31 Mar The Final Bonus: 14 Mistakes New Real Estate Investors Make
Well, it’s been several months of diving into these real estate mistakes, but we are finally at the end! Understanding these real estate mistakes is important for ensuring you start off on the right foot with investing in real estate. If you want to watch the whole series, you can do so at my Youtube channel.
Bonus #7: Not Taking The Time To See If Section 8 Housing Is Good for You
Section 8 is a government program where they pay the rent of the tenant directly to you from the local HUD or housing authority office. It does not come from the tenant, so you are reasonably guaranteed to get your rent money!
I will tell you there are some hoops to jump. First of all, you don’t have to just pass a city inspection, you have to pass a Section 8 inspection. They get off in the weeds with their inspections! Every outlet in the property has to work, all of the blinds and windows have to work, etc. But other than that, if you get experienced in this and do it right, then you can sometimes get a premium on the rent.
Here’s an example. Let’s say that a normal 3-bedroom, 1-bath house in your area is renting for $800. Many times, if you’re willing to take Section 8 rent, they establish a guideline for you. You can actually search “2016 fair market rents.” You can find what the government says they’re paying for a 3-bedroom in your area.
Now what’s interesting about that, is that they don’t care how many bathrooms you have. It doesn’t matter if you have six bathrooms. It’s all about the number of bedrooms. A bedroom is determined by Section 8 as a room having a window that opens and shuts, a closet, and a door that opens and closes. That counts as a bedroom.
So sometimes, I would buy three-bedroom, older houses where they had huge dining rooms and kitchens. They were already eating in the kitchen anyway. I would take the dining room and add a closet. Now I’ve got a four-bedroom house and I just increased my rents immensely. They pay that same rent premium.
Now, rents are usually higher. But the problem is you can lose a lot of money doing Section 8 rentals if you’re dealing only with low-income housing. Now I know that for those of you who are more sophisticated in this area that this is primarily where Section 8 dwells. However, there is plenty of space in that medium-income housing for Section 8. In fact, if you’re in a metro area, you can put a Section 8 renter many times at a premium in a nice condo and they’ll pay extra money.
Now you’ve got to go through the same qualifications on your tenants as we’ve talked about before. I’m just showing you that because the government pays the rent and you’re usually going to get a premium, Section 8 is worth thinking about. Of course, the premium isn’t always true for every market in America, but it is in many. So I want to make sure that if you’re a new investor, you’re at least considering Section 8 housing. But don’t consider only for low-income housing. Make sure you’re staying in that medium-income bracket and see if you can get a premium on that.
I appreciate you sticking with me for this series! I hope these mistakes have been helpful to you and that you feel empowered to start off on the right foot with investing in real estate. As always, leave your questions in the comment section and I will do my best to answer them in a video!
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