The Hidden Risks of Section 8 Properties for Foreign Investors

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When I first started investing in U.S. real estate as a foreigner back in 2016, I was bombarded with “opportunities” to purchase Section 8 rental properties. The pitch was always the same: guaranteed government rent, steady income, and minimal vacancy.

After purchasing over 120 investment properties in the U.S. and helping countless foreign investors navigate this market, I’ve learned one clear lesson: Section 8 properties rarely deliver on their promises for overseas investors.

Let me share what they don’t tell you in those glossy investment brochures.

Related: Global Investors are Embracing Remote Real Estate Investing

The “Guaranteed Rent” Illusion

The biggest selling point of Section 8 properties is the supposedly guaranteed government rent. This creates a dangerous false sense of security.

What they don’t mention is that Section 8 tenants are typically D-Class tenants with financial and social challenges. Some are wonderful, but in my experience, many don’t treat properties well.

You’ll face higher maintenance costs, potential city code violations, and sometimes serious property damage.

One Section 8 tenant I had turned out to be a hoarder. We received multiple citations from the city for trash and yard maintenance issues.

When we finally secured an eviction (which was not easy), we paid over $5,000 just to clear trash from inside the property.

Between legal costs and turnover expenses, we spent more than $15,000 on a house that only rented for $1,000 per month. That’s 15 months of rent gone in an instant.

Related: Navingating US Mortgage Rates as a Foreign Property Buyer

The Neighborhood Reality

Section 8 properties are typically located in C or D-Class neighborhoods. These are older properties that have often been poorly maintained for decades.

This means allocating higher reserves for capital expenditures like electrical problems, plumbing issues, roof repairs, HVAC systems, sewer line problems, and furnace replacements.

The low property values simply don’t justify the renovation budget needed to make these assets truly “future-proof.”

What looks like a deal with fresh LVP floors and new paint is often hiding fundamental issues that will cost thousands over the years.

These neighborhoods also present challenges when you eventually want to sell. There’s virtually no homeowner market, so you’re selling to another investor who wants to pay bottom dollar.

Related: Landlord Friendly Markets for Foreign Property Investors

The Foreign Investor Disadvantage

Managing Section 8 properties remotely adds another layer of complexity. Most property managers aren’t equipped to handle these types of tenants and the issues they bring.

While Section 8 inspections are relatively basic (checking for peeling paint, handrails, secure steps), the paperwork and bureaucracy can be overwhelming for someone managing from overseas.

You’ll need to register the property and complete inspections, which typically requires someone local like a property manager or realtor—adding another expense to your investment.

The Financial Reality Check

With all the extra maintenance, management fees, and capital expenditures, my experience shows that Section 8 properties rarely cashflow over the long term.

What initially appears to be guaranteed high cashflow passive income often becomes the exact opposite.

The numbers simply don’t work when you factor in all the real costs of ownership, especially for a foreign investor who can’t be physically present to handle issues as they arise.

A Better Strategy for Foreign Investors

After years of experience, my advice to foreign investors is simple: buy better quality homes in C+ or B Class areas. While these are still working class neighbourhoods, they tend to be the best US real estate markets for foreigners.

Focus on high-quality renovations to limit maintenance and capital expenditures. Vet tenants thoroughly and set high standards.

Have a solid, enforceable lease agreement and stick to it when it comes to repairs, inspections, delinquencies, and evictions.

The key to successful real estate investment is buying something that will pay for itself over time and keeping it long-term.

Treat it like an asset, not an ATM. Let your cash reserves build up, reinvest in the property, and treat your tenants well so they stay longer.

Due Diligence Is Non-Negotiable

If you’re considering any U.S. property investment from overseas, get an independent home inspection. Speak to the inspector before the appointment and be clear about what you’re looking for.

Get a roof inspection and a sewer line inspection as well. Also, obtain an independent home appraisal. Appraisers are notorious for picking properties apart, which is exactly what you want.

When selecting a property management company, get referrals from other landlords. Ensure they’re set up to handle the specific type of property you own in the exact market you’re buying in.

Review their fee schedule and property management agreement carefully for hidden fees.

Real Success Stories

We recently worked with an investor from the UK who was initially sold on building a Section 8 portfolio. After diving deeper into the realities, they decided to purchase two properties in a nicer Cleveland neighborhood instead.

These properties have been performing exceptionally well, with fewer maintenance issues, better quality tenants, and stronger appreciation potential.

This approach aligns with what research shows about rental property maintenance costs. For rental properties, experts recommend setting aside about 10% of rental income for capital expenditures (more for older properties). For older properties requiring frequent repairs, this figure jumps to 15-20% according to BiggerPockets.

The Bottom Line

Section 8 properties are marketed to foreign investors as hands-off, guaranteed income investments. The reality is far different.

They’re high-maintenance assets that rarely cashflow as promised. As a foreign investor, your chances of success are significantly higher with better quality properties in better neighborhoods.

At Cashflow Rentals, we’ve been helping non-U.S. citizens invest in the American real estate market since 2022. Our mission is to provide access to high-quality investment properties and the services needed to manage them remotely.

The most valuable thing we offer is our experience. We’ve made the mistakes so you don’t have to.

And trust me, when it comes to Section 8 properties for foreign investors, the mistakes can be costly.

FREE DOWNLOAD: 10 Costly Mistakes Foreigners Make Buying U.S. Real Estate