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Do Landlords of Low-Income Housing Make a Profit?

By JLP | October 29, 2008

I have been a subscriber to the Houston Chronicle for the last several months. It seems like nearly every day there is a front page article about how the low-income housing apartment complexes aren’t being properly maintained. Apparantly, these complexes will get sited for some violation and the landlord will just ignore it.

Some of the stories are just horrendous. I remember reading about a cement staircase collapsing on two boys as they were playing. Then earlier this week a 23-month old boy drowned in a pool because he was able to slip through the iron fence that had missing bars (I won’t go into why the boy wasn’t being watched more carefully). One lady in that story allowed the reporter to go into her apartment. She reported seeing mold, ceiling damage, exposed wiring, and roaches. Pretty bad living conditions if you ask me.

So, here’s my question for those of you who may know:

Is it possible to be a GOOD landlord of a low-income housing complex and still make a profit? Is it possible to keep things from falling into disrepair and still make enough money to pay the bills? Are landlords just greedy or are they fighting a losing battle with tennants who don’t respect the property?

I ask this because I would consider investing in a low-income housing complex IF I could do it right and still make a profit. I couldn’t afford for it be a charity project and I wouldn’t want to do anything if I couldn’t do it right.

Topics: Question of the Day | 25 Comments »


25 Responses to “Do Landlords of Low-Income Housing Make a Profit?”

  1. Sallie's Niece Says:
    October 29th, 2008 at 9:32 am

    I think in the long term they might but you’d have to be in it for the long term property appreciation value of it. As for making money just off the rental income – probably not. The building next door to mine is Section 8 – meaning the landlord only gets about $400 a month for what could easily be $700 apartments. The building is poorly maintained and the people that live there scare me. He obviously can’t afford the private trash service my landlord employs so often the trash overflows and we have to call the city and complain.

    But if you have lots of money sitting around and would rather invest in the real estate market than the stock market then after ten years or so you could make a profit off the building. Please take care of it though because a blighted building can mess up an entire street!

  2. Geoff Says:
    October 29th, 2008 at 9:53 am

    If the building is not going to be a non-profit, I think the best way to make money on low-income housing is to group it in a project with market-rate housing. Many cities will give you a break on zoning or other regulations and fees if you commit to a certain percent being affordable housing (and some cities require you do a certain precent). This way you make money off of the market rate housing, don’t lose much off the affordable, and get a good deal from the city. Plus, mixed-income housing is beneficial to the community and to all individuals in that type of housing since there tends to be a form of social checks and balances.

  3. Kris Says:
    October 29th, 2008 at 10:56 am

    A relative of mine has rental properties for low-income housing and he makes a profit. I think it depends on where you live though. He buys the houses for cheap, fixes them up, rents them with HUD. Since he doesn’t may too much upfront, they pay themselves off over time since they are cash-generating assets. Eventually, when they are all paid off, he will only be paying for upkeep. As for the article about landowners who don’t take care of the property–that’s sad. But I think that also depends on where you live. My relative gets “failed” on his inspections sometimes for minor, minor damage that is not a safety or health issue.

  4. Donny Gamble Says:
    October 29th, 2008 at 11:42 am

    Than earn pretty good money because the government gives them special tax benefits for becoming an owner of these homes. They also get good financing on these homes and are also given money to help fix these properties up.

  5. Meg Says:
    October 29th, 2008 at 12:36 pm

    It depends on what city/area you are in. Consider how expensive real estate is to purchase in places like NYC and Boston and Chicago – even run down dilapidated low income housing real estate is very expensive due to the value of the land it sits on. Plus property taxes in those cities are very high. Plus hazard insurance would be very expensive on such a run down building.

    I would think it would be pretty hard to turn a profit and fix up/maintain the property in those circumstances – which is why the condition of low income housing is worse in expensive urban areas.

    Landlords don’t just sit around with an evil grin rolling around in the money they are raking in by making their tenants live in filth. I seriously doubt any landlord would maliciously avoid maintaining her property or keeping it safe just to save a few bucks.

    And lets not forget that those tenants are choosing to live there…

  6. Meg Says:
    October 29th, 2008 at 12:37 pm

    Oh, by the way, my uncle owns hundreds of low income properties in a small town in Alabama. He turns a good profit and also takes pride in his very well maintained, attractive properties. Of course this is easier in Alabama where land, labor, and property taxes are all very inexpensive.

  7. Yana Says:
    October 29th, 2008 at 1:22 pm

    This was years ago in California. A man came to the USA from Switzerland with very little money, got a job with an oil company, and bought a 20-unit apartment complex that had been well-maintained, around 25 years old. He became a millionaire, did the majority of the work on the apartments himself, and they were not especially for low-income, but mostly low-income people moved in. He was careful who he rented to, and was in the business with his ex-wife, who also lived at the apartments. I rented from him. I didn’t like the small apartment-sized stove, because I like to cook. He bought me a new stove. Some time later, I visited his home, and was a bit taken aback with the stove in his own home. He bought better stoves for his tenants than he bought for himself. When the cost of living began to get ridiculous in California, he sold the complex for half a million dollars (in 1992), and moved with his family to Oregon. He was the greatest landlord ever, a fabulous human being and hard, meticulous worker.

    The new owners of the complex were okay for awhile, but could barely make any money since they did not do the work themselves. Eventually, they gave up and began to rent to just about anyone. It is not a nice place now because of the tenants, but many other local complexes have suffered the same fate.

    My grandparents came to the USA from Spain, and bought some duplexes to rent. They too did well, because they bought the places in decent shape and were picky about their tenants.

    I would say that nowadays, it is exceedingly difficult to profit as a landlord of low-income housing, unless you do your own maintenance/repairs, and find good tenants. The latter seems the most difficult.

  8. FMF Says:
    October 29th, 2008 at 3:00 pm

    Don’t do it (sound of money pouring down a drain.)

  9. Penny Says:
    October 29th, 2008 at 4:04 pm

    I think that would be a bad idea. Low-income housing is hard to maintain, tenants do not take care of the property and people do not pay their bills. It’s a high risk situation. I know all complexes have these problems, but when I drive down the road and see low-income vs normal complexes…there is def a difference!

    I didn’t realize you lived in Houston!

  10. anna Says:
    October 29th, 2008 at 4:51 pm

    This is all without a lick of ownership experience, but my experience based on *renting* is that it’s a vicious cycle. It’s easy to say that tenants don’t care for a property (and be telling the truth!) but it’s a lot harder for them to care about something that’s ratty and problematic in the first place. I have to imagine there is variation depending on what you make of it – I live in …not low income, I don’t even know what you’d call it, but a duplex. It’s a great house built in the 1920s, and I love it, but the whole place is slowly falling apart cause the landlord doesn’t do a thing. So I don’t do a thing other than spackle after an old roommate and replace some old lighting fixtures after my landlord ignored my requests for months – which meant *I* was the one dealing with the asbestos sheathed solid copper wiring. And while it’s not a low income tenement, I can’t afford to live anywhere “nicer” if we’re talking about a modern amenities scale. My landlord’s sense of disrespect for the building certainly colors my take on the matter.

  11. Brad Says:
    October 29th, 2008 at 5:20 pm

    You would be better off buying good single family homes in good neighborhoods that you can get at a bargain price.

    Check out http://johnschaub.com/

    Brad

  12. Mike Dunham Says:
    October 30th, 2008 at 5:38 am

    Yana said: “He was careful who he rented to…” – this is the key. Section 8 in and of itself is not a bad thing, as one commenter suggested – if you get a section 8 voucher for $400 on a $700 apartment, the tenant is supposed to have to pay the other $300. The good news is, the $400 will definitely come (it’s from the government and pays directly to the landlord), but the bad news is, the $300 is by no means guaranteed. I don’t have data to back this up, but I would bet (empirically speaking) likelihood of payment and income are directly correlated.

    BUT, if you’re careful about tenant selection, you can control those risks. That’s the only way IMHO to maximize your chances to turn a profit as a landlord, no matter what kind of housing you own and no matter what socioeconomic level of tenant you intend to cater to.

  13. JimmyDaGeek Says:
    October 30th, 2008 at 5:55 am

    Look into Section 8 housing. I have heard that you can make money in this as the government guarantees the rent in exchange for certain conditions. This is different than buying cheap places to rent to cheap people.

    It always bothers me when I read stories about defective apartments that people live in because apartments don’t just grow holes in walls nor does wiring spring out of walls, either. Roaches occur in the nicest apartment because they can piggyback packing boxes and appliances. Mold only occurs because of current or former damp conditions.

  14. mapgirl Says:
    October 30th, 2008 at 9:35 am

    Depending on your Section 8 tenant, you might not want to do this. Let me tell you a story. My bf’s current next door neighbors used to live on the same street 3 years ago. They were run out of the neighborhood by the other neighbors via petition to the previous landlord after some unwelcome party guests shot up the cars on the street.

    Two years after that, they moved into the house next door to my bf. Since then, the tenants of the house let their friends run a dice game on the front stoop which subsequently got someone shot this summer. AWESOME. We’ve also called the cops on them for noise violations. We’re not talking simple things like playing music too loud because they always turn down when we ask. We’re talking about people yelling and screaming in the street having a domestic issue with possible assault. (Cue lady screaming at a cop about being choked in her own home.)

    I know the landlord is making a mint on the rent voucher for the house, but it’s also going down the tubes with the cooking grease they’re dumping down the backyard. The rats literally love it.

    *shrug* Good luck picking tenants!

  15. tina Says:
    October 30th, 2008 at 10:25 am

    Being a builder, I’m not a fan of existing rentals. We have rentals but they aren’t low income – they are new construction. The maintenance on those things kill you. The only way you could do it is if you pay cash, and have no debt on the properties. Which is really the way to do it anyway.
    I really do not mean to pre-judge or stereotype anyone by this statement at all. But, I would guess that the biggest headache of this thing could come from the tenants. It wouldn’t be worth it to me. We live in a city with a private college and rent sometimes to college students. Getting paid is the least of the concerns. There are all kinds of other problems with neighbors, arguments with the students, roommate problems.
    My suggestion – Pose the question to landlord forums. There is a wealth of info out there.

  16. Lord Says:
    October 30th, 2008 at 2:19 pm

    It is possible to do very well with low income housing, but it is very hands on. You can’t be a passive investor and do well with it. Your income is from managing it, not investing in it. The only one that makes money on dilapidated housing is the lender so would not recommend it.

  17. poor boomer Says:
    October 30th, 2008 at 9:42 pm

    Section 8 subsidies are based on your area’s median rents (which are recalculated annually), and tenants are required to contribute rent up to 30 percent of their income (the tenant’s rent is subject to an annual redetermination to reflect changes in income)..

    For example, if your area median rent is $800, and you (Section 8P tenant earns $1000 per month, he would pay you $300 monthly and the government would pay you the rent you charge MINUS $300, up to a maximum of $500. (You can charge, say, $1000, but then the subsidy you receive would be limited to $500, and the tenant would be responsible for the other $500 – unlikely such a tenant would want to rent from you and vice versa.)

    This presents enterprising landlords an opportunity to profit through arbitrage of sorts.

    The way to make money with Section 8 is:

    Buy property in below-median neighborhood (e.g. $600), rent higher but still below area median (e.g. $750).

    This will scare away all the NON-Section 8 tenants (who won’t pay $750 in a $600 neighborhood) but Section 8 tenants will flock to you because there is an ongoing shortage of Section 8 housing, and the “extra” $150 isn’t coming out of their pocket so they don’t care – all they care about is whether the rent you charge is at or below median (and I can assure you they have that number memorized).

  18. poor boomer Says:
    October 30th, 2008 at 9:51 pm

    Meg said:

    And lets not forget that those tenants are choosing to live thereā€¦

    As a very low income (yes, there is a government definition for it – <30 percent of median area income for your household size) renter, I note that there is a vast shortage of housing which is affordable to very low income households.

    My monthly income is less than $800, and I pay $650 to rent a room in a house with nine people.

    Do you seriously believe I *CHOOSE* to live here? Do I have a choice?

  19. poor boomer Says:
    October 30th, 2008 at 9:57 pm

    FWIW, Robert Kiyosaki (Rich Dad, Poor Dad) in at least one of his books, has said that he profitably owns Low Income Tax Credit (Section 42) housing.

    I don’t know a thing about Section 9-41 housing. ;)

  20. Moneyblogga Says:
    November 4th, 2008 at 11:27 am

    I’m going to give you my advice from one who has been in the trenches for the past 3 years and it’s harsh advice:

    Aaaaaaaaaaarghhh! RUUUN!!!!!!!

    If you have some time, check out my blog specifically under the “Rental Property” label. My building was in a low income neighborhood (or ghetto as everyone else referred to it) and it was a never ending nightmare of unemployable tenants and their sagas with drugs, apathy, toxic relationships, the police, and grifting.

    If you have money, energy, spirit, and time to waste, by all means go for it. If you enjoy being on the police department’s radar 24/7, ditto.

  21. nicole Says:
    November 9th, 2008 at 3:38 pm

    Speaking as the middle man of HUD subsidies for low to moderate income families you see all thats mention in the previous comments and then some. I think a couple of people had it right. You have to protect your investment and that starts with the location of your property. With section 8 the property does not have to be in the inner city. Most people with voucher’s try to get out of the city limits. Some advice ..

    Number 1- I would not buy the cheapest building in a crime ridden area and expect to make profit @ 100 % occupancy. It’s not impossible to do but you will work hard for that money. Buy a decent piece of property in an aleast okay neighborhood.
    Do your research with the police district for that area. Avoid areas with high drug activity this usually followed with homicides.

    Number 2 – screen your prospective tenant keep in mind the guaranteed money is great but you want a tenant who has an income , earned income (a job with actual time on job 6 mnths to a year) if not SSI or pension… clients receiving welfare (OWF) or who are not working at all on average will give your more headache then profit even though the program will pay most of their rent you will spend more money in the upkeep of the building. Idol time makes for trouble is usually the rule of thumb.

    Number 3 – Make sure you have a sound Residential Lease and enforce the lease. You have to manage this property to protect your investment. A lot of landlords are under the impression that since they are receiving subsidy through this program that they just have to collect a check every month. Collect your rent on time, make schedule inspections outside of the agency inspection’(s). Promptly respond to tenant’s complaints on the unit. Issue the Notice to Vacate promptly for non payment or other follow through with evictions. A lot of landlords who try to be nice usually wind up taking a huge loss. Make sure you and your agent are on the same page.

    Number -4 get familiar with the policies for the Public Housing Agency HCV program guidelines in the county or counties in which you plan to invest in. A lot of the programs have landlord classes dealing with HQS and other requirements, obligations and benefits.

  22. Vivian Says:
    February 21st, 2009 at 7:00 pm

    Hi I am looking for a investor to buy a house for me & sell it to me on a land contract. Can you help me?????????????? Vivian

  23. Sarita Otero Says:
    March 15th, 2009 at 8:16 am

    Yes, landlords do benefit from making their buildings section 8. First of all, they can charge the marketable legal rent where section 8 pays the difference regarding the tenant’s income.

  24. Dwain Says:
    September 15th, 2010 at 2:07 pm

    I had a friend who invested in real estate. Low income, HUD approved rented housing. He did well. He would buy houses that were auctioned off by the city, and when he could find a good buy, he knew some real estate agents pretty well. But his formula was, buy houses that don’t need to much work. Do some minor cosmetic fixes, a little drywall, new carpet, then resell. Some property he rented, and buy in a well kept up neighborhood where most property was of equal value. Also move in a house fix it up, then resell. Then go on to your next house. Do most work yourself, except for the roof and some major repairs unless you can do it yourself.

  25. Farrout Says:
    July 20th, 2011 at 10:08 am

    i started collecting low income renatls when i was about 30. im now 42 and have been semi retired for 3 years working my rentals. im known for turning drug houses back into nice homes for low income people. its a sweat equity job but i love it and all my renters are very happy. its a numbers game and it starts slow but snowballs into a great cashflow life style. i wish i started when i was 20 lol.

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