Level of Risk
Posted on November 10, 2006 - Filed Under Business |
My head is full of codeine-flavored syrup. This should prove to be an interesting blog.
I’ve decided not to accept Section 8 tenants at this time.
Let’s talk a bit about my decision.
First off is the feedback from other investors and landlords. Unanimously, each one said a Section 8 tenant should be the last person I accept. If there are other potential, better tenants then I should accept them first. One stated that if I personally knew the Section 8 person then it might work. But I don’t know any Section 8 people.
Second, there’s property concerns. Whether we want to admit it or not, Section 8’s have a reputation for destroying property. That’s not to say that all Section 8’s destroy property. It’s the equivalent of saying that "all four legged animals are dogs" which we all know is not true. Grey and Disgruntled Worker are definitely not dogs.
Could a "non-Section 8" tenant could destroy a property? You bet. However people who have clean credit reports, glowing references and enough cash to pay the large amount of rent and security deposit rarely destroy properties. In addition, if destruction did take place then I can sue in court to recover damages.
With Section 8 tenants, it’s already a given that their credit is probably messed up. Taking them to court to recover damages would most likely prove useless. Why? They don’t have money. They are Section 8 for a reason.
With that being said, the usual indicators of bad tenants (credit checks, references, and cash upfront) are all tossed out the window when applied to Section 8. If every means to determine if a tenant is good or bad are tossed, then how do I judge if a Section 8 is good or not?
This leads into the third reason. I only have one rental unit. Maybe if I had 10 or 15 units I would consider renting to a Section 8. If one unit went bad, no big deal. But if my one rental unit goes bad, I’m hurting.
As a recovering engineering, I always ask myself "What’s the worst that could happen?" If $5,000 in damages were to occur, could I afford to fix them? No, all the other problems I’ve had (here and here) tapped my current available cash.
At least with a non-Section 8 tenant, I can predict whether they’ll be a good tenant or not. Section 8 tenants, I can’t.
No, in my progress as an investor I can’t accept this level of risk at this time. There are already too many unknowns regarding new tenants that come in. But to knowingly invite an element, without real sufficient information, raises the level of risk to high for me to accept.
In the future, maybe.
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With a Section 8 tenant you would get a government voucher mailed to you every month. How does that sound?
That’s the best perk of Section 8. From there, it seems to go downhill.