Section 8 housing is often a hot topic for real estate investors. Some investors love it, while others hate it. Frankly, I think that the majority of investors, especially newer ones, just don't understand it so I will be posting several blogs on how to invest in Section 8 rentals in Cook County with this being the first.
Before buying an investment property, it’s important to understand what fair market rents look like so that you know if a property is a good investment. In some areas where it is harder to find tenants with good paying history, working with Section 8 to fill your vacancies can be a huge advantage. Below we will explore how to determine what rent the U.S. Department of Housing and Urban Development will pay you for your Section 8 rental units. This specific post is going to cover what the Housing Authority of Cook County pays for the Chicago suburbs in Cook County, but not what you would get for a voucher holder in Chicago under the Chicago Housing Authority.
First lets talk about how Section 8 works to help low-income families pay their rent. The program is funded through HUD, which makes payments to housing authorities in local metropolitan areas. The housing authorities can then create their own rules within HUD's rules to decide who is given a housing voucher and how much of a family's rent that housing voucher pays the housing provider.
Tenants who are having hardships or whose salary falls below the poverty line are able to apply to be on the waiting list for the housing choice voucher program. This list is anywhere from a 10 to 20 year wait from what we've been told by tenants, so low-income individuals or household members who become a voucher holder have basically hit the lottery.
Once approved, the housing authorities will decide on the number of bedrooms the voucher will pay for based on the family’s size. Generally, they give one bedroom for every two people, but there are other factors they take into account. This is important to understand because while a tenant can move into a 3-bedroom home with a 2-bedroom voucher, the rental assistance can only pay what is deemed is fair market value for a 2-bedroom apartment.
Difference Between the Housing Choice Voucher and Public Housing
Something to understand as well is the fact that we have two ways of housing low-income families. The first and the original housing programs were public housing, or what we called the projects. This is where the government built large residential building complexes for those on Section 8. This ended up being a disaster in Chicagoland, and led to high crime areas in the city and homes that were falling apart. In place of this, the city came up with the housing choice voucher. This allowed the housing authorities to pay a real estate investor to rent out their home to a voucher holder. This program allowed voucher holders to spread out across the city and county, giving their children access to better schools, parks, and even grocery stores. In my opinion this was a good idea, and has worked very well the last 20 years with a few exceptions.
Once a tenant chooses your home, how does the Housing Authority of Cook County decide how much rent you can charge?
The first thing to note is that it is against Section 8 rules and is illegal to charge a tenant outside of what the Housing Authority decides the maximum rent can be. Once you submit moving papers in Cook County, they will send you an estimate of what that maximum rent amount is, and you can decide whether to move forward or decline and keep looking for a new tenant. The Housing Authority of Cook County is very straightforward with their pricing; the chart below shows the housing choice voucher payment standards they will pay for each home by zip codes. Here is how that works: you will take the zip code of your property, and then the lower of the property's bedrooms or the voucher holder's bedrooms for their voucher, and then find the amount on the chart that they will pay for your rental property. The one caveat to this is if you pay all utilities for your tenant, each utility you have the tenant pay will reduce the maximum rent amount by the amount in the chart below.
Now that we know the maximum rent amount, what portion of the rent does the tenant pay and what portion of the rent does the program pay?
The program will take the household adjusted income and use a formula to determine what portion the tenant must pay. This could be 0% or 99% (yes we have seen tenants pay all but $5 of their rent.) Please remember that having your tenant pay more than what HACC allows you to collect from them could get you banned from the program permanently, so it's not worth the risk to try to collect more than you are supposed to.
If you are looking to build a Section 8 portfolio let’s chat. By using the chart on what the program pays and cross-referencing it to home prices, you can easily decide on a great area to invest in. Just be careful not to invest in a town that is not welcoming to property owners renting out their home, such as Markham IL. If you are looking to build your team to start this portfolio, we'd love to chat about handling your property management and maintenance so you don't have to, and you can find an attorney to close with here.
If you already have housing units and need help navigating the process of getting a Section 8 tenant in your home in Cook County including the city of Chicago, let's chat.
