Maximizing ROI Section 8: Explore Strategies for Maximum Cash Flow and Long-Term Appreciation

Investing in Section 8 real estate can be a lucrative endeavor, and it's essential to explore various strategies to maximize your return on investment (ROI). In our opinion, there are two major strategies when making your first Section 8 investment.

1. Maximum Cash Flow
2. Long Term Appreciation

If you need more help with Section 8 and understanding what is Section 8 please click this link here. 

Maximum cash flow is exactly what it sounds like, “how to earn the most amount of money possible each and every month.” 

Since FMR rates are locked and there is no way to earn more than the listed FMR from the government, lowering your costs will be how your cash flow is maximized. 

Therefore, the #1 way to maximize your monthly cash flow is to acquire the property for the least amount of money possible. 

Because Section 8 rates are set based on how many bedrooms are available, don’t look for square footage. Look for properties that can pass inspection and have as many bedrooms as possible. Passing inspection can be a challenge for a distressed or dilapidated property so only consider those if you have a great general contractor you trust, or perhaps you can do the repairs yourself. 

Remove all unnecessary accessories that are not part of the Home Quality Standards inspection and get your property to code as soon as possible. Ideally in less than 30 days so you can pass inspection and have a tenant move in 1 month after acquiring the property.

If you can purchase the property outright in cash, this will ensure strong cash flow each month. Otherwise, a conventional loan with the lowest payment amount will be what you are looking for. If this is your 2nd mortgage, you will be required to put 20% down. However, if this is your first property you are ever purchasing, you will be able to put as low as 3% down. This will however increase your monthly debt service. 

If you need help analyzing your potential for max cash flow, contact us.

Over the long term, property maintenance will be your largest biggest cost. When a lot of Section 8 influencers talk about maximizing cash flow and ROI using Section 8, you'll see they often refer to dilapidated single family dwellings. The problem with a low cost home, is how much maintenance will be involved. Depending on square footage, HVAC and Roofs alone could add on tens of thousands of dollars. Add a plumbing problem and electrical problem, and you could easily spend more money than you paid to acquire the property. Perhaps in your mind, you might think you can slumlord it and provide the least amount of minimum viable standards possible, but we would not recommend this because if you get a bad reputation with your local public housing authority, they will be stricter on your inspections. 

We personally like to sleep well at night, and therefore we advocate to not only update properties to standard, but to use the longest lasting most durable materials possible. This is not how everybody does it but if you want maximum cash flow, what you're looking for is the least amount of upfront expense. Another key thing to remember is you can borrow money for the property, but you might not always be able to borrow money for maintenance and repairs, so choosing a property that is turn key and ready to go is recommended. Using this strategy will cut into your cash flow but you should still be in a great position. There are numerous counties in every state with properties that will cash flow more than 10% even with 7% interest rates.

Use our existing tools, or your existing tools to figure out the maximum rent available in the least amount of cost per bedroom and that is how you maximize your cash flow.

The second way to maximize your ROI is to find a long-term appreciating asset. 

There's a major misconception that section 8 properties have to be in poor neighborhoods. That's not true at all. Any property can be rented to a section 8 voucher holder. Our experience is that purchasing nicer properties actually helps mitigate bad tenants. Because the voucher holder will have to live to the standard of the property and the people around them, many will feel judged or watched. Anyone with ulterior motives will be dissuaded from living where multiple upstanding citizens may be watching their daily lives. This brings forward good people that really need a break. Remember, if a section 8 voucher holder gets an eviction, they are kicked off the program for life. So there's a huge cost to a section 8 voucher holder to not obey a landlord's lease agreement.

Did you know you can put all of the rules from an HOA into a lease agreement? So not only do they have to follow all of your rules, but if there is an HOA, they will need to abide by the rules of the HOA. 

Because section 8 vouchers can be used on any type of property, we also advocate for purchasing properties in vacation towns for maximum ROI. 

Vacation towns typically have strong demand for purchase. In an economic downturn, properties can lose value, but over a 10 year horizon, vacation areas seemingly always grow in value. We like to purchase properties near vacation towns as this is where more of the workers that service the vacation town will live, and the proximity will keep the property values high. We have seen our properties appreciate by more than 10% each year in many instances. So if you have a cash flowing asset, with a cash on cash return of 10% which is our goal, and you're earning 10% a year in equity, you will be generating significantly more ROI than if you were to invest in a poor neighborhood. In this vacation town focused scenario after 10 years you'll have a strong ability to cash out refi, and or just sell the property. 

These are the two preferred ways to maximize your ROI. As mentioned in our training, we have properties near the Outer Banks, NC, Washington DC, and near Kennebunkport, Maine. These are all areas that are growing in value. And have continued to grow it in value over decades. We personally choose a long-term equity play plus cash flow. Some people just do cash flow. Either way, it's all about your available capital up front and the amount of risk you want to take.