You found a property with Section 8 tenants already paying rent. The seller is advertising "guaranteed government income" and the numbers look good on paper. Before you get too excited, there are specific things you need to verify that differ from analyzing a market-rate rental.
Buying a property with Housing Choice Voucher tenants in place can be a solid investment, but the due diligence process has extra steps. The rent isn't automatically guaranteed just because there's a voucher involved.
How the HAP Contract Transfers
When you buy a property with Section 8 tenants, the Housing Assistance Payment (HAP) contract transfers to you as the new owner. This contract is between the landlord and the local Public Housing Authority (PHA), not directly with HUD. The tenant's voucher stays with the tenant.
The HAP contract specifies:
You need to get a copy of this contract during due diligence. The seller should provide it, but if they don't, contact the local PHA directly. They'll confirm the contract exists and provide details once you can prove you're under contract to purchase.
One thing that surprises new investors: the contract rent might be different from the Fair Market Rent (FMR) published by HUD. PHAs have some flexibility, and the contract rent was negotiated when the tenant moved in or at the last rent increase approval. It might be below current market rates.
Verifying the Actual Payment Structure
Section 8 rent has two components:
The seller might quote you the total contract rent, but you need to know the breakdown. If the tenant is paying $200/month and HAP covers $1,100/month for a total of $1,300, that's different from a tenant paying $50 with HAP covering $1,250.
Why does this matter? Tenant-paid portions are the less reliable part. Section 8 tenants sometimes struggle with their portion, especially if it's on the higher end. The HAP payment comes like clockwork on the first of the month, but collecting the tenant portion requires the same effort as any other rental.
Request the last 12 months of payment records from the seller. Look for:
Confirming the Rent is at Market
Here's where deals often fall apart: the contract rent might be well below what you could get today.
PHAs publish their payment standards annually, usually at 90-110% of the HUD Fair Market Rent. Check the current payment standard for the unit size and compare it to the contract rent. If there's a significant gap, you have a potential rent increase opportunity, but it's not automatic.
Raising rent on a Section 8 tenant requires:
The PHA will send an inspector to do a rent reasonableness determination. If comparable units in the area rent for $1,400 and you're asking for $1,500, expect pushback. They compare your unit to similar non-Section 8 rentals within about a mile.
I've seen investors buy properties assuming they can immediately raise rent to the payment standard maximum, then get denied by the PHA. The current contract rent might already reflect what the PHA considers reasonable for that specific unit.
The Inspection Factor
Every Section 8 unit must pass a Housing Quality Standards (HQS) inspection annually. The PHA schedules these, and if the unit fails, you have a limited time to make repairs. Fail to fix the issues, and the HAP payments stop.
During due diligence, find out:
If the property passed inspection six months ago, you're probably fine. If inspection is due next month and the seller has been deferring maintenance, you might inherit a problem.
Common HQS failure items include:
Request the most recent inspection report. If the seller can't produce one, that's a yellow flag.
Running the Numbers on an In-Place Section 8 Property
Let me walk through an actual analysis using a duplex I looked at last year.
Property Details:
Income Analysis:
| Item | Monthly | Annual |
|---|---|---|
| Unit A Total Rent | $950 | $11,400 |
| Unit B Total Rent | $925 | $11,100 |
| **Gross Scheduled Rent** | **$1,875** | **$22,500** |
For vacancy, I use 3% on Section 8 properties instead of my usual 5-8%. The tenants have vouchers they don't want to lose, and turnover is typically lower. But I still account for some vacancy during turns.
| Expense | Monthly | Annual |
|---|---|---|
| Vacancy (3%) | $56 | $675 |
| Property Taxes | $175 | $2,100 |
| Insurance | $117 | $1,400 |
| Repairs/Maintenance | $150 | $1,800 |
| CapEx Reserve | $100 | $1,200 |
| Property Management (8%) | $150 | $1,800 |
| **Total Expenses** | **$748** | **$8,975** |
Net Operating Income: $22,500 - $8,975 = $13,525/year
Cap Rate: $13,525 / $165,000 = 8.2%
For financing, I assumed 25% down at 7.25% over 30 years:
| Metric | Value |
|---|---|
| Down Payment | $41,250 |
| Loan Amount | $123,750 |
| Monthly P&I | $844 |
| Annual Debt Service | $10,128 |
Cash Flow: $13,525 - $10,128 = $3,397/year or $283/month
Cash-on-Cash Return: $3,397 / $41,250 = 8.2%
Those numbers were acceptable for my market. The stability of Section 8 income, with $1,550 of the $1,875 monthly rent coming directly from the PHA, justified a slightly lower return than I'd want from a comparable market-rate property.
Checking the PHA's Reputation
Not all Public Housing Authorities operate the same way. Some are efficient, pay on time, and have reasonable inspection processes. Others are understaffed, slow to approve rent increases, and schedule inspections at inconvenient times.
Before buying, talk to other Section 8 landlords in the area. Ask:
Local real estate investor meetups are good places to find landlords with Section 8 experience. Their insights about working with the specific PHA will be more valuable than general advice about the program.
For official program information, HUD's Housing Choice Voucher page provides the federal guidelines that all PHAs must follow.
What About the Existing Lease?
Section 8 leases must be for at least one year, and most PHAs use a standard lease addendum that modifies your regular lease. When you buy the property, you inherit the existing lease terms.
Review the lease for:
If the lease expires soon after closing, you can negotiate new terms at renewal, including a rent increase (subject to PHA approval). If there are 10 months remaining on a 12-month lease, you're stuck with the current terms until renewal.
Section 8 leases also have tenant protections you can't override. You can't require the tenant to pay for things the PHA covers, and you can't evict without going through proper procedures that the PHA will monitor.
Three Mistakes Investors Make with In-Place Section 8 Properties
1. Assuming contract rent equals payment standard maximum
The payment standard is a ceiling, not a guarantee. Just because the PHA will pay up to $1,400 for a 3BR doesn't mean your unit will appraise at that rent. I've seen investors buy at prices that only work if they can raise rent to the maximum, then discover the PHA won't approve it.
Always underwrite based on the current contract rent, with any potential increase as upside rather than a requirement.
2. Ignoring tenant history just because "Section 8 pays"
The voucher doesn't make a tenant immune from being a problem. Ask the seller about:
Bad tenants with vouchers are harder to remove than bad market-rate tenants because of the PHA involvement. The inspection and administrative processes add time to any eviction.
3. Not budgeting for HQS-specific repairs
Market-rate tenants might tolerate a sticky window or a slow drain. Section 8 inspectors won't. Budget for maintaining the property to HQS standards, which are often stricter than what you'd need for a market-rate unit.
I add about $50/month extra to my maintenance reserve for Section 8 properties to cover the random HQS items that come up.
Due Diligence Checklist for Section 8 In-Place Properties
Before closing, verify you have:
If the seller can't provide these documents, extend your due diligence period or contact the PHA directly.
Running Your Own Analysis
Section 8 properties require the same fundamental analysis as any rental, with extra attention to the guaranteed income portion and the regulatory requirements that come with it.
The single-family rental calculator handles Section 8 analysis well. Enter the contract rent as your gross rent and use a lower vacancy factor to reflect the typical tenant stability. The cash flow and return metrics work the same way, but you'll have more confidence in the income side of the equation.
Don't let the "guaranteed income" marketing convince you to skip normal due diligence. The income is only guaranteed if the property passes inspection, the contract rent is actually what the PHA approved, and the tenant continues to comply with program requirements. Verify everything before you close.