Section 8 Changes: What the 40% Cut Means for Landlords

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0:00 Well, the section 8 strategy is now
0:02 over. It is done. Section 8 is dead.
0:04 Game over. Sorry, you lose. No, I'm just
0:06 kidding. It's not all that bad. But
0:08 there are some major changes that are
0:10 proposed. And yes, I'm saying proposed,
0:12 not already passed, but proposed changes
0:14 on what Section 8 is going to look like
0:15 over the next few years and going into
0:16 the future. Some of these proposals I
0:18 actually think are very good for the
0:19 country, very good for taxpayers. It may
0:21 have some negative impacts on you if you
0:23 are a landlord who really loves this
0:25 strategy. By the way, if you're new to
0:26 multif family strategy, I've bought
0:28 hundreds of rentals starting with very
0:29 little money. And a huge piece of my
0:31 personal strategy has been using the
0:33 section 8 standards to maximize market
0:35 rent to give entry-le housing to great
0:37 people. And if they can't quite afford
0:39 it, I actually use the housing
0:41 guidelines to set a lot of my pricing in
0:43 multiple markets. This has allowed me to
0:45 build a extra $2.5 million of equity in
0:48 my personal portfolio. So when I say I
0:51 love the section 8 strategies, I use
0:53 them heavily. this will impact me. But
0:56 overall, I think these are changes that
0:58 may be necessary to the government
1:00 program. I'll go over them starting now.
1:03 First of all, the biggest one, the
1:04 headline. We're looking at a potential
1:06 40% cut in federal funding to the state
1:10 housing authorities. Now, if you're
1:11 unfamiliar with section 8, essentially a
1:13 lowincome individual will go out and
1:16 apply for a housing voucher. This
1:17 voucher says, "Hey, I make this
1:19 percentage of average median income. I
1:21 need some housing assistance." based on
1:23 their income. They'll pay a certain
1:24 percentage of their rent. Actually, not
1:26 a percentage. It will specifically be a
1:28 fixed dollar amount based on their
1:29 income. Housing will pay the rest up to
1:32 what they deem as fair market rent,
1:34 which is public information you can find
1:35 anywhere online for your local county.
1:37 In the current program, there are no
1:38 limits to how long a tenant can stay on
1:40 this program. Once you qualify, you
1:42 typically live there for a very, very
1:44 long time. There is a critical problem
1:46 in that I actually have some tenants in
1:48 my portfolio who cannot afford to go get
1:51 a job because the government pays for
1:53 their medication, the government pays
1:54 for their food, the government pays for
1:57 their housing, and if I got a job, I
1:59 wouldn't be able to afford to live here.
2:01 That's a major problem. We've
2:03 incentivized some tenants to
2:05 professionally not contribute to
2:07 society. The proposed changes
2:08 specifically do not touch disabled
2:10 individuals, veterans, the elderly. It's
2:13 specifically targeted to changes for
2:14 able-bodied people who could be in the
2:17 workforce. So, we're not targeting the
2:18 disabled or people who can't get a job.
2:21 Specifically, able-bodied individuals
2:23 are going to have a limit on how long
2:26 they can stay in the program. Under the
2:27 proposed changes, not only is there a
2:29 40% cut of the federal funding to
2:31 housing authority, but they're going to
2:33 try to put a cap of 2 years for
2:34 able-bodied individuals. So, what does
2:36 this functionally do? The goal is that
2:38 it allows people who need assistance.
2:40 And there's a lot of people who really
2:41 do need assistance. It's not any one
2:43 race. It's not any one gender. It's not
2:45 just immigrants. But there are a lot of
2:47 people in lower income areas or in
2:49 struggling demographics that do come to
2:51 this country and need some help. And
2:53 there are some single mothers out there
2:55 who go through a messy divorce. Their
2:57 income situations change. They need the
2:59 help. The proposal is not to kick these
3:01 people off the program. It's to help
3:02 them for two years. The goal is not to
3:04 keep them on the taxpayer dollar
3:05 forever, but saying, "Hey, we want to
3:07 cycle this money through more people. We
3:09 don't want inefficiencies. We want the
3:11 people who actually need the help to get
3:13 the help they need and get two years to
3:14 get back on their feet, which for most
3:16 of us is a very long time to figure it
3:19 out. Why I like this? I think taxpayer
3:21 dollars, including mine, should be
3:24 respected. I pay a boatload in property
3:26 taxes. While we get a lot of income tax
3:28 exemptions, I don't pay a lot of
3:29 personal tax. I pay a lot of money in
3:33 property tax every year. I want the
3:35 government to use this efficiently.
3:37 Ultimately, I would like it going to the
3:38 best people. The negative on that 2-year
3:40 cap is you get a great section 8 tenant.
3:43 One of the best things about the program
3:44 is that tenant will stay there basically
3:46 forever. You can have them there for a
3:48 decade on the program. It's fantastic.
3:50 Now, at least at the federal level,
3:52 there's going to be more turnover. This
3:53 isn't a long-term fix. It's not a magic,
3:56 hey, we're going to place a tenant.
3:57 You're never going to have vacancy
3:58 again. There's a two-year limit on it.
4:00 So, when you get a tenant in there,
4:01 you'll probably keep them most the two
4:03 years, but it's no longer this longevity
4:06 fantastic silver bullet to fill your
4:08 whole portfolio. You're going to have
4:10 some built-in turnover. So, you have to
4:12 factor for higher vacancy. You're not
4:14 going to have quite as much income. It
4:15 does take away as a landlord, it's going
4:17 to take away from a profit. Again, I
4:19 actually do think on a technical level,
4:21 this is the right thing to do and a
4:22 responsible use of taxpayers dollars.
4:24 And again, for those haters in the
4:26 comments, and I know you're going to
4:27 come in here, it exempts, at least the
4:29 proposed version, exempts the disabled,
4:32 the elderly, people who need need the
4:34 housing and stay in there. It is
4:36 specifically for able-bodied people who
4:38 could otherwise find a job. Is trying to
4:39 eliminate those people who camp and
4:41 specifically are in a position where
4:43 they're incentivized financially not to
4:45 contribute to society in any way. And I
4:47 have tenants like that. They're really
4:48 great people. and they're like, "I don't
4:50 think I can go out and attempt to get a
4:51 job because if I do, I'm going to lose
4:53 all these benefits." That is not what
4:55 the system's designed for. That's not
4:56 what we're paying for. We really want
4:57 the people who need help to get in the
4:59 program. So, while there's a 40%
5:00 reduction, here's what they plan to do.
5:02 They want to push the power back to the
5:04 states, which, yes, means there's going
5:05 to be a little bit less regulation. It's
5:07 not always ideal for the tenant. What I
5:10 do like is that it's giving power at the
5:11 state level for them to raise their own
5:13 funding to put more of their own own
5:15 programs in place. As a landlord, I have
5:17 noticed owning in Washington state and
5:19 owning in Texas, a red state and a blue
5:21 state. The needs are very different. The
5:23 homelessness looks very different in
5:24 these two states. And the resources that
5:26 one should allocate is really more state
5:29 specific than it is a federal level
5:31 thing. From my personal experience, I
5:33 also like the spirit of hey, let's do
5:35 less inefficient federal spending and
5:38 let's do more at the state level to
5:39 solve the problems that are unique to
5:41 each state. If you think about it, how
5:43 much of the money goes to major homeless
5:45 populations? Seattle, New York,
5:48 California, Oregon. If you go to
5:50 Portland, there's a ton of homeless.
5:52 Where do you think the voucher money
5:53 ends up going on the federal level?
5:55 Everyone pays taxes to the same pool. It
5:57 gets isolated these places that have
5:58 generally bad policy. As far as housing
6:01 is concerned, very unaffordable areas.
6:04 What I personally would like to see and
6:05 what I believe the intent of this bill
6:07 is is, hey, let's incentivize the states
6:09 to come up with their own funding and
6:10 their own programs so that every other
6:13 state doesn't have to subsidize
6:15 Washington, Oregon, California, and so
6:17 on. Moving on down the list to smaller
6:19 items on the agenda. There's a few fun
6:21 things in there that I actually really
6:22 like. Part of this bill would allocate a
6:24 set amount of money. It's not a huge
6:26 budget, but it's a good start. A budget
6:28 for people coming out of the foster
6:30 care. So, kids age out of foster care,
6:32 they're 18. is they budget to help them
6:34 get the down payment for their first
6:36 house. Things like this, I think this is
6:38 practical and this is really the housing
6:40 authority and the government doing
6:42 something legitimately needed for
6:44 housing. That is one of the hardest
6:45 demographics. You have no leg up.
6:47 There's no inheritance. There's no
6:48 family to help you out. That's the type
6:50 of stuff that I think universally pretty
6:53 much everyone's okay with tax dollars
6:55 going to. We do want good money going to
6:57 good programs. We don't want waste. I
7:00 would love to see less paid in taxes.
7:02 And quite honestly, as a landlord, the
7:04 section 8 program is very, very
7:07 favorable to us. While I've made a lot
7:09 of money doing this, it's not like the
7:10 ride's over. There's still going to be
7:11 people who need housing, and there's
7:13 still going to be programs. And as new
7:14 state programs emerge, there's going to
7:16 be new opportunity. Here's what I know
7:18 for sure. In every market at every time,
7:20 humans will need housing. Unless you get
7:22 too crazy with the rent controls, it's
7:24 generally a supply and demand curve.
7:26 There is a certain amount where people
7:27 just can't afford to pay rent. There is
7:29 an actual market equilibrium. While rent
7:32 has increased pretty aggressively,
7:34 especially through 2019 to 2021, there
7:37 will always be programs
7:39 available. There will always be programs
7:42 available. In fact, in the states where
7:43 I work with the housing authorities on
7:44 section 8, there are multiple other
7:46 programs I work with with every single
7:48 housing authority. And there's other
7:49 affordable housing groups. They can be
7:51 churches. There's a Mormon church, a
7:53 Catholic church, uh nearville, Texas.
7:55 There's a group called Pon Valley.
7:57 They're a nonprofit and they help people
7:59 in need get into housing. There are so
8:02 many different options outside of
8:04 section 8 to utilize similar strategies.
8:06 As a landlord, yeah, we have some
8:08 short-term negative effects. I think as
8:10 a society, people are saying, "Oh, this
8:12 is going to cause mass homelessness." I
8:14 don't think section 8 is the problem.
8:16 The amount of funding to section 8 is
8:18 not why we have homelessness. We have
8:19 different core issues. And I think
8:21 cutting some of the funding at the
8:22 federal level probably helps us address
8:24 those a lot better. What I would like to
8:26 see in addition to this, I would like to
8:28 see some bigger tax breaks to developers
8:30 right now. Costs have gone up on them
8:32 tremendously. We have a supply issue.
8:35 Let's deregulate a little bit. Make it a
8:36 little bit easier to go out and build.
8:39 Maybe toss some tax credit. Stimulate
8:41 the economy in a way where it makes
8:43 sense to provide a lot of housing. If
8:45 you want affordability, you need more
8:47 supply in this country. That's the
8:48 number one thing we need, especially in
8:50 major metros. and we've seen a huge
8:52 drive from people coming in from the
8:55 country into larger cities. We see this
8:57 huge housing problem and prices have
8:59 absolutely skyrocketed. I'd like to see
9:01 some of those things addressed. I really
9:03 would. In the meantime, as a real estate
9:04 investor, you always play the game where
9:06 the goalposts are. Right now, housing
9:09 authority is still running the same way.
9:10 Section 8 is the same. You should be
9:12 prepared for these changes because I do
9:14 believe they will likely get passed or
9:16 at least some version of it. Final piece
9:17 of advice. This is what you want to
9:18 avoid. When there's change, people
9:20 freeze. I bought a lot of real estate
9:23 last time the market shifted and
9:24 everyone froze. I took the field. In
9:27 fact, I'm doing that again. I was going
9:29 to slow down my buying this year. We
9:31 keep having opportunity like I've never
9:33 seen before. When there's all this
9:35 economic turmoil and tariffs and changes
9:37 and as this all unfolds, what I would do
9:41 right now is I would get in a position
9:42 to buy as much real estate as possible.
9:44 No, that doesn't mean get as liquid as
9:45 possible. If you can, go for it. But get
9:48 the skills to buy real estate with or
9:49 without money. Because if you can buy a
9:51 lot of real estate right now while
9:53 people are on the sideline is the
9:54 easiest it will ever be to take the
9:56 field, buy some real estate, get your
9:58 cash flow rolling. Next time the market
10:00 get, you know, when real estate gets
10:02 sexy again, you make an unbelievable
10:04 amount of money when you're already in,
10:05 not when you jump on after everyone else
10:08 is in. So word to the wise, don't let
10:10 this slow you down. The changes are
10:12 coming. Some or all of them will
10:14 probably go into effect at some point
10:16 during this term, but it's not in effect
10:19 yet.