Let’s talk about Section 8 rental properties.

One of the biggest benefits with Section 8 rental properties is that they cash flow very well relative to their purchase price. The reason for this is that their purchase price is low relative to the rents that they produce. The purchase price is lower because the property is in a lower income neighborhood (which is less desirable for buyers, so prices do not appreciate as rapidly).

One of the biggest benefits is the guaranteed rent that is paid by the government. Section 8 is part of the U.S Department of Housing and Urban Development (HUD). The official name for the Section 8 Program is the Housing Choice Voucher Program. Landlords and tenants refer to it as Section 8 because that is what it was originally called before it was renamed the Housing Choice Voucher Program.

The name Section 8 refers to Section 8 of the U.S. Housing Act of 1937. Congress passed the Housing Act of 1937 to create public housing for low-income families.

There are some nuances to the Section 8 program that are worth understanding as a real estate investor. Section 8 pays based on the number of rooms that a house has. The more rooms, the more rent you can get. If you find a 4 bedroom house in a lower income neighborhood, you can get very high cash flow with Section 8 relative to the purchase price.

This makes Section 8 rentals ideal for new real estate investors who need cash flow. If you want to see how much you could get on a rental, you can use this HUD Calculator that shows you Fair Market Rents by State and Zip Code: www.lexlevinrad.com/hud-fair-market-rents/

If you are buying rental properties at 50 cents on the dollar, they make perfect candidates for a new investor to implement the Buy, Repair, Rent, and Refinance strategy (BRRR Method). If you do this correctly, you can do a no money down deal. Now, no money down does not mean no money down. What it means is none of YOUR OWN money down.

You borrow from a private lender to pay for the purchase of the property. You use borrowed funds to repair the property. Then you rent the property to a Section 8 tenant. Once your property is rented, you contact a mortgage broker to refinance your mortgage. The goal is to pay off the private lender and have a conventional mortgage. This will substantially reduce your interest rate and also will convert a balloon mortgage to an amortizing mortgage.

Buying a property at a discount using a private lender and then refinancing to a conventional mortgage after the property has been repaired and rented is known as the BRRR Method. This stands for “Buy, Repair, Rent, and Refinance.”

Implementing the BRRR Method with lower priced Section 8 properties that are purchased cheaply is the perfect strategy for new real estate investors. It allows new investors to buy more real estate and build their rental portfolio.

The key is to buy them cheap. How do you buy these properties for 50 cents on the dollar? Short Sales, Bank owned properties, distressed sellers who are motivated to sell, like people that are in foreclosure, or delinquent on property taxes. As an investor, you need to learn how to market to motivated sellers. I teach this at the Wholesaling Real Estate Boot Camp: www.lexlevinrad.com/distressed-real-estate-boot-camp/

Many larger investors avoid the lower income run down neighborhoods. For a new investor, this is important because it means less competition. But it comes with a downside – some of these neighborhoods can be pretty tough.

Another downside is that managing these Section 8 rentals is much more intensive than traditional rental properties. This is the part that is the most difficult for new real estate investors, dealing with the maintenance headaches and the wear and tear on their property.

Some new investors buy one Section 8 property and never want to own rentals or be a landlord again. If you are going to get into Section 8 Rentals, you need to understand what you are getting into, you need to have a system to manage and run these properties, and you need to be realistic about cash flow, wear and tear, and maintenance.

The key is to buy them so cheap that it pays, and you can refinance without using your own cash. That allows you to build your rental portfolio and create wealth. It’s not that difficult to acquire 2 properties a year!

I started out in Section 8, and it’s a very good way to start out building your rental portfolio and increasing your wealth. I created my first million dollars by buying rental properties in lower income neighborhoods with private lender money and then refinancing into conventional loans using the BRRR method.

If you want to learn how to buy Section 8 Rental properties using private lender money, and how to refinance using the Buy, Repair, Rent, and Refinance method, then you should consider attending our Buying Rentals and Building Wealth Boot Camp: www.lexlevinrad.com/buying-rentals-building-wealth-boot-camp/