Section 8 “Gurus” Make Big Promises. Here’s Why You Shouldn’t Believe Them.
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 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 an online guru making big promises. Just in the last month, I’ve spoken to at least five people who had found, and even signed on with, the same guru — 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, and then exclusively target Section 8 tenants in order to achieve significantly above market-rate rents, and BOOM! Easy 50%+ cash-on-cash returns. He even “guarantees” it.
Sounds great, right? There’s just one problem: every element of this promise is a lie.
Karim can’t possibly deliver on the promises he’s making, as we’ll explore in detail below. Yet he seems to be convincing quite a few people to work with him, at a cost of $15K (that’s his current fee according to recent online forums — unlike me, he doesn’t publicly disclose them.)
In this article, I’m going to examine the claims being made by Karim and other Section 8 “gurus”, to show just how dishonest they are. I’m also going to pull in some learnings from two of my own clients who, before working with me, had signed on to work with Karim. This has provided me with unique insights into certain aspects of his program, and the promises he’s making.
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’re credible.
The False Promises of Section 8 Gurus
Claim #1: You can buy a house for $8K-$12K down
Uh, no you can’t.
Nearly all investment property loans (both conventional 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 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 risky loan product that doesn’t require 20% down, or to buy a home that’s being sold for under $40K — which either means 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 false claim: that the homes being “offered” through Karim’s program are turnkey.
Claim #2: The houses are turnkey
When you actually look at the properties on offer through Karim’s program, it turns out that most of them are not turnkey as he claims. I’d argue that exactly none of them are true turnkey — i.e. recently rehabbed properties from a vetted, reputable provider. They’re 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. They don’t, as this YouTube video clearly shows. (It also shows, btw, that the specific properties on offer will absolutely cost more than the $8-$12K that Karim promises.)
Claim #3: It’s easy to get above market rent with Section 8
This is the lie at the crux of Karim’s phony math that promises such huge rates of cash-on-cash returns. While it’s sometimes possible to achieve higher rents with Section 8, it certainly isn’t easy or reliably achievable.
The idea that above market rents are achievable 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 is basically arguing that if I filled those same houses with Section 8 tenants, I’d automatically get $1,700. This is simply not the case. 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 to spend is fixed. They’d 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.
One client who came to me from Karim wanted my help evaluating the properties that Karim was providing. In the pro formas he was provided, Karim always used the FMR as the rent potential of the property, ignoring true market rent. This paints a hugely over-optimistic picture of the revenue these properties can generate, and wildly inflates the cash flow and ROI in his pro formas.
Further, achieving rent increases on Section 8 tenants can also be difficult. I have one Section 8 tenant in my porfolio, and with the recent run-up in rents in the last several years, the tenant 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 you can achieve and maintain above market-rate rents with all Section 8 tenants is a lie — or at best, a huge exaggeration.
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 5-8%. If an 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, invest $100K and produce $50-$100K in annual cash flow. If this sounds too good to be true, 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 insane rates of return.
But just putting a pro forma on paper does not make it real. None of those three earlier claims are true, which is why the 50-100% CoC isn’t true either.
In fact, I’ve seen this first-hand. When I’ve personally evaluated the properties being offered to Karim’s clients (the two who are now my clients), 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, much worse than that.
Claim #5: We can ALL be Section 8 investors
This might be the BIG lie at the heart of the Section 8 gurus’ claims: that this style of investing is available to ALL rental property owners.
Logically, this just can’t be true. Section 8 tenants represent 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 dive 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 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.
What’s bad is believing the false claims of Section 8 gurus like Karim. And he’s not the only one — there are numerous others such as Tom Cruz, Eric Spofford, and more. The promises they make simply don’t stand up to scrutiny.
Two common life lessons come to mind here that apply equally well to your real estate journey: first, if something sounds to good to be true, it probably is; and second, be careful who you trust.
About the Author
Hi, I’m Eric! I used cash-flowing rental properties to leave my corporate career at age 39. I started Rental Income Advisors in 2020 to help other people achieve their own goals through real estate investing.
My blog focuses on learning & education for new investors, and I make numerous tools & resources available for free, including my industry-leading Rental Property Analyzer.
I also now serve as a coach to dozens of private clients starting their own journeys investing in rental properties, and have helped my clients buy millions of dollars (and counting) in real estate. To chat with me about coaching, schedule a free initial consultation.
