The following article is a guest post by New York City’s real estate expert Alex Vasser on rent-subsidized tenancies.
As discussed in Rent Subsidies Make Tenants Attractive, there are various federal and state government programs that provide rent subsidies to individuals and families whose income is below specific levels. Accepting tenants who receive this type of rental assistance can be a good way for landlords to fill or prevent vacancies, particularly in areas where unemployment is resulting in more rental units than tenants.
Nonetheless, along with the positives there are negatives involved with having a tenant whose rent is subsidized.
Rent-Subsidized Tenancies Provide Guaranteed Payment, Motivated Tenants
These are some of the benefits to landlords in having tenants who receive rental assistance:
Guaranteed payment. In programs such the U.S. Department of Housing and Urban Development’s Section 8 housing voucher program, the amount subsidized by the government agency is mailed directly to the landlord each month. In other words, the landlord is guaranteed payment of all or part- depending on how much of the rent is subsidized- of the monthly rent. The remaining portion is usually in an amount that the tenant can readily afford; therefore, a landlord is usually able to collect the full rent each month.
Motivated tenants. Competition for rental assistance can be tough. In some areas, the government agency that administers the rental assistance program accepts new applications for a limited period each year. As a result, those who qualify for a subsidy tend to do what they must to hold on to it. For a landlord, this means that a tenant with a rent subsidy has reason to fulfill his or her obligations under the lease, including paying the unsubsidized portion of the rent on time.
Competitive rental amounts. HUD sets the fair market rental amounts each year in metropolitan and non-metropolitan counties. If the rental market of a particular area has deteriorated after HUD has sent its rates, a landlord may find that the amount of rent that a rental assistance program is willing to subsidize exceeds what other landlords are accepting.
Inspections, Frozen Rents
These are some of downsides of having tenants who receive rental assistance:
Yearly inspections. The agency that administers the rental assistance program will schedule yearly inspections of the rented premises. The inspections may turn up conditions that the landlord will be obligated to remediate if the rent checks are to continue uninterrupted.
No rent increases. A landlord may not be able to raise the rent for years because the government agency that provides the subsidy may decline to pay an increase, the tenant may not be able or willing to pay it, either, and the landlord may not want to have to find another tenant.
Fluctuating subsidy checks. Because the amount of a subsidy depends on the tenant’s income, the amount of the check that a landlord receives from the government changes from time to time when the tenant’s income changes. This means that the landlord will have to go to the tenant for the difference if the subsidy is reduced.
Instability. In a depressed rental market, tenants may want to change homes, knowing that they can get a bigger place for the same subsidy.
The Bottom Line
Ultimately, landlords must determine their own comfort levels, always in reference to their real estate investment plans. They may ask themselves these types of questions:
- Do I want guaranteed rental payments each month?
- Am I willing to rent to low-income families and individuals? If not, why?
- How likely am I to find other tenants for my rental units?
- How long am I able to keep a unit vacant while looking for a tenant?
- Can I take in stride the yearly inspections required by a rental assistance program?
- Will renting to a tenant whose rent is subsidized help me reach the goals in my real estate investment plan?