Salvaging the real estate market by becoming a Section 8 landlord

Real estate prices have bottomed out. Depending on the market-- Las Vegas, Arizona, Southern California -- house prices can be insanely low.

In Broward County, Fla., for example, homes that once cost more than $200,000 can be had for as little as $30,000, many as foreclosures. Now that the days of high-profit speculation in the real estate market have come to a close, real estate investors are turning to another program that provides a more modest, but still reliable, return.

The Section 8 Rental Voucher Program is a federal endeavor that pays the rent of qualified low-income renters. The homes they live in are privately owned by everyday people, who receive monthly rent checks from the government on behalf of their low-income tenants. Considering rent is paid back at what amounts to something close to market rates, renting an inexpensive property to the Section 8 program can more than pay for itself.

WalletPop's Jason Cochran traveled to Broward County to meet with Suzanne Dunn, a real estate investor who has independently jumped on the Section 8 market. She gives us an overview of how it works for people who want to become landlords:

Dunn participates in Section 8 independently -- landlords usually apply for certification though their local municipality -- but new services have been established to serve the growing market. The Web site was created as a way of connecting landlords with tenants who were holding Section 8 vouchers for their rent.

Often, the stigma of government assistance could cause prospective landlords to reject tenants perceived as high-risk once they announced their hopes to use a Section 8 voucher, so was established to give tenants and certified landlords a way to find each other.

"With the decline in housing prices nationwide, real estate investors are now able to buy investment properties at prices that will allow them to generate positive cash flow from the rental income after paying the mortgage, tax, insurance, and even reserves," said Richard Cupelli, who started the Web site in 2004.

Under Section 8, tenant behavior is supervised by the government, which yanks their voucher at the first sign that a lease violation has occurred. Likewise, landlords are required to keep their unit to a certain standard. Often, too, landlords don't get 100% of the rent from Uncle Sam, but have to collect a smaller portion, usually about 30% of the tenant's income, directly from the tenant.

"The pitfalls are the same as those that you have with general market rentals, but the fact that the program offers additional safeguards and the tenants don't want to lose their voucher by violating the lease terms creates additional peace of mind for the landlords," Cupelli said.

With home values collapsed and an increasing number of people jobless and unable to afford rent, Section 8, a program dating to the Great Depression, arises as a way for both sides of the housing crisis to get ahead.
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