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Low-income housing can be one of the cheapest ways into rental property, and the rent can look very high compared with the purchase price. The catch is that the margins are thin: expenses don’t shrink with the price of the house, and one tenant turnover handled by a property manager can wipe out months of profit. This guide covers how low-income and Section 8 rentals work, the steps to buy and run one, how to check the numbers, and a real example from an investor who has done it.
What Counts as Low-Income Housing?
Low-income housing usually means rentals for households earning below their area’s median income, often with help from the Housing Choice Voucher program, better known as Section 8.
For a landlord, Section 8 works like this: the local public housing authority pays part of the rent directly to you and the tenant pays the rest, usually about 30% of their adjusted income. The rent has to be reasonable compared with similar local rentals, and the unit has to pass an inspection before the tenant moves in and at regular intervals after that.
Demand is steady, and voucher waitlists in many areas run for years, but the approval process can add weeks to every vacancy. You can look up the income limits for your area on HUD User, the research site of the U.S. Department of Housing and Urban Development.
Pros and Cons of Investing in Low-Income Housing
Pros
- A low entry price. In 2021, Leif (our guest contributor) was buying houses for $30,000 to $50,000 that rented for over $700 a month. At that price you may be able to buy without a mortgage at all.
- High gross yields. Rent can be 20% or more of the purchase price each year, far above what most higher-priced rentals earn.
- Steady demand. Long voucher waitlists mean there are usually tenants looking.
- Reliable rent. With Section 8, the housing authority pays its share of the rent directly to you.
Cons
- Expenses don’t shrink with the price. A broken dishwasher costs the same to replace in a $40,000 house as in a $400,000 one, but in the cheaper house it can cost a whole month’s rent.
- Higher turnover. Tenants on low or unstable incomes are more likely to move, especially after a rent increase, and every move means vacancy and repairs.
- Slower re-letting. Each new Section 8 tenant needs approval and an inspection, which can leave the property empty for weeks or months.
- Management fees hit harder. A property manager’s finder’s fee and contractor markups take a much bigger share of a small rent.
How to Invest in Low-Income Housing, Step by Step
Step 1: Choose your market
Look for areas where house prices are low compared with rents, and check the local housing authority’s payment standards. These are based on HUD’s Fair Market Rents and cap how much of the rent a voucher will cover, so they tell you what rent you can realistically charge. Check the local landlord-tenant laws too: many states and cities ban turning tenants away because they pay with a voucher.
Step 2: Run the numbers on net income, not gross
Gross yield is annual rent divided by the price. Cap rate is net operating income (rent minus vacancy and operating expenses, before any mortgage) divided by the price, and it’s the number that tells you what you’ll actually keep.
Low-income houses often have a high gross yield and a much lower cap rate, so budget realistically for vacancy between tenants, repairs at every turnover, property taxes, insurance and management. The NOI calculator and cap rate calculator will do the sums.
Step 3: Decide how you’ll pay for it
Because the houses are cheap, many investors buy with cash, which removes the mortgage payment and makes thin margins safer. If you want to finance, be aware that some lenders set minimum loan amounts, which can make very low-priced houses hard to finance with a conventional mortgage.
Step 4: Inspect the property before you buy
Get a full inspection and price the repairs the house needs to pass the housing authority’s inspection. Older, low-cost houses often need work on wiring, plumbing, windows or the roof, and that cost belongs in your numbers before you make an offer. Our due diligence guide covers what else to check.
Step 5: Register with the housing authority
Contact the local public housing authority to list your property for voucher holders. Screen applicants the same way you would any tenant, on rental history, references and how they’ve looked after previous homes. See our tenant screening guide.
Step 6: Pass the inspection and sign the contract
Once you’ve chosen a tenant, the housing authority inspects the unit and confirms the rent is reasonable. You then sign a lease with the tenant and a Housing Assistance Payments (HAP) contract with the housing authority, which sets out the share of the rent it will pay you each month.
Step 7: Keep turnover and management costs down
This is where low-income rentals succeed or fail, as the case study below shows. Keep good tenants with fair, modest rent increases, handle small repairs quickly, and consider managing the property yourself so you avoid finder’s fees and contractor markups. Software makes self-managing several properties practical: Landlord Studio automates rent reminders and tracks every repair and expense for tax time.
Step 8: Know when to move up
Low-income houses are a good way to start, but each one takes a lot of hands-on work for the income it brings in. Leif’s advice is to move up to higher-value properties once you own around 10 low-income houses, so you can keep growing the value and income of your portfolio without the workload growing with it.
A Real Example: The Numbers on a $41,000 Section 8 House
Leif Kristjansen got into real estate to chase early retirement, buying different types of houses to learn what works. Here’s what one of his low-income rentals looked like in 2021, in his words.
“I had a $41,000 house with $720 a month in rental income. Over four years, tenants moved out on average every 16 months. The property would be vacant for about three months while Section 8 approved each new tenant. I would spend at least $420 on repainting and repairs, plus the property manager would take one month’s rent as a finder’s fee.”
On paper, the house earned a gross yield of about 21%. In practice, turnover alone cost about $2,475 a year, almost 29% of the gross rent, before property taxes, insurance or any other repairs.
“So what’s the fix? Be your own manager,” says Leif. “Paying for a new dishwasher isn’t free when you install it yourself, but the equation works out a lot better. Cutting out the middleman can turn these low-income houses from a sad investment into a savvy one.”
He found that self-management software made it practical: “The most repetitive tasks are automated, like late rent reminders and accounting, and the rest can be done through the app. When I’m waiting for my kids’ soccer practice to end, I’m not wasting time, I’m landlording.”
Low-Income Housing Investing FAQs
Is Section 8 housing a good investment?
It can be. The rent is partly paid by the housing authority and demand is steady, but turnover, inspection delays and repairs eat into thin margins. It works best when you buy at the right price, budget for vacancy between tenants and keep management costs low.
Can landlords refuse Section 8 tenants?
It depends on where the property is. Federal law doesn’t require landlords to accept vouchers, but many states and cities ban discrimination based on source of income, which includes vouchers. Check your state and local landlord-tenant laws before you advertise.
Can individuals invest in LIHTC properties?
Low-Income Housing Tax Credits mostly go to developers and to banks and corporations that invest through syndicated funds. Individuals usually take part indirectly, through funds or REITs that own affordable housing. The tax rules are complex, so talk to a tax professional before investing.
How much do I need to start investing in low-income housing?
Prices vary a lot by market, but low-income houses are among the cheapest rental properties to buy. Budget for the purchase price or down payment, closing costs, any repairs needed to pass inspection, and a cash reserve to cover vacancy and repairs between tenants.