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The Section 8 program, also known as the Housing Choice Voucher Program, is a federal assistance program in the United States that helps low-income individuals and families afford safe and decent housing in the private market. In 1983, the Department of Housing and Urban Development (HUD) implemented the first federal housing choice voucher program to provide tenant-based rent subsidies to families seeking housing in private apartments. The housing choice vouchers were administered through local public housing agencies, such as the Chicago Housing Authority (CHA).
At JP Acquisitions, our strategy is to utilize the Section 8 program to provide safe and affordable housing to our tenants all the while generating a return for our investors. Since our first acquisition, we’ve utilized the Section 8 program in addition to other housing choice voucher programs in the Chicagoland area such as the Chicago Low Income Housing Trust Fund (CLIHTF) and Facing Forward. We’ve found that the housing authorities and programs that we work with have been very responsive and easy to work with.
It’s worth noting that there is a stigma when it comes to Section 8 and similar programs. We’ll often hear the people who utilize subsidized programs referred to as “those people” by potential investors, other property owners, etc. There is a huge misconception and ignorance when it comes to Section 8 and the point of the program is to create an opportunity for disadvantaged people to climb the socioeconomic ladder and create a better life for themselves. I’d be remiss if I didn’t say that there are people out there taking advantage of subsidized housing programs, although we’ve found that the majority of the people we work with who utilize the program are making the best of the opportunity they’ve been given.
At JP Acquisitions we believe everyone deserves a chance and many of the members of our team come from difficult circumstances themselves. Thus, we constantly seek to spread awareness of how beneficial subsidized programs can be. That being said, in this post we’ll cover the benefits of the most common subsidized housing program, Section 8.
The Benefits
1. Steady Rental Income & Potential for Higher Rents: Section 8 provides a reliable source of rental income for property owners. The government pays a portion of the tenant’s rent directly to the landlord at the beginning of every month, ensuring a consistent and timely payment. Since a portion of the rent is guaranteed by the government, property owners face a lower risk of rent default. This is particularly appealing in economic downturns when tenants may face financial difficulties. Additionally, in some cases, Section 8 rental rates may be higher than the market rent, providing an additional financial incentive for property owners. In the area of Chicago that we invest, we’ve noticed that Section 8 pays above market rate which in turn increases the value of our properties and how much rental income we collect. Furthermore, HUD pays for a tenant’s utilities (gas and electric in Chicago) which drives down operating costs and increases the value of a property.
2. Ease of Underwriting: When it comes to underwriting properties, because we target one submarket and have a history of leasing units to voucher tenants, we know exactly what rent we can achieve. Thus, our underwriting is sharp and given how conservative we are, all our properties have been over-performing. This point is perhaps one of the most overlooked benefits of utilizing subsidy programs which results in there being a gap in the syndication space which we at JP Acquisitons fill.
3. Reduced Vacancy Rates: Due to the demand for affordable housing, properties participating in the Section 8 program often experience lower vacancy rates. The program helps property owners find tenants quickly, reducing the time units are vacant. Our properties are fully occupied and for as long as we’ve been managing properties, the vacancy rate has yet to dip below 95%. In Chicago alone, the waitlist for a voucher is over 30,000, which goes to show the need for affordable housing.
Property Standards Compliance: To qualify for the Section 8 program, properties must meet certain health and safety standards. This is advantageous for property owners as it ensures that their units are well-maintained and in compliance with housing regulations. Having units up to date in terms of maintenance needs is especially important when a property owner is looking to sell. A property in good condition not only commands a higher value, but can be used as a reason to influence negotiations. It’s also worth noting that tenants utilizing a subsidy program don’t want to lose their vouchers and thus are more likely to comply with the rules that property managers set and keep their units in good condition.
Positive Community Impact: By participating in the Section 8 program, property owners contribute to providing stable housing for low-income individuals and families, making a positive impact on the community. The more families and individuals looking to improve their lives in a given area, the more the community benefits.
Conclusion
Despite these benefits, it’s important for property owners to thoroughly understand the requirements and responsibilities associated with participating in the Section 8 program and to stay informed about any changes in regulations or payment structures. Market conditions and the demand for affordable housing can vary, so it’s essential to assess the specific dynamics of the local real estate market. Nevertheless, At JP Acquisitions we’ve seen how beneficial the Section 8 program is for the parties involved with a property (tenants, investors, property managers, etc.) and the community. For as long as subsidy programs are a net benefit, we’ll continue to utilize them to drive value for tenants, investors, and the community.
If you have any questions regarding the terms and concepts in this post or previous ones, please reach out to either me (tedi.nati@jpacq.com) or someone on our team so we can help explain further. If you’re interested in investing with us at JP Acquisitions, you can contact us via the contact form, by emailing a member of our team, on LinkedIn, or our investor portal to set up a meeting.
As always, I hope you enjoyed reading this post as much as I have writing it. Best of luck!
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About the Author
Tedi Nati is the Managing Partner of JP Acquisitions. In his role he is responsible for broker outreach, establishing deal flow, underwriting, marketing, investor relations, and assisting in the closing process. In addition to his role at JP Acquisitions, he is an Assistant Equity Underwriter at Cinnaire, a non-profit Community Development Financial Institution (CFDI). In his role at Cinnaire, he is responsible for assisting the underwriting team in evaluating and structuring real estate equity investments and assessing the risks and mitigants associated with such. Tedi earned his Bachelor of Science in Finance from DePaul University, where he graduated Summa Cum Laude. In his free time he enjoys reading, looking for multifamily deals, and working out.
Make sure to always do your own research before making any final decisions on buying/investing real estate, stocks, or other securities. I am not a CPA, attorney, insurance, or financial adviser and the information in this blog post shall not be construed as tax, legal, insurance, construction, engineering, health and safety, electrical or financial advice. If stocks or companies are mentioned, I sometimes have an ownership interest in them – DO NOT make buying or selling decisions based on my posts alone. If you need such advice, please contact a qualified CPA, attorney, insurance agent, contractor/electrician/engineer/etc. or financial adviser.
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