The amount used by the PHA to calculate the maximum housing subsidy for a family before deducting the family's Total Tenant Payment.
Section 8 Landlord Blueprint • Lesson 4
Payment standard is not the same thing as your rent.
This is one of the most important concepts for a prospective Housing Choice Voucher landlord to understand.
Payment standard, rent to owner, utility allowance, gross rent, tenant payment and HAP are different numbers. If you mix them up, your property analysis can be wrong before you ever buy the house.
Never buy a property based only on a Housing Authority
payment-standard chart.
Learn the Numbers
Six numbers determine how the rent calculation begins.
If you understand these numbers separately, the Housing Choice Voucher rent calculation becomes much easier.
The monthly rent payable to the landlord under the lease for the unit, including housing services and owner-paid utilities required under the lease.
The PHA's estimate of reasonable utility costs that the tenant is responsible for paying.
The total housing cost used for the voucher calculation.
Rent to Owner + Utility Allowance
Commonly called TTP. This is the minimum family contribution toward rent and utilities calculated under program rules.
Housing Assistance Payment. The voucher subsidy calculated by the PHA.
Start Here
Gross rent is not always the same as the landlord's rent.
If the tenant pays utilities separately, the applicable utility allowance is added to the rent to owner to calculate gross rent.
Gross Rent Formula
Rent to Owner + Utility Allowance = Gross Rent
If all applicable utilities are included in the landlord's rent,
the utility allowance may be zero and gross rent may equal rent to owner.
Tenant Pays Utilities
Rent to Owner: $1,650
Utility Allowance: $150
Gross Rent: $1,800
Owner Pays Applicable Utilities
Rent to Owner: $1,800
Tenant Utility Allowance: $0
Gross Rent: $1,800
Payment Standard
The payment standard is a subsidy calculation number—not a promised rent.
PHAs establish payment standards for the voucher program. They can vary by bedroom size and, depending on the jurisdiction, by geography.
BR
Bedroom Size
Payment standards are generally organized by unit size, such as one-bedroom, two-bedroom or three-bedroom.
ZIP
Geography
In SAFMR areas or other approved payment-standard areas, location can affect the applicable payment standard.
PHA
Local PHA
The PHA serving the property establishes and administers the applicable payment-standard schedule.
Street Smart Rule
A $2,000 payment standard does not automatically mean
the landlord gets $2,000 in rent.
The proposed rent must still be supported by the property,
utility arrangement and rent-reasonableness determination.
Rent Approval
The PHA must determine that the proposed rent is reasonable.
The landlord proposes the rent. The housing authority does not simply approve it because it is below the payment standard.
1
Landlord Proposes
You submit the requested rent for the actual unit.
2
PHA Compares
The PHA evaluates comparable unassisted rental properties and relevant unit characteristics.
3
Rent Is Determined Reasonable
The approved rent must satisfy the applicable rent-reasonableness requirements.
Investor mistake to avoid
Finding a payment standard online and multiplying it by 12
is not a reliable way to project annual property revenue.
You need the actual property's expected rent,
utility responsibilities and local rent-reasonableness information.
Tenant Contribution
Total Tenant Payment is the family's minimum contribution toward housing cost.
TTP is calculated by the PHA under HUD rules using household income and other applicable program factors.
Adjusted Income Matters
One component of the TTP calculation is generally 30% of monthly adjusted income.
It Is Not Always Simply 30%
HUD's TTP calculation also considers other statutory calculations such as percentages of monthly income, minimum rent and, where applicable, welfare rent.
The PHA Calculates It
The landlord does not independently decide the family's Total Tenant Payment.
Do not build your investment model around a $0 tenant payment assumption.
A particular household may have a very low tenant contribution
depending on its circumstances, but you should not assume
every future tenant will have the same TTP.
Housing Assistance Payment
Now we can calculate the voucher subsidy.
HUD calculates the HAP using the lower of the applicable payment standard or gross rent, then subtracts the family's TTP.
Simplified HAP Formula
Lower of Payment Standard or Gross Rent − TTP = HAP
The actual payment to the owner may also be affected by
tenant-paid utilities and any utility reimbursement due to the family.
Street Smart Example
Put the numbers together.
This example is for education only. The PHA performs the actual calculation for a real household and unit.
Example Property
Rent to Owner
$1,650
Utility Allowance
$150
Gross Rent
$1,800
Applicable Payment Standard
$1,800
Illustrative TTP
$500
Calculate HAP
Lower of Payment Standard or Gross Rent
$1,800
Minus TTP
− $500
Illustrative HAP
$1,300
With a $150 tenant-paid utility allowance, the remaining family housing contribution in this simplified example accounts for both tenant rent and the tenant's estimated utility responsibility.
Follow the Money
Gross rent is not necessarily the check the landlord receives.
Keep housing cost, subsidy and landlord revenue separate in your analysis.
Tenant
Pays the required tenant rent to the landlord and pays tenant-responsible utilities.
→
Landlord
Receives the rent to owner through the applicable tenant rent and PHA housing assistance payment.
←
PHA
Pays the applicable HAP to the owner. In some cases, part of assistance may instead be a utility reimbursement for the family.
What If the Property Costs More?
Gross rent can be higher than the payment standard.
A payment standard is not necessarily a hard rent ceiling. But if the gross rent exceeds the applicable payment standard, the family generally has to absorb the difference in addition to its TTP.
PS
Payment Standard
Suppose the applicable payment standard is $1,800.
GR
Gross Rent
Suppose the property's gross rent is $1,900.
+$
Extra Family Share
The family generally bears the amount by which gross rent exceeds the applicable payment standard, in addition to its TTP.
Initial lease-up protection
When a family initially leases a unit whose gross rent exceeds
the applicable payment standard, HUD limits the family's share
under the applicable initial-occupancy rule.
That is another reason a landlord should let the PHA perform
the actual affordability calculation rather than assuming
the tenant can simply pay any difference.
Utility Allowance
Who pays the utilities can change the rent calculation.
A utility allowance represents the PHA's estimate of reasonable costs for utilities or housing services the tenant is responsible for.
E
Electricity
Tenant responsibility may affect the applicable utility allowance.
G
Gas / Heating
Heating source and responsibility can affect the allowance.
W
Water / Other Services
Applicable tenant-paid housing services may also affect the utility allowance under the PHA's schedule.
Investor Lesson
Two properties charging the same rent to owner can have
different gross rents if their tenant utility responsibilities differ.
Always obtain the current utility-allowance schedule
from the PHA serving the property.
Geography Can Matter
Payment standards may change from one ZIP code to another.
Small Area Fair Market Rents—SAFMRs—use ZIP-code-level Fair Market Rents rather than one metropolitan-area-wide FMR in applicable areas.
ZIP
ZIP Code
Location can affect the FMR framework used for the PHA's payment standards.
PHA
PHA Policy
Verify how the specific PHA establishes payment standards for the property address.
$
Property Analysis
Do not apply one citywide number to every property without checking the actual payment-standard area.
Street Smart Underwriting
What number should the investor use?
Do not automatically use the highest number on the PHA chart. Build your revenue assumption from several pieces of evidence.
1. Market Rent
What are comparable unassisted properties actually renting for?
2. Payment Standard
What payment standard applies to the property, bedroom count and geographic area?
3. Utility Allowance
Which utilities will the landlord pay and which will the tenant pay?
4. Rent Reasonableness
What rent can the actual unit reasonably support based on comparable unassisted units?
5. Property Expenses
What does it cost to own and operate the property?
6. Acquisition Price
What purchase price makes sense after realistic revenue and expenses are calculated?
The Street Smart Method
Revenue does not tell you what a property is worth to you.
Revenue minus expenses, reserves and financing tells you
whether the deal produces the result you require.
Call the Housing Authority
Before underwriting a property, ask the PHA these questions.
Payment Standards
“What is the current payment-standard schedule for this property address and bedroom size?”
SAFMR
“Does this property fall under a Small Area Fair Market Rent or other special payment-standard area?”
Utility Allowance
“Which utility-allowance schedule applies to this property?”
Rent Reasonableness
“How does your agency determine rent reasonableness for a proposed unit?”
Rent Increases
“What is your procedure for requesting a future rent increase?”
Landlord Packet
“Where can I obtain your current landlord packet, forms and written policies?”
Section 8 Landlord Workbook
Put the rent numbers into the property analysis.
The SSBS Section 8 Landlord Workbook helps you organize:
- Payment standards
- Market rent
- Utility assumptions
- Property expenses
- Renovation costs
- Financing
- Cash flow
- Acquisition-price analysis
Fillable digital workbook.
Ask Luna
Have rent numbers you are trying to understand?
Luna can help you organize your research and understand the terminology used in payment-standard and HAP calculations.
Official Sources
Verify the actual numbers before you buy.
Payment standards, utility allowances and local PHA policies can change. Always verify current information for the actual property.
HCV Guidebook
HUD's Housing Choice Voucher Guidebook includes current guidance on payment standards, HAP, leasing and rent reasonableness.
Small Area Fair Market Rents
Review HUD's SAFMR information and current ZIP-code-level resources.
Verify Locally
Obtain current payment standards, utility allowances and landlord procedures directly from the PHA serving the property's address.
Section 8 Curriculum
You now understand the basic rent calculation.
The next lesson will go deeper into SAFMR and why two ZIP codes in the same metropolitan area can produce very different payment-standard economics.
Property Inspection
Review property inspections, deficiencies and landlord preparation.
Section 8 Landlord Hub
Return to the main Section 8 curriculum.
Side Hustle Library
Explore the SSBS collection of practical side-hustle blueprints.
Lesson Four Complete
Do not confuse the biggest number on the chart with your rent.
Verify the payment standard. Verify the utility allowance. Understand gross rent. Understand HAP. Verify rent reasonableness. Then use realistic revenue when analyzing the property.