Is Section 8 Really Over?? - What this Means for Section 8 Investors

Well, the Section 8 strategy is now over. It is done. Section 8 is dead. Game over. Sorry, you lose. No, I'm just kidding. It's not all that bad, but there are some major changes that are proposed. And yes, I'm saying proposed, not already passed, but proposed changes on what Section 8's gonna look like over the next few years and going into the future. Some of these proposals I actually think are very good for the country, very good for taxpayers. It may have some negative impacts on you if you are a landlord who really loves this strategy. By the way, if you're new to multifamily strategy, I bought hundreds of rentals starting with very little money, and a huge piece of my personal strategy has been using the Section 8 standards to maximize market rent, to give entry-level housing to great people. And if they can't quite afford it, I actually use the housing guidelines to set a lot of my pricing in multiple markets. This has allowed me to build an extra $2.5 million of equity in my personal portfolio. So when I say I love the Section 8 strategies, I use them heavily. This will impact me, but overall I think these are changes that may be necessary to the government program. I'll go over them starting now. First of all, the biggest one, the headline, we're looking at a potential 40% cut in federal funding to the state housing authorities. Now, if you're unfamiliar with Section 8, essentially a low-income individual will go out and apply for a housing voucher. This voucher says, hey, I make this percentage of average median income, I need some housing assistance. Based on their income, they'll pay a certain percentage of their rent. Actually, not a percentage, it'll specifically be a fixed dollar amount based on their income. Housing will pay the rest up to what they deem as fair market rent, which is public information you can find anywhere online for your local county. In the current program, there are no limits to how long a tenant can stay on this program. Once you qualify, you typically live there for a very, very long time. There's a critical problem in that I actually have some tenants in my portfolio who cannot afford to go get a job because the government pays for their medication, the government pays for their food, the government pays for their housing. And they're like, if I got a job, I wouldn't be able to afford to live here. That's a major problem. We've incentivized some tenants to professionally not contribute to society. The proposed changes specifically do not touch disabled individuals, veterans, or the elderly. It's specifically targeted to changes for able-bodied people who could be in the workforce. So we're not targeting the disabled or people who can't get a job. Specifically able-bodied individuals are going to have a limit on how long they can stay in the program. Under the proposed changes, not only is there a 40% cut of the federal funding to housing authority, but they're going to try to put a cap of 2 years for able-bodied individuals. So what does this functionally do? The goal is that it allows people who need assistance, and there's a lot of people who really do need assistance. It's not any one race, it's not any one gender, it's not just immigrants, but there are a lot of people in lower income areas or in struggling demographics that do come to this country and need some help. And there are some single mothers out there who go through a messy divorce, their income situations change, they need the help. The proposal is not to kick these people off the program. It's to help them for 2 years. The goal is not to keep them on the taxpayer dollar forever, but saying, hey, we want to cycle this money through more people. We don't want inefficiencies. We want the people who actually need the help to get the help they need and get 2 years to get back on their feet, which for most of us is a very long time to figure it out. So why I like this, I think taxpayer dollars, including mine, should be respected. I pay a boatload in property taxes. While we get a lot of income tax exemptions, I don't pay a lot of personal tax. I pay a lot of money in property tax every year. I want the government to use this efficiently. Ultimately, I would like it going to the best people. The negative on that 2-year cap is you get a great Section 8 tenant. One of the best things about the program is that tenant will stay there basically forever. You can have them there for a decade on the program. It's fantastic. But now, at least at the federal level, there's going to be more turnover. This isn't a long-term fix. It's not a magic, hey, we're going to place a tenant, you're never going to have vacancy again. There's a 2-year limit on it. So when you get a tenant in there, you'll probably keep them most of the 2 years, but it's no longer this longevity, fantastic silver bullet to fill your whole portfolio. You're going to have some built-in turnover, so you have to factor for higher vacancy. You're not going to have quite as much income. It does take away as a landlord, it's going to take away from profitability. Again, I actually do think on a technical level, this is the right thing to do and a responsible use of taxpayers' dollars. And again, for those haters in the comments, and I know you're going to come in here, it exempts, at least the proposed version, exempts the disabled, the elderly, people who need, need the housing and stay in there. It is specifically for able-bodied people who could otherwise find a job. It's trying to eliminate those people who camp and specifically are in a position where they're incentivized financially not to contribute to society in any way. And I have tenants like that. They're really great people. And they're like, I don't think I can go out and attempt to get a job because if I do, I'm going to lose all these benefits. That is not what the system's designed for. That's not what we're paying for. We really want the people who need help to get in the program. So while there's a 40% reduction, here's what they plan to do. They want to push the power back to the states, which yes, means there's going to be a little bit less regulation. It's not always ideal for the tenant. What I do like is that it's giving power at the state level for them to raise their own funding to put more of their own programs in place. As a landlord, I have noticed owning in Washington State and owning in Texas, a red state and a blue state. The needs are very different. The homelessness looks very different in these two states, and the resources that one should allocate is really more state-specific than it is a federal-level thing. From my personal experience, I also like the spirit of, hey, let's do less inefficient federal spending and let's do more at the state level to solve the problems that are unique to each state. If you think about it, how much of the money goes to major homeless populations? Seattle, New York, California, Oregon. If you go to Portland, there's a ton of homeless. Where do you think the voucher money ends up going on the federal level? Everyone pays taxes to the same pool. It gets isolated to these places that have generally bad policy as far as housing is concerned. Very unaffordable areas. What I personally would like to see and what I believe the intent of this bill is, is, hey, let's incentivize the states to come up with their own funding and their own programs so that every other state doesn't have to subsidize Washington, Oregon, California, and so on. Moving on down the list to smaller items on the agenda, there's a few fun things that I actually really like. Part of this bill would allocate a set amount of money— it's not a huge budget, but it's a good start— a budget for people coming out of the foster care. So kids age out of foster care, they're 18, it's a budget to help them get the down payment for their first house. Things like this, I think this is practical, and this is really the housing authority and the government doing something legitimately needed for housing. That is one of the hardest demographics. You have no leg up. There's no inheritance. There's no family to help you out. That's the type of stuff that I think universally pretty much everyone's okay with tax dollars going to. We do want good money going to good programs. We don't want waste. I would love to see less paid in taxes. And quite honestly, as a landlord, the Section 8 program is very favorable to us. While I've made a lot of money doing this, it's not like the ride's over. There's still going to be people who need housing and there's still going to be programs. And as new state programs emerge, there's going to be new opportunity. Here's what I know for sure. In every market at every time, humans will need housing unless you get too crazy with the rent controls. It's generally a supply and demand curve. There is a certain amount where people just can't afford to pay rent. There is an actual market equilibrium. While rent has increased pretty aggressively, especially through 2019 to 2021, there will always be programs available. There'll always be rent assistance available. There'll always be programs available. In fact, in the states where I work with the housing authorities on Section 8, there are multiple other programs I work with, with every single housing authority. And there's other affordable housing groups. They can be churches. There's a Mormon church, a Catholic church, uh, near Stephenville, Texas. There's a group called Pecan Valley. They're a nonprofit and they help people in need get into housing. There are so many different options outside of Section 8 to utilize similar strategies as a landlord. Yeah, we have some short-term negative effects. I think as a society, when people are saying, oh, this is going to cause mass homelessness, I don't think Section 8 is the problem. The amount of funding to Section 8 is not why we have homelessness. We have different core issues, and I think cutting some of the funding at the federal level probably helps us address those a lot better. What I would like to see in addition to this, I would like to see some bigger tax breaks to developers right now. Costs have gone up on them tremendously. We have a supply issue. Let's deregulate a little bit and make it a little bit easier to go out and build, maybe toss some tax credits that stimulate the economy in a way where it makes sense to provide a lot of housing. If you want affordability, you need more supply in this country. That's the number one thing we need, especially in major metros. And we've seen a huge drive from people coming in from the country into larger cities. We see this huge housing problem and prices have absolutely skyrocketed. I'd like to see some of those things addressed. I really would. In the meantime, as a real estate investor, you always play the game where the goalposts are. Right now, housing authority is still run in the same way. Section 8's the same. You should be prepared for these changes because I do believe they will likely get passed, or at least some version of it. Final piece of advice. This is what you want to avoid. When there's change, people freeze. I bought a lot of real estate last time the market shifted and everyone froze. I took the field. In fact, I'm doing that again. I was going to slow down my buying this year. We keep having opportunity like I've never seen before. When there's all this economic turmoil and tariffs and changes. And as this all unfolds, what I would do right now is I would get in a position to buy as much real estate as possible. No, that doesn't mean get as liquid as possible. If you can go for it, but get the skills to buy real estate with or without money. Because if you can buy a lot of real estate right now while people are on the sideline, is the easiest it will ever be to take the field, buy some real estate, get your cash flow rolling. Next time the market gets real estate gets sexy again, You make an unbelievable amount of money when you're already in, not when you jump on after everyone else is in. So word to the wise, don't let this slow you down. The changes are coming. Some or all of them will probably go into effect at some point during this term, but it's not in effect yet. Play the game where the goalposts are, and I'll see you on the next episode.