Raising Rent on Your Section 8 Tenants
Despite being a landlord for over 6 years, I swear I learn something new in this business every month. Have you ever leased your property to a tenant (Section 8 or not) for less than you were really trying to get? Most of us have. Maybe it is a slow rental time of the year, maybe you just haven’t had many calls on the apartment, maybe it is 2 weeks before the first of the month and you just want to get the place filled. I bet every landlord has done this at one point.
So then, how do you get the rent back up to where you want it to be without upsetting anyone? With non-Section 8 tenants, I tread lightly. I would rather sacrifice $50 per month than have them decide to start looking and move out. Each turnover costs me $1000-$2000 in painting and property repairs, even when they leave the place perfect. Plus, that is assuming that I will NOT have any vacancy time. In my book, that $600 that I am losing per year is cheaper than a turnover.
A friend of mine that does property management for about 250 units (60% of them get some rental subsidy like Section 8), told me something I never knew. You can raise the rent on a Section 8 tenant dramatically in one year or every year and Section 8 will approve it. This is even if it goes over the maximum rent amount for that unit. Me and another landlord just sat there with out mouths open, about to cry over all the money we had left on the table over the years!
Here is an example of how it works:
- You have a duplex with two 3 bedroom units. Both units are identical.
- You typically rent each unit for $1200 per month.
- The previous tenant moves out in December and you are having a tough time finding a tenant.
- A prospective tenant calls you about the apartment and says they have a Section 8 voucher that will only pay $1095.
- In a pinch and desperate you decide to take them, despite getting $105 less per month that you normally get (after running the typical tenant screening process).
- You sign a lease at $1095.
- At month 10 (60 days before the expiration of the lease), you contact the tenant to see if they want to stay.
- If so, you draw up a new lease for $1200 and have them sign it.
- You submit the new lease and documentation of the rent for at least three other comparable 3 bedroom units in duplexes with the same amenities, in the same neighborhood, to justify your rent increase.
- The other comps must be NON-Section 8 tenants. You are trying to show what the market rent is for that property.
- One small wrinkle is getting comps. You can definitely use the other unit in this duplex in this example, but then you may need to figure out a way to provide proof of other units in the immediate area renting for the same amount. Hopefully you either have other buildings nearby or maybe you can ask a neighbor landlord to give you a copy of his/her leases for this.
- There is no guarantee that Section 8 will approve this, but if you have a decent case with good comps, my friend said he has raised the rent $200 one year to get the property to the correct amount.
One question that got asked was, why would the tenant agree to a large increase. The answer is that they may not feel the increase as Section 8 may simply pay the difference. While you can’t guarantee this, it is worth mentioning. Alternatively, I do know that Section 8 will mostly ignore smaller yearly increases of $25-50. These just fly under the radar.
So…..Watch for your lease renewals on your Section 8 properties and bring your rent up to market standards.
I have not bumped up prices on my section 8 housing because I am afraid my residents will not be able to pass the tenant screening if I do so. I think I like them all enough to keep it the same rate.