#section 8

ATTENTION JAMES GUNN:

Section 8 is the greatest superhero team in all of the DC Universe and deserves their own series, just like Peacemaker got. Or maybe an animated series, like Creature Commandos.

Either way, make it happen NOW!

For those who are unfamiliar with these stalwart champions (shame on you!), they were introduced in the always entertaining, uproariously hilarious series Hitman from writer Garth Ennis and artist John McCrea.

I've come across some online courses, particularly those by individuals like Tom Cruz and Section8Karim, who claim to provide valuable insights and strategies for successful Section 8 investing. However, I can't help but feel a bit skeptical about the legitimacy of these courses. It's challenging to distinguish between genuine advice and potential scams in the vast sea of information available online.

I'm curious to know if anyone has enrolled in courses offered by individuals like Tom Cruz or Section8Karim. Do you feel that these courses provided valuable and actionable information, or did you find them to be more of a sales pitch?

I speak with several dozen aspiring investors each month in free initial consultations. These are fascinating conversations, since I meet people from all kinds of backgrounds. I’m usually able to get a sense of what information and guidance they’ve already encountered from other sources about rental property investing. Sometimes they’ve found content from good sources, like Chad Carson or Paula Pant. But just as often, they’ve stumbled upon a flashy online personality making big promises. In fact, this year alone I’ve spoken to more than ten people who had found (or even signed on with) the same person — a guy named Karim Naoum, a 22-year-old “guru” who is promising investors 50%-100% cash-on-cash returns in his Section 8 program.

The basic premise is this: sign on with him, buy a bunch of houses for just $8K-$12K down each, that are magically both very cheap and fully turnkey, then exclusively target Section 8 tenants in order to achieve significantly above market-rate rents, and BOOM! Easy 50%+ cash-on-cash returns. Sounds great, right? But is this really achievable, or is it too good to be true? In my opinion, there promises will be very difficult to deliver on, as we’ll explore in detail below. Despite this, Karim seems to be convincing quite a few people to work with him, at quite a steep cost. (As far as I know, he doesn’t disclose his fees publicly, but there is discussion about them in various online forums.)

But first, let’s do a quick refresher on Section 8, since understanding a few key aspects of the program is critical to being able to evaluate Karim’s claims.

How Does Section 8 Work?

The Housing Act of 1937 did a number of things, but Section 8 of that law established the Housing Choice Voucher Program. This program provided for subsidies to be paid from the U.S. government to local housing agencies to help residents establish and maintain adequate housing that they would not otherwise be able to afford.

Therefore, one key thing to understand about Section 8 is that it is federally funded but locally administered. For example, in Memphis where I operate my rental portfolio, the program is administered by the Memphis Housing Authority (MHA), using federal funds to subsidize rent for Memphis residents.

To get a voucher, applicants must show that they qualify for the program, including demonstrating income below the program’s limits set by HUD. Applications are processed by each local housing authority, and waiting lists can be long (more on that later).

A voucher guarantees to its holder that a certain portion of the rent will be subsidized. Based on their income, the tenant will usually, but not always, be responsible for some portion of the rent, with the local housing authority paying the rest directly to the landlord or property manager. The tenant’s portion of the rent is re-evaluated annually, and if the tenant’s financial circumstances have changed, adjusted accordingly.

The tenant is always free to move and take their voucher with them — that’s the “choice” in the Housing Choice Voucher Program. That’s another key point about Section 8 that is often misunderstood: Section 8 applies to particular tenants, not particular properties. A rental house is just a house, and over time it might be occupied by both Section 8 tenants and non-Section 8 tenants.

Now let’s look at some of Karim’s specific promises about Section 8, and see if they hold up to scrutiny.

The Big Promises of Section 8 Gurus

Claim #1: You can buy a house for $8K-$12K down

The math on this doesn’t seem to work.

All investment property loans (both conventional mortgages and DSCR/non-conforming loans) require a minimum 20% down payment. Even in low-cost cash-flow markets, typical prices for rent-ready homes are at least $80K — so that’s $16K right there, plus closing costs of ~$6K, for a total of $22K invested (and that’s assuming $0 of initial rehab costs, which is rare.) For most of my clients, a typical deal will require quite a bit more — usually about $30-35K invested.

The only way to buy a home for $8-12K is to buy with some kind of loan product that doesn’t require 20% down (which will likely be riskier, as I discuss in this article), or to buy a home that’s being sold for $40K-$60K, a price point that means either the home is in an extremely rough area that I would never recommend to rental investors, or the home needs a lot of work.

Which leads us to the next claim: that the homes being offered are turnkey.

Claim #2: The houses are turnkey

“Turnkey” is a squishy term in real estate investing, so it’s sometimes hard to know exactly what people mean by it. To me, a true turnkey property is one that was recently fully-rehabbed by a vetted, reputable provider, including a new roof, new HVAC/furnace, and all new interior finishes. The homes on offer in Karim’s program don’t meet my definition of “turnkey”; rather, they seem to be in various states of repair, some better than others — so pretty much exactly what you’d find searching for properties on Zillow.

You don’t have to take my word for it. Other folks online have taken deep dives into the inventory of properties to see if Karim’s claims hold up to scrutiny. This YouTube video used to show details on this, but the content has been blocked, presumably at Karim’s request. For now, you can still check out Part 1 of that video series.

Claim #3: It’s easy to get above market rent with Section 8

This is the promise at the crux of Karim’s ROI math that leads to such huge rates of cash-on-cash returns. In my experience, while it’s sometimes possible to achieve higher rents with Section 8, it certainly isn’t easy or reliably achievable.

The idea of higher rents with Section 8 tenants rests on the concept of Fair Market Rent, or FMR. This is guidance provided by HUD to determine the value of a given voucher — in other words, what the local housing agency should be willing to pay for a rental of a given size in their market. These values are published annually, and you can look up FMRs online for any US market.

Because FMRs are published as a single number by market, the FMRs are higher than what typical rents would be in certain neighborhoods. For example, in Memphis, the 2024 FMR for a 3-bedroom rental is over $1,700. In reality, most of my 3-bedroom homes in Memphis are renting for $1,000-$1,400, depending on neighborhood.

Karim seems to be arguing that if I filled those same houses with Section 8 tenants, I’d automatically get $1,700 in rent. (I have several Section 8 tenants, and believe me, I WISH this were true!) But it’s not as simple as that.Why not? Because the FMR is a ceiling, not a floor. The local housing agency is not required to pay FMR; rather, it’s viewed as an amount they should not be willing to EXCEED. And in reality, the local agencies have a strong incentive not to overpay for rentals, because the amount of federal funds they have available to spend is fixed. They’d (presumably) much rather be able to help additional tenants than pay you an extra $500+ per month for a house when you couldn’t possibly achieve that rent on the open market.

Further, achieving rent increases on Section 8 tenants can also be difficult. With the recent run-up in rents in the last several years, one of my Section 8 tenants fell well below market rent. Despite this, my PM’s requests for rent increase were repeatedly denied by the Memphis Housing Authority, a decision that cannot be appealed. I finally got a decent increase approved recently, but it took many years to achieve. Dealing with the local housing agencies is no picnic, and they’re not on your side — just ask my PMs, who will complain about them any chance they get, and who are even flirting with the idea of not managing Section 8 at all.

Long story short: the idea that it’s easy to achieve and maintain above market-rate rents with a Section 8 tenant is a “best case scenario”. In my experience, that has not been the case at all, and I therefore don’t think investors should expect this across the board.

Claim #4: You can make 50-100% cash-on-cash returns

When I work with clients, I steer them towards realistic first-year cash-on-cash expectations of 6-8%. If and when interest rates fall, cash-on-cash of 10%+ may be easily achievable, as it was several years ago.

Yet Karim is promising 50-100%! In other words, he’s saying you can invest $100K and produce $50-$100K in annual cash flow. If this sounds too good to be true, it might be wise to trust your instincts.

These numbers rest on the three previous claims we’ve already reviewed: that you can acquire the house for as little as $8K; that they’re turnkey so you won’t have to put any money into them; and that you can achieve rents that are way above market rates. Put all these together, and you can create a pro forma that shows these eye-popping rates of return.

But just putting a pro forma on paper does make it real. As we’ve seen, each of these earlier claims is problematic, which is why the promise of 50-100% CoC is problematic as well.

In fact, I’ve seen this first-hand. When I’ve personally evaluated the properties Karim is offering, and made reasonable financial assumptions about the cost to acquire them, the cost to get them rent-ready, and the rent that can be achieved, they look very much like the deals I work with clients to buy off of MLS or from turnkey providers. They have single-digits rates of cash returns — and in many cases, worse than that.

Claim #5: We can ALL be Section 8 investors

Underneath all the specific claims above, there is another claim just under the surface of the pitches made by these Section 8 influencers: that this style of investing is available to ALL rental property owners.

Logically, this just doesn’t work. Section 8 tenants represent much less than 5% of renters in most markets, and that ratio is fixed and cannot grow. It is constrained by the total funds allocated by Congress for the Section 8 program, which do increase over time to account for inflation and rent increases, but will not materially grow as a percent of the rental market. That’s why waiting lists for Section 8 vouchers are so long in many places. A typical family in need of assistance will wait 2-3 years to receive their voucher, because each local housing agency has only so many funds to work with.

It’s obvious, then, that if some critical mass of investors dives into Section 8 as their exclusive strategy, they will start to run out of tenants. There are only so many Section 8 vouchers in a given market; we can’t ALL take this approach. The vast majority of renters are not Section 8, which necessarily means that the vast majority of rental property owners must rent to non-Section 8 tenants.

So Is Section 8 Bad for Investors?

Not at all! There are pros and cons to placing Section 8 tenants in your properties, as I discuss in detail in this article. My general guidance is that Section 8 can be a part of your rental property strategy, but shouldn’t be your SOLE strategy. It’s just too small a lane to swim in, and comes with certain risks.

But while Section 8 can be good, my experience doesn’t come close to the outsized promises being made by Karim. And he’s not the only one, by the way — there are numerous other Section 8 “gurus” such as Tom Cruz, Eric Spofford, and more, making similar pitches. In my opinion, the promises they make simply don’t stand up to scrutiny.

Post-Script: since publishing this article in mid-2024, Karim (or someone acting on his behalf) has taken extraordinary measures to have it taken down and/or removed from Google Search results so that you can’t read it. I wrote a second article in 2025 detailing the various fraudulent and malicious ways my content has been attacked, titled Section 8 Karim Doesn’t Want You to Read This.