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The 3 Numbers That Make a Section 8 Deal Work
Most people evaluating their first Section 8 property track far too many figures and end up with a spreadsheet that tells them nothing. Three numbers decide whether a deal works. Everything else is detail attached to one of them.
What comes in. What it costs to get there. What goes out every month.
If you have read Boring Rich, chapter three breaks this into five numbers. Same framework, different resolution. The five are the line items; these three are the questions they answer, and three is what fits in your head while you are standing in a driveway.
Get those three right and you can assess a property in ten minutes.
Number one: what comes in
Not the asking rent. Not a rent estimate from a listing site. The rent this specific unit can actually collect under the program, which is decided by two separate tests.
The payment standard is set by the local housing agency, between 90 and 110 percent of the area's Fair Market Rent, by bedroom size, within the basic range defined at 24 CFR 982.503. In some metros it is calculated by ZIP code rather than across the whole area, which means neighboring ZIP codes can carry different figures.
Rent reasonableness is the second test and it is independent. The agency compares your unit to similar unassisted properties nearby. You cannot charge above what the comparable house down the street commands, however generous the payment standard is.
Your realistic income figure is the lower of what the market supports and what the standard permits. The full mechanics, including why Fair Market Rent is a gross figure that includes tenant-paid utilities, are covered in our education site's breakdown of how the payment is calculated.
Where beginners go wrong here: using the payment standard as the income figure. It is a ceiling on the subsidy, not a promise about your rent.
Number two: what it costs to get there
The number that sinks more first deals than any other, because it is routinely quoted as one figure when it is five.
Down payment. The figure most marketing quotes.
Closing costs. Forgotten with striking consistency.
Repairs to pass inspection. Specific to this strategy and non-negotiable, because no subsidy begins until the unit clears. Detection devices, outlet covers, handrails, water heater discharge lines, ventilation. Individually cheap, collectively real on a property with deferred maintenance. Pre-1978 properties with deteriorated paint are the ones that can blow a budget entirely.
Holding costs. Between closing and your first payment you own the property, the mortgage is due, and nothing is coming in. How long depends on your agency's processing speed and inspector capacity, neither of which you control.
Reserves. For vacancy, a failed reinspection, or an abatement period if a later inspection fails and you miss the correction window.
Add all five. That is your real cost of entry for that property in that market, and it will not match anyone's headline figure. The full method for pricing it walks through each line.
Where beginners go wrong here: treating the down payment as the entry price, then discovering they cannot afford to bring the property to the point where rent arrives.
Number three: what goes out every month
Ongoing costs, and the ones people forget are the irregular ones.
Predictable monthly: principal and interest, property taxes, insurance, any association dues. Together these make up PITIA, which is also the denominator lenders use when calculating debt service coverage.
Predictable but not monthly: maintenance, which happens whether or not you budgeted for it, and capital expenditure for roofs, systems, and appliances that fail on their own schedule instead of yours.
Situational: property management if you are not self-managing, which matters particularly if you are buying out of state. Vacancy between tenancies. Turnover costs.
Where beginners go wrong here: modeling only PITIA. A property that clears PITIA comfortably can still lose money once maintenance, capital expenditure, and vacancy are honest not optimistic.
Putting them together
The arithmetic is simple once the three inputs are right.
Monthly cash flow = what comes in, minus what goes out.
Cash-on-cash return = annual cash flow, divided by what it cost to get there.
That second figure is where the returns argument in this industry lives. A percentage calculated on a small down payment looks dramatic. The same deal measured against the full five-cost entry produces a much more modest and far more honest number.
We are not going to publish a target return figure, because it depends on purchase price, financing terms, the local payment standard, condition, vacancy, and execution. Anyone quoting a single number across all of those is describing a best case rather than an average.
A worked example, clearly labeled as hypothetical
Numbers below are illustrative. Every one of them varies by market, property, and lender.
A three-bedroom house. The agency's payment standard supports $1,400, but rent reasonableness comparisons come back at $1,350, so the approved rent is $1,350. The utility allowance for tenant-paid electricity and gas is $140, making the contract rent to you $1,210, with the tenant covering utilities separately.
Entry cost: $20,000 down, $4,500 closing, $3,500 inspection-readiness repairs, $2,400 holding costs across roughly two months of agency processing, and $6,000 reserves. Total $36,400.
Monthly out: PITIA of $850, plus $120 maintenance and capital expenditure allowance, plus $100 vacancy allowance. Total $1,070.
Monthly cash flow: $140. Annual: $1,680. Against $36,400 of capital, that is roughly 4.6 percent cash-on-cash.
Now notice what happens if you had used the down payment alone as the entry figure. The same $1,680 against $20,000 reads as 8.4 percent, which is nearly double and completely wrong. That gap is the entire entry-cost argument in this industry, visible in one calculation.
What the three numbers do not tell you
They are a screening tool, not a full diligence process.
They do not account for whether the unit will actually pass inspection, which is a condition question requiring an eye on the property. They do not capture your local agency's processing speed, which drives your holding cost. They do not tell you whether the neighborhood supports stable tenancy. And they say nothing about abatement risk, which depends on how quickly you respond to repair notices not on any figure in the model.
Use them to eliminate properties quickly. Use judgment and process knowledge to decide on the ones that survive.
The habit worth building
Run these three on every property you look at, including ones you are not seriously considering. Ten properties in and you will develop a feel for what a workable deal looks like in your market, which is worth more than any single analysis.
The order matters too. Establish what comes in before you fall in love with a listing, because a property that cannot support the payment standard in that area is not a deal at any price you find attractive.
The wider framework these three sit inside is set out in the method explained in plain English, which covers market selection and financing as well as deal analysis.
Questions this usually raises
Where do I find the payment standard? Your local housing agency publishes it by bedroom size. It is not a national figure, though you can check the underlying Fair Market Rent for your county on HUD's lookup.
Is the payment standard what I get paid? No. It caps the subsidy. Your approved rent is decided by rent reasonableness, and the utility allowance splits it further.
How much cash flow should I target? That depends on your market, your capital, and your goals. We are not going to publish a benchmark that would be wrong in most markets.
Do I need all five entry costs on hand before buying? You need a realistic plan for each. Reserves in particular should be genuinely reserved rather than theoretically available.
What if the numbers do not work? Then it is not a deal, and finding that out on a spreadsheet is far cheaper than finding out on a deed.
