Section 8 cut 10%! NOT April fools, sequestration, housing impact

April 1, 2013 — 8 Comments

Landlords, pay attention! So, I was enjoying my Easter Weekend and saw an email from a colleague of mine.  The subject line was, “Section 8 cuts landlords rents 10%”.  I thought, OK, this is an April fools joke (just a day early).  So this morning, I made some calls, and it is true!  If you are participating in any Housing Assistance Payment (HAP)

or Housing Choice Voucher (HCV) program, get ready!  Not only are your taxes going up (property, payroll, and income), your income is about to be dramatically cut, with no promise of an end in sight!

Below are some excerpts from the attached letter.  This letter is identical to letters I have seen mailed to over 10 landlords.  The key point I want to make with this unplanned, one-off post is this: When you put your future and/or income in the hands of the government, or a “boss”, be ready to be executed at a moments notice!

Let’s examine what this does to the Landlord by looking at a couple of quotes:

  1. Now the Housing Agency is willing to “remove non-compliant families”.  Hmm, isn’t that something we have asked for from housing for years?
  2. “Reducing payment standards” – This is another item that a responsible agency should be doing, and something landlords support.  This additional subsidies that housing agencies pay out are beyond absurd.
  3. “You have 10 days” – Now landlords have ten days to decide to either accept a 10% loss, or terminate the contract within 29 days!  Can you imagine the losses?
  4. The best part, “We do not know what the funding future will look like, but if we receive additional HAP funding we will consider recalibrating the contract rents.”  WOW!  They will consider paying what they originally promised!

How will this effect the housing market?

  1. Some underprivileged low-income occupants will now be forced out of their homes.
  2. Landlords will now be in a negative cash-flow situation, causing mortgage delinquencies.
  3. Maintenance personal and property managers will lose income through reduced rents, and landlord cutbacks.
  4. Property values could decline due to lower lease rates.

Direct quotes from a letter from the HUD Secretary 

  • About 125,000 individuals and families, including elderly and disabled individuals, could lose benefits from the Housing Choice Voucher program and be at risk of becoming homeless.
  • These cuts would also result in more than 100,000 formerly homeless people, including veterans, being removed from their current housing and emergency shelter programs, putting them at risk of returning to the streets.
  • Sequestration would result in 75,000 fewer households receiving foreclosure prevention, prepurchase, rental, or homeless counseling through Housing Counseling grants.
  • The impact of sequestration would force public housing agencies to defer routine maintenance and capital repairs to Public Housing, leading to deteriorating living conditions and, over the long-term, risking the permanent loss of these affordable units that serve 1.1 million of the nation’s poorest residents.
  • These cuts to the Housing Opportunity for Persons with AIDS program would result in 7,300 fewer low-income households receiving permanent and short-term supportive housing assistance, including rent and/or utility assistance.
  • The reduced funding from the sequester would prevent state and local communities that receive HOME grants from building and rehabilitating 2,100 affordable housing units for low-income families.
  • The sequester will also result in significant cuts to community development funding for public services, facilities, and infrastructure improvements, reducing jobs and adversely impacting confidence in the long-term sustainability of the private market rental housing that HUD supports.

My feelings are that this is a welfare program that has needed significant overhaul for a long time.  Now, as a result of complete incompetence,  the deserving families that need this assistance, could be removed from their homes by nature of economics.  As a landlord, I intend to terminate every HAP contract (I only have one left, because I do not trust the government).  In my market, rents are increasing by 10% per year in some areas.  I have seen some apartment rents go up by 25% over the past several years.

So, my question is, is this good, or bad?  Would you choose a 10% reduction of income, or a vacant house?

TimHerriage

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I started at the bottom, worked hard and am now one of the top Real Estate Investors in the business. I learned from some of the best, excelling early as an acquisitions manager and then moved on to partner with other skilled investors to create my own portfolio of productive rental properties and later to mentor others to do the same. I am still actively involved in Real Estate, giving a current awareness to the training I share. My wife, Jennifer, and I live in Rockwall with our sons, Alex and Will.
  • kaizen66

    I just got my letter from Dallas Housing Authority… the rents are changing… 6% not 10%.

    • http://www.TimHerriage.com TimHerriage

      If you look at the letter, it states their funding was cut for the HAP program by 6%. On the back, you will see the new rent rate and the old rent rate. When you deduct 10% from the old rent rate, you come up with the new rent rate. It is a bit confusing. The actual rent calculations on the eight different letters I have seen, equal 10% on every one of them.

  • Andrew Waite

    Tim: Thank you. We edited this for brevity and resent your blog to 100,000 investors today. Unusually high open rate by individuals over a government going mad. Reduce income by ten percent and add an sin-vestment tax of 3.8% on net rental earnings and many marginal investors are out of the business, homes are lost and tenants out on the street as they become a liability not an asset.

    The Sequestor claim is cynical, and the market timing is stupid as rents are accelerating. Dropping Section 8 in some markets is the push many investor need. It’s a blessing in disguise and perfect reason to move to meet retail versus subsidized demand with good rental properties.

    The pro-tenant activism of HUD with their new Whine-away – complain about your landlord app, is inviting more investors to abandon helping the Government with housing working people who with credit or budget issues is only trumped by the idiocy of the British government’s proposed bedroom tax……. Four bed home and the kids have grown up? “There’s a tax for that…at $14 a bedroom per week!

    These governments are either nuts, ignorant of unintended consequences or cynical beyond belief as they systematically attack the things that make a nation operate.

    Andrew Waite, Publisher, Personal Real Estate Investor Magazine. http://www.PersonalRealEstateInvestorMagazine.com

  • http://www.facebook.com/dianne.brayleavitt Dianne Marie Bray Leavitt

    You are not going to have a vacant house. People cannot find enough rental homes at full rental rates. Getting out of HAP is good business.

    • http://www.TimHerriage.com TimHerriage

      Agreed. If all the times to have a vacancy, June is the best.

    • timherriage

      Now no one will have a vacant house. Just got another letter! They (Section 8) have changed their minds.

  • Pingback: Section 8 Strategy for Real Estate Investors and Landlords | TIM HERRIAGE()

  • Michael J. Cannon

    I love the title of this article “Landlords Shocked” I’m surprised there is not a picture of a flying saucer crashing into the Lincoln Monument .
    The only landlords that can be shocked by this news are the ones who have been living under a rock. Section 8 funding has been reduced every fiscal year since 2005 (starting with George W Bush). It was common knowledge that if the sequester occurred, entitlement programs would face huge cuts. It’s also a fact that the tea party politicans now in our 2 houses of government want all entitlement programs cut to zero, and they are willing to shut down the government to do it.
    Congress has made no indication whatsoever that they are willing to look at restoring funding let alone do it. The second round of cuts will occur in October as planned. The writing is on the wall that Section 8 is doomed and if any part of the program is saved it will be for the elderly, disabled and vets only. Bye bye welfare moms. We sold all of our section 8 properties here (in south Florida) at the begining of the year. My advice, get out now, either sell those properties or rent them to people who can pay the rent on their own, or you will be stuck with your rentals full of people who can’t pay you and they will probably trash your properties when you boot them out.