Epic Real Estate Investing - Maximizing Section 8 Properties | HTH 012 | 510

Episode Date: October 31, 2018

Do not misunderstand Section 8 properties. There is a great deal of positive feedback regarding them! Brush up on what Section 8 is and why you should not skip it, how the lack of Section 8 funding has increased the quality of the Section 8 tenants, and how Matt Theriault's property manager finds the Section 8 tenants.  Learn more about your ad choices. Visit megaphone.fm/adchoices

This is Terrio Media. Don't wait for appreciation to buy real estate. Buy for cash flow and wait. In other words, Hold That House. Your host's Matt Andrews and Matt Terrio. Yes. Hello. Welcome.

Flipping houses, it can make you rich. Holding them will make you wealthy. This is the Hold That House show. I am Matt Terrio and over there is Mr. Matt Andrews. Oh, yeah. And before we begin, we've got a great gift for you. Go to hold that house.com and download the four-hour work month,

the Ten Commandments to Managing Property Managers. It's really, it is the key ingredient to financial independence through real estate that no one is really talking about. And you can get that for free at hold that house.com. All right, today we're going to talk about, I think what is a very misunderstood strategy in real estate, and that is the subject of section. Section 8. It's got a bad rap and there's probably reasons why it has a bad wrap and I really

think it just has to do with, you know, maybe you got into it with the wrong idea, maybe you got into it with the wrong approach or maybe he had one bad experience and you let that apple ruin the whole barrel. Sure. And I also think it's evolved quite a bit over the last decade or so and it's a very different animal than what it might have been in the past. So we're going to talk about that. First of all, Matt, you just kind of want to share what is section 8. Sure. Yeah, absolutely. So, you know, for those of you that don't know, Section 8 is basically a government-assisted housing program. So people that qualify can, or people that are looking to have that assistance, can put in an application with their local Section 8 office. I think pretty much nationwide, it's federally funded but locally administered, right?

So you will apply to a local area. So, you know, if you meet the criteria or think you do, you put in an application for Section 8. every office works a little bit differently. The process is a little bit different because like I said, the funding comes from one source, but how they administer it and how they qualify you in different areas is different. So you turn in that application and you basically get a voucher. So it's a voucher. We're speaking to the tenant right now.

Speaking about the tenant. Yeah. So the tenant would put that in and they would get a voucher. And that voucher is like money, you know, and in some ways it's really, really good money because it's money backed by the government. Right. So you know it's not money that will be gone if someone loses a job. Right. So in a lot of ways, there's an element of consistency.

They can't blow it on the weekend. Yeah, they can't blow it on the weekend. It's not coming from them. Right. Right. So they qualify for it. They put in the application. They get okay.

They have a voucher. Then they can take that voucher and use it for a rental property. Okay. And the process basically works that they find a house they like. They know from that landlord or from that property manager that they are open to Section 8 rentals. and then they would tell the sectioning office, okay, I've got a voucher for a three-bedroom or a four-bedroom

or whatever it is, and I found a house I want, so I'd like to, you know, use my voucher towards his house. At that point, the office would then set up some kind of inspection. The Section 8 office would set up an inspection. They would do that inspection process, and if they get okayed and everything looks good,

Section 8 will then tell the landlord, we accept this voucher, we'll pay you this much per month. They'll sign a 12-month lease with you, and then that's guaranteed income. Unless that person for some reason has to move because the property is in disrepair or something like that,

that check's going to come straight to your account. After it's set up, it's going to come on the first or fifth or whatever it is of every month, like clockwork. It is a direct deposit from the government. Absolutely. So you don't have to even depend on your tenant

to make that payment. It's pretty nice, yeah. And it's typically above market rent, which is another good part of it. And it's typically going to cover somewhere between 80 to 90% of their rent. So even if the tenant doesn't pay, you're getting 80, 90% of a rent that's typically above market rent.

Exactly. So it's kind of like, you know, just don't tear up the house and we're fine. Sure. And that is a reputation or a stigma that Section 8 tenants have is that they're going to tear up your house. Right. But that's not necessarily true. And it's becoming less and less true.

I've not found that to be the case at all. I know that is one of the big beefs is that, you know, oh, Section 8 tenants ruin your house because the perception is that they're a low-grade tenant, right? These are people on welfare and that they're no good because they need assistance and stuff. And certainly there are- Gangsters and drug addicts. There are people that game the system, no doubt about it. Just like there is in every facet of life and business, right?

But for the most part, the people that I've rented to on Section 8 are great people. They're long-term tenants. I keep them on average probably 30% longer than I keep a non-section 8 renter and my rentals in Florida and Michigan, which is where I do most of my section 8. So, I mean, from my perspective, as a landlord, as an owner, as a cash flow investor who's interested in consistency of payments and ease of use, it's a great system. Right. It's a great system.

Now, I know that it does vary by area, you know, and the stipulations are different. So, I mean, I'm sure there are some, you know, local administration, you know, government administrations that don't do a good job. And that's probably where some of those horror stories come from, you know. But usually it's like, you know, you hear one horror story. There's 10 other fantastic stories. You're not here for every story, right? There's another dynamic that's happening amongst, you know, the local and federal government with regards to Section 8 is that they are not as well funded as they used to be, meaning there are less vouchers available.

Now, it hasn't made an impact into the rental market. What has actually done is increased the quality of your tenants because there is, they aren't as easy to get. The vouchers aren't as easy to get as they once were. Right. There is a waiting period. there is an auction process. And, you know, if someone is going to take away your housing because of, you know, you mistreating a property or, you know, unscrupulous behavior within that property, you're more than likely that you're likely to think twice about it as the tenant because you don't want to lose your housing. You don't want to lose that voucher because you know you're going to have to get back in line.

And that could be a several year wait. Absolutely. And that's, to me, is what really makes it work. Yes. And that's what fights against the stigma that it has is that. They don't care about the house and they tear it up. Guys, I don't know the way Section 8 works in your market. Maybe it's a little bit different.

In my markets, in the markets in Florida, I work in in Michigan, if a tenant tears up the house, Section 8 gets taken away from them. Right. So that's basically like saying, you know, I mean, that would be awesome if that could happen on a, you know, with a regular non-section 8 tenant, you know, hey, if you start tearing up the house, your job's not going to pay you. You know? So let's say you work at 7-Eleven and you've been working there for five years.

if 7-11 finds out that you tear up the house, 7-11 is not going to pay you. Right. You know, so, I mean, that's the element of control there is huge. And those people have a vested interest and not losing that. Most of when they get kicked off, don't get back on. You know, and if they do get back on, like you said, they have to wait months, sometimes even years.

And many times, you know, there's only so many vouchers to go around. Many times they lose that. Right. You know, and so that's, I mean, they have a lot to lose if they mess up the property. I personally don't ever have Section 810 tear up, you know, in 15 years of owning Section 8 rentals. I'm sorry, 14 and a half years, your wife corrected me the other day. 14 and a half years that I've owned Section 8 rentals. I've had maybe one Section 8 tenant damage a house. And they were kicked off the program,

and they don't get Section 8 anymore. They're probably living with their mom. And of course, that when you go to the RIA Club meetings, that's the only story that you tell about Section 8, right? Yeah, yeah, exactly, exactly. And that's the way most complaining landlords are, right? Right. You don't talk about the other 14 years of smooth sailing. Totally smooth sailing, yeah. No one wants to hear that. And that's the one tenant I've kicked out on Section 8. I've kicked out far more tenants, even in nice high-end rentals that lost a job three months after I moved them in.

And a lot of them are great people. They just, they fell on bad times, bad situation, you know. Well, I've not kicked out, besides that one, I haven't kicked out. And I actually didn't even kick them out. They kind of left the house messed up. But in every other situation, you know, hundreds of houses we've done in Florida for our own portfolio and for other investors. there's been no problems. You know, so if you know the process and you work, you know, within the system and make it

work for you, man, it can be a fantastic system. Absolutely. Super. So, you know, maybe you're reconsidering, maybe the section eight is a good thing. I get a higher quality tenant and I get direct deposit from the bank. How do I get that? How do I get me a section eight tenant for my properties? Well, I love this phone call from my property manager.

He'll say, hey, I've got a four-bedroom voucher. Do you have a four-bedroom? And I said, no. But I'll go get one, right? Yeah. Because that's how much we value that Section 8 tenant. It's just, it's money in your pocket. Easy money.

It is. It is. Well, it's easier. Easier. Yeah. Yeah. No such thing is truly easy money, right? Exactly.

We don't want to be that guy. Right. Yeah, exactly. That's totally true. The, uh, so to, one thing to, to the part there I just mentioned, they have a four bedroom voucher. So when they get a voucher, they're going to get approved for a two, three, four, five, six bedroom property. And the more bedrooms that's on that voucher, the more that they can pay.

And right there lies a strategy. Our good friend, mutual friend, Joe Lieber in Cleveland, he looks for a specific type of house that he can add an extra bedroom or two. Absolutely. He likes to buy the two-story Victorian houses and he turns the upstairs attic into a split bedroom. and he added two more bedrooms there so he goes from a $750 a month rent to a $950 rent because he's got the two extra bedrooms

I think it's a brilliant strategy and you can do that anywhere building your own equity We did one just like that just a few weeks ago and I think it was in Orlando, Florida and we put up a wall We had a giant, giant bedroom

You know, it was just way bigger than it needed to be You know and we put up a wall Split it in two Still two good sized bedrooms But it turned it from a three into a four that was the difference on that one rental of, I think, between $8.50 and almost $1,100.

Wow. That was the difference between those two because they were right on the edge, you know, and it was, you know, the four better vouchers were pretty, pretty, you know, they pay pretty well. That's a huge jump. That's a huge jump. You know, it cost us $500 to put up the one. And you calculate your cash on cash return that you just went from that $350 in many cases in most markets, that's the difference between a 10% cash on cash return and a $1.2.

20%. It's huge. And I made that money back in a month and a half of rental. There you go. I love it. Thanks for sitting tight while we pay our light bill. We'll be back. Right after this. If waiting for your investments to grow feels like waiting for fink to drive, there's a powerful secret. Your financial planner doesn't want you to know. You can accelerate your investments growth by two, three, or even four times. That's bad news for Wall Street. But great news for you. We're turnkey allies.

And we'd like to offer you free information that will show you how to take control of your investments and double, triple, or even quadruple their returns, and it's yours for free. For the secret your financial planner doesn't want you to know, go to turnkeyallies.com. That's turnkey allies.com. So I would honestly, and some people, you know, kind of are confused when I first say this, I would rather have a Section 8 renter guaranteed for a year at $900 per month than a, quote, qualified non-section 8 renter who has a great job. at $1,000 a month.

You know, because the difference is, the difference is $1,000 a year. But really, I know what the difference is, is that I have a much higher likelihood of having to move that person out or, you know, the person with the job having to move them out. Or they just move again in a year. Right. Versus a Section 8 tenant, which for me, they stay three years on average. I've had some Section 8 renters.

I mean, I've been investing in property for 14 and a half years. And I've had some people that have been with me eight or nine years in the same house. You know, I mean, get that kind of stuff. in any other segment of the market. Why? Because their payments made, nothing's changing. I've not even hardly done any maintenance on the house because they just like where they live.

I mean, you can't beat that. You know, I mean, find me a renter that's not a sectionary renter that you're going to have for 10 years, you know, with almost no problems at all. And never a late payment. Not one late payment in eight years with that woman. You know, I mean, how could it be late?

Sign me up. Exactly. Sign up. Sure. Yeah. So how does, my property manager, this is one of his strategies. for finding Section 8 tenants.

And anyone can do this. I mean, he goes a little overboard, in my opinion, but it's certainly worth it. Sure. Is he'll park outside a white van, outside a passenger van, outside the Section 8 housing. Okay, I can tell already, this is going to be really good.

It is great. It's great. I love it. This is the kind of stuff you only know when you're really in the trenches. So, please continue. So he parks his white passenger van outside the Section 8 housing.

He sets out of just a little card table, and he's got cars. coffee and he's got donuts and they are free. And they come in or they come out of the office. He serves him a coffee and a donut and he says, you know what? I'm just getting ready to take a tour of all the vacancies that I have right now. Would you like to get in?

I'll drive you around and see if you're voucher matches any of these properties. And when they match, he calls his landlord clients, says, here's what I got. And that's one of his big strategies on filling properties and maximizing the return. It's right there on a silver platter for you for smart property managers that'll do that. And that's awesome. I love that.

And, you know, one of our managers in one of the Central Florida markets we work in, he does almost exclusively Section 8 for us, you know, for the properties he manages for us. And he puts out bandit signs. And I know a lot of you guys, you probably use bandit signs for marketing your properties. he puts out bandit signs strategically at every stop sign within like a two mile radius of the section eight office in that city right so as soon as somebody gets that voucher in hand they're pulling out of the driveway of section eight they're looking over to the right there's a sign there's a sign right and there's a stop sign there's a sign there's a sign right and the next two turns in either direction they're going to see that sign for that you know for two three and four bedroom houses section eight approved Approved. Call. Move in today. Yeah, move in today.

And so when somebody sees that, especially right when they get that voucher in hand, it's just like, you know, when you Google something, you're going to call the first person you see. Right. That's your starting point. You know, and if you see the same number popping up three or four times on the same one-mile drive, you're going to get that. You know, you're going to get that tenant. And then we give special incentives, too.

I mean, you know, we know how valuable those tenants are. So we'll give incentives. And if it's, you know, really competitive, we do kind of like you talked about in one of the last podcast, We go in look at other rentals and make sure ours is just a little bit nicer. We'll go do a little, not really staging, but throw in a welcome mat and make sure the place smells good. There's some glade in there or whatever. And just some other little touches that we know other Section 8 landlords are not doing to make ours look a little bit better. And then we'll even give them incentives.

You know, like, hey, move in today or use your voucher for this house today and sign the lease. and, you know, we're going to give you a gift certificate to Applebee's. Right. You get that today. You know, $50 to Applebee's, take out your entire family to dinner tonight, whatever. You know, just we give them incentives to do business with us. Sure. And we let them know they're special.

Right. You know, because they mean something. That's actually very important is that, you know, I grew up with a friend that grew up in Section 8 housing. And he was actually very embarrassed to invite me over his house. He didn't tell me this until we were adults. But he always expressed on how. he and his mother were a little bit embarrassed that they were in the section house area. And I can imagine that's a pretty common emotion, a common feeling of many Section 8 recipients.

And by making them feel important, making them feel, not going overboard, not being patronizing by any means, but treat them as you would treat anybody else. And a lot of people are rough and tough with them because they have these different types of expectations about them. And it's totally undeserving. It's totally misplaced and it's totally counterproductive. So keep that in mind We've talked a lot about this Put yourself in the other person's shoes When you're doing this business

And you can get a lot of mileage out of that practice And that discipline Absolutely and take the long view Like we talk about I think we've said it on almost every podcast You know of hold that house Take the long view guys You know like a $200 expense today

If it saves you $20,000 over 10 years Hold on property Guys that's a no brainer Yeah that's a good investment So take the long view you realize, you know, are there some bad apples in any situation? Sure. You know, could there be a section of a person who takes advantage? Yeah, sure. There could be anything that happens anytime, anywhere, you know? So, yeah, sure, there's things that happen. But don't believe the horror

stories that you hear, educate yourself. Right. And that's what we're here to help you do is to not just read an article in the paper, not just listen to some press conference by some politician, actually look at what's really going on and think about it. And we as entrepreneurs are empowered to do that. You know, and if we look at things realistically and we look at making things a win-win, you know, if it's a win for us and it's a win for that tenant and, you know, make it a triple win. A win for the property manager.

You know, win for everybody involved, that's the way we like to do business. And if we're smart and if we keep our eyes open and if we pay attention to what's really happening, we can do that. We can always create that win-win-win scenario. Everybody's happy. Everybody gets what they want. And what do we get? Cash flow.

That's right. That's why we're here. That's why we're here. So I hope that shares a little light on. on what section it is, how it works, and how to use it to maximize your own portfolio performance. So that's it for today. Flipping houses can make you rich. Holding them will make you wealthy.

We'll be back next week with another topic. Until then, remember, don't wait to buy real estate, buy real estate, and wait. Hold that house! Contrary to popular belief, a lack of funding is not the biggest barrier to starting a business. It's excuses. But don't let a lack of funding be your excuse. We are Epic Fast Funding, and we'd like to fund your business

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