Nigel Kibel wrote:

A lot of people like section 8 housing. However I have also heard my share of horror stories as well. Because this is Federal scheme they tend to be very pro tenent. States like texas and Florida end to be more pro landlord plus the nature of section 8 tenants mean they are often problematic.

A few tips about Section 8 tenants and the Housing Authority (specifically Kansas City, MO):

– Tenants are not screened by the Housing Authority for criminal or prior housing history – only the requirements for (lack of) income need to be satisfied. If your Manager is not undertaking additional screening, you’re likely to end up with a nightmare.

– Rents are determined by the Housing Authority, based on what they consider to be “market rates”. This means that even if you advertise a house for (say) $850 per month, the HA will do a survey of the area and determine what the reasonable rent should be. The HAP contract amount could end up being $700 per month, potentially destroying your ROI calculations

– Annual funding for the Housing Authority Program is finite, which limits intake of new Section 8 applicants and forces the Housing Authority to budget. This manifests as the HA reducing rents (per above), but also makes property qualification increasingly difficult. The idea is that properties that are offered to Section 8 tenants need to satisfy a number of criteria constituting “affordable housing”. Inspectors (employed by the Housing Authority) have to sign off on a particular property before it can qualify for the program. Landlords only get two chances at passing an inspection, and often small things (like a stairway banister that has not been repainted properly) will fail the Inspection. The more items that are identified by the Inspectors, the greater the cost of getting the house qualified.

– If a Section 8 tenant gets removed from the program (for whatever reason), the payments stop. The tenant, however, doesn’t necessarily move out, so an eviction process needs to be started. This takes time, which means months without rent, legal fees, (typically) an angry occupant completely damaging the property, and ultimately trying to recover this money from an individual that doesn’t have an income.

Oh yes, and let’s consider the whole paradigm of renting to someone without a job ..

Not a big fan of Section 8, myself.

As a seasoned US Property Investor and currently the owner of a mid-sized Property Management Company in the US, I’ve noticed through my business activities that many Australian Investors purchased investment properties a few years ago (when the exchange rate was more favourable) without being properly educated or truly informed of their investment risk.

Fast-forward to today, and bad product, bad management, and slick-seminar-syndrome has left these same Investors with significant capital loss. Many are looking to divest themselves of their purchase, unfortunately turning to the very same groups from whom they purchased the property in the first place. In my opinion, a big mistake. The current trend indicates that issues are escalating, since my company in Kansas City seems to be engaged more and more as an “asset recovery service” as opposed to a property management service.

The thing is, property investment in the U.S. can work, really well.

I’ve decided to start a National Forum through which Investors can not only have the opportunity to share their story, but also through which I can collate data from around the country and attempt to create a “best practices for management” policy, adding my own experience as a U.S. Property Investor and National Property Management Company owner.

My goal is to identify the core needs of Australian Investors, potentially form some kind of alliance with which I can seek better management terms and results in the U.S., and thereby achieve greater profitability and full transparency. I’m not trying to sell anything, nor am I advising on where to buy – rather, I’ve had enough of the way shady U.S. operators (and their Australian mouthpieces) continue to misrepresent or neglect to disclose data relevant to the product being bought, and have a somewhat bold plan to help straighten everything out and recover or increase asset performance.

I’m doing this through Meetup.com, and I’d like to ask interested Investors to join my Group. It’s called “AUS-USA Investment Property Support Group”, and our first meetups begin next week.

Please join, and please spread the word – ask any colleagues that have invested in the U.S., especially if you’re happy with the level of service you’re currently getting – it can always be better! I’d love to hear of your experience.