Yup. You caught me. Zero experience. Is it difficult to impossible to raise rent on Sec 8 tenants? How about getting them to move out at the end of lease?
Section 8 inspection and compliance is a hassle which many people dislike.
One person posted in reddit this
Here, I can buy $150k houses that rent for $1200/mo. Our rents are easily up 20% in the last six months.
I’m especially targeting multifamilies where the owners don’t realize they could do some repairs and raise the rents, though I’ve been historically mainly single family.
I’ve also seen lots of other markets in the midwest with even better numbers. Places like Cleveland and Pittsburgh actually have much better return on equity with $60k houses that rent for $800/mo, but u have declining populations and high vacancy rates. Spokane actually has population growth and appreciation, and sub-2% vacancy rates at the moment. (We’re at 1.3% vacancy rate and rushing to build more apartment buildings.)"
Plenty of areas with high cap rates…But look at appreciation, vacancy, maintenance and crime rates
Section-8 has a $ amount that they are willing to pay, solely based on the number of bedrooms.
E.g. a 2-BR in Santa Cruz County is $1897. You are not supposed to charge more than $1897 for that 2-BR, but rumor is that some landlords accept additional cash from the tenant. If the government finds out, then the tenant loses the voucher, and the property is removed from the section-8 program (not much to lose for the landlord, big risk for the tenant)
The issue is that number BR is hardly a complete criteria. sqft, location, schools, visual appeal etc. does not get recognized.
I do have a 2-BR detached house that is rented to a section-8 tenant for $1350, and I could just write them a RIR (Request for Increased Rent) to go up to their permitted $1897. Not a penny extra for the tenants… government would eat the entire $547 increase. I feel it would be a bit unethical. Market rent for that property is probably $1600 due to condition and location.
I have another 2-BR that is rented for $2300 (identical neighbor is rented for $2700)… obviously there won’t be a section-8 tenant in that one any time soon.
I am not sure about “at the end of the lease”, as I do not make leases, generally. I prefer month-to-month agreements. Section-8 tenants enjoy a bit extra protection. You need to give them 90 days.
I’m evicting a section-8 tenant right now due to improper conduct in front of other residents. I hope my lesson won’t be too painful.
Evicting based on improper conduct? Is that a legally viable reason in California? I heard stories that Oakland non-paying eviction takes months and landlord need to pay tenant and forego all the back rent.
If improper conduct does not win the case, can you increase the rent over the section 8 limit? If the government and tenant does not pay the increased rent, can you then legally evict them based on non-payment?
The tenant was standing naked in her open doorway as neighbors with children passed by.
Multiple times, carefully directed only at neighbors with “noisy” kids.
Talk about “double standard”. A man doing this would be in jail the first time the cops get called.
Section-8 themselves agreed with the eviction.
In Santa Cruz County, you can give a section-8 tenant their 90 day notice without cause. You can just say, “I want to remodel and collect $999k/month afterwards”. You really do not need to give them a reason.
This may be different in other counties. We do not have rent control anywhere in Santa Cruz County either.
And you want to evict her??? (hey, it has been a long day…)
She got a 3-day notice to stop the self-exposing, and a 90-day notice of termination of tenancy.
If the kids get noisy again and she pulls something similar again, the 3-day notice kicks in and we could file an unlawful detainer. Chances are, since I won’t be able to prove anything, this won’t go anywhere and I just waste money. I am not sure that the neighbors would be willing to testify out of fear of revenge.
Meanwhile, the clock ticks on the 90-day notice. Tenant is a single mom with 1 kid and an office job. I honestly hope she can secure a new place without noisy children. Maybe a SFR. The rental market is tight and 90 days is not as much as you guys may think. I will give her a great rental reference
I had to act as other tenants are looking into moving out.
Affirming my rule of never get a rental reference from current landlord
Yeah, Oakland is way different. My understanding is that you can’t just stop participating in the program without just cause. As long as the tenant pays the rent, contract essentially continues.
SF rents are down 10%. SAC rents up 10%.
Here’s a new multi-family listing in Santa Cruz
The pro-forma cap rate is 6.5%. I have not looked into the expenses, but I think there’s potential in the rents. 1-BR for $1000? That guy is cheaper than me! I advertised a 1-BR for $1300 recently… got over 70 parties contacting me in 48 hours.
Their 2-BRs for $1600 are probably the lowest within 5 miles as well.
But the annual income of $322,800 cannot be based on these present low rents.
$322,800 / 12 / 13 = $2069 on average per unit.
The gross income must be a project based on market rate rents.
Sweet spot, with only 13 units, no resident manager is required.
How much should you discount the cap rate for a rent controlled communist city? 1or 2 points at least? Who finances apartments over 4 units? How long would it take to get the existing tenants to pay pro-forma? What is actual current cap rate?
Good point. I used to think that 7th Ave is the border for the City Limits. And this property is West of 7th - “on the wrong side of the street”.
Turns out, 7th is NOT exactly the border.
Red arrow indicates property location. So, it is not in the city limits. (And indeed, the listing agent states: CITY TRANSFER TAX: NO)
Being outside the city means no annual rental inspection. No requirement to register as a business and pay business tax or rental inspection fees.
That said, since it’s not in any other city, it’s in the county. The County stays out of day-to-day operations, but they are the worst when you need to deal with their planning/building department. I rather work with the City in that regard.
Since there’s no rent control, no “just cause eviction”, no annual rental inspection, I don’t see why you ask for discounted cap rate.
Good news. .How can we buy this thing? JV…financing? Can we Airbnb some units?
For such property 4.7M level, what is the down payment requirements, like 30% or 40% or even 50%? Even though 25% for investment, we may land into higher level practically. I would like to know actual down payment that we need to be prepare our self.
What is the likely interest rate 5.5% or 5%?
Here is another one, but with rent control, I think 5%
The problem is that the current rents are low and the price is based on expected rent. Based on the posted current rents, I’m thinking their gross annual income is closer to (13 * $1300 * 12 =) $203k.
You can backwards calculate the loan amount from that number.
interest rate 5.25%
debt coverage ratio 130%
25 year amortization
$170k / 12 / 1.3 = $10897 monthly for debt service
Loan amount $1,815,000
Monthly payment is $10,876
So… you would need $2.9M down… 61% down payment!
Now, if the current rents were indeed $323k… 290k net
$290k / 12 / 1.3 = $18590 monthly for debt service
Loan amount could be $3.1M ($18577 monthly payment)
Down payment would be $1.6M or ~35%
The problem is that the lender cannot decide based on theoretical numbers.
The seller should raise everyone’s rent by $600 and it would be much better.
the one in San Jose is ugly. When I see the cross street is Goodyear, then I know enough. I had a flip property there a few years ago, 2 blocks away. It fetches good rent though.
The property in Santa Cruz is actually in a very desirable neighborhood (near the harbor), and the 13 units are spread out in 5 buildings. Another reason why the rents should be higher. Those 2-BRs could go for $2500 (check out the photos).