Section 8 Program for a variety of reasons (more on that later); but like I said - I can certainly see why a landlord may choose NOT to participate. Here in North Carolina, Section 8 is not a protected class (yet), so landlords have the choice as to if they will accept vouchers for their rental units - or not.

Back in May 2019, I contacted the Director of Durham Housing Authority's - Housing Choice Voucher (HCV) Program. She informed me there were then 2,742 participants on the HCV program. Meanwhile, approximately 65 families with vouchers were actively searching for housing in Durham at that time - with over 1,500 additional families on the waiting list just to get a voucher to then begin their housing search. Once they get their voucher, they only have 90 days to find a home, with possibility of one 30-day extension - for a total of 120 days.

Now to me as an entrepreneur who approaches being a landlord as a business, that just screams - OPPORTUNITY!!! That's potentially over 2,800 families seeking my houses in Durham at any given time. Because not only are those 65 families looking for housing, but also that 2,742 are likely always on the lookout for a better house, because they were rushed into selecting whatever they could find. I provide high-quality homes, so as such, whenever I post a vacancy to the Durham section of GoSection8.com - I'm inundated with inquires. They're often from people wanting confirmation that we really do accept vouchers - doubting this after seeing the pictures showing how nice the property is.

Before and After Photos of one of JTs homes that had fire and smoke damage

This is even more of an amazing opportunity for landlords in Durham, since Durham Housing Authority (DHA) tends to pay near to at market rents, and they generally do a good job at administering the HCV / Section 8 Program. But humans are involved, and so wherever that is true, you're not going to have perfection. But, if perfection is not your expectation, then my exposure to the Section 8 horror stories I've heard from landlords in other markets tell me that landlords here in Durham have it good in comparison.

You see, landlords in some markets are well justified in steering clear of the Section 8 Program, because it is administered poorly (to say the least) in their market. And poor administration results in the worst possible tenants participating in the program... Bad in / Bad out.

But thankfully, Durham landlords have decent administration by DHA, market rents paid by the program, and lots of demand. So, there is opportunity here. But is the general stigma of the Section 8 Program deserved here as it may be in other places? How about the stereotype of Section 8 tenants?

For my own experience, I can honestly say that both my worst and best tenants have been among those on Section 8. If you listen to my Landlord Podcast - I've spoken in detail on how I've learned a lot, and improved greatly as a landlord, in part thanks to my two worst tenants, who just happened to be on Section 8. My experience with these two resulted in changes to my tenant screening process; changes to my tenant on-boarding procedures; extensive changes to my lease; even changes to how I show vacant units and take applications. And with these improvement to my system in place, I'm well able to eliminate those persons from consideration who are more likely to cause problems, such as paying rent late, not caring for the property, creating disturbances, having communication issues, etc.

The result is that I'm often presented with my choice of potentially great tenants here in Durham. tenants who will have most of their rent paid by DHA each month. I get a reliable direct deposit into my bank account each month around the 2nd or 3rd of the month. Then I collect the tenant share of the rent online or allow them to deposit it directly into my bank account, on or before the 5th of the month. If they fail to do so (which almost never happens now), they would get hit with a late fee that is 5% of the total rent (not just of the tenant share), and a 10-Day Pay or Vacate Notice would be sent on the 6th, that starts the clock to eviction filing on the 17th. But again, it never gets that far, as I've yet to have to file eviction on anyone.

But because my tenants well know all of this (from my on-boarding process), I rarely deal with it. In fact, my non-Section 8 tenants are far more likely to be late paying rent than those who are on Section 8. Think... would you allow yourself to get hit with a 5% late fee (i.e. $65 on $1,300/mo. rent), when your tenant share to avoid this late fee is only something like $300? Not likely... Not if you have any reasonable ability to manage your finances. And my tenant screening process is great at eliminating those who are likely to have such problems.

In fact, I see the non-Section 8 tenants as being far riskier, because if they were to lose their job, they don’t have DHA standing behind them ready to pay on their behalf. And if a landlord / tenant dispute or some lease violation arises, non-Section 8 tenants don't have to be worried about DHA pulling their voucher for cause - as those on Section 8 do. Section 8 tenants simply have more at stake to lose.

More Before/After Photos from another Blue Chariot property

Further, are you likely to cause problems for the landlord who made it possible for you to live in a nice home in a great location - that you otherwise would not be able to afford? Homes that often have upgrades like new stainless-steel appliances, granite counters, vinyl plank flooring and plantation style blinds throughout. A home for which you're paying only a small portion of the rent out of pocket.

No, not likely. People just want a nice / safe place to live - and that's what I provide. Maybe you should also? When many landlords will not even participate in the program, I'm doing so successfully by (among other things) providing excellent quality homes where people actually want to live.

The problem is that I cannot possibly purchase enough homes to even make a dent in the need that Durham has for more affordable rental homes. I get calls all the time (even when I have nothing listed) - asking if I have anything coming available. I even get calls from existing tenants saying they have a friend looking for a home (it’s implied, a home like theirs). But I rarely have anything vacant, since Section 8 tenants tend to stay for a long time once they find an ideal home. And since vacancy and tenant turnover are among a landlord's largest expenses, this is another major reason for accepting Section 8 vouchers.

Trying to address this problem, I even started offering my services of Durham Property Management to other landlords. My thinking was that this would be a means by which to get more rental units into the Durham Section 8 Program (without having to buy them all myself) - by taking on the tenant screening and management duties on behalf of other landlords who may just not be willing to try Section 8 on their own.

Stigma and stereotypes are difficult things to overcome, so I took a stab at it in Episode #10 of my Landlord Podcast, which featured the question "Should Landlords Avoid Section 8 Tenants? Or Can Accepting Section 8 Vouchers Grow Your Rental Business?"

Just like most who are not landlords think they would never want to be, because they fear getting calls from tenants about toilet troubles at 2 AM - something that doesn’t happen. Most landlords think Section 8 tenants will be terrible trouble. They also think that dealing with DHA will be slightly less pleasant than a trip to the DMV. But to their credit, DHA holds occasional landlord workshops to inform new and prospective landlords on exactly how the program and process works.

So, is there room for improvement? Yes, but even Disney World can be improved... That goes for pretty much everything except Oreo's. And can you end up with a tenant horror-story? Sure, but that can be largely avoided with effective tenant screening, proper on-boarding and a solid lease. So, while nothing's perfect, is it the best business decision to avoid a large potential customer segment out of fear or ignorance? Or maybe you tried it in the past and had a bad experience? If so, was there nothing you could have done better or differently to have possibly avoided that outcome?

With Section 8 voucher holders being a segment with near guaranteed on-time payment of most of their monthly rent. A group that is highly likely to remain present for many years once they are living in a nice home in a generally safe location under management that provides a reasonable level of service. It’s kind of hard to do things the right way here and still have it go bad. And yes, there are ways a tenant can lose their voucher, but that also goes back to your tenant screening. And it also plays into how you manage, such as conducting frequent inspections.

So, Durham landlords... Join me in providing excellent homes to a large potential customer segment who want nothing more than a nice place to live and feel safe. Regardless of your social political outlook on government programs - in so doing, you’ll do well financially for yourself, while also aiding the Durham community. It gives me a good feeling to know that I provide excellent homes, often for single-mothers and their children. And that those children can now focus on living, learning and fun - because they don't have to worry about a roof over their head. And I get paid to do it! What's better than that!?

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Article Contributed By: Jonathan Taylor (“J.T.”) Smith of Blue Chariot Properties; Blue Chariot Management; Blue Chariot Realty; and the [… and Landlord!] Rental Real Estate Investing Podcast by Blue Chariot Media