How CRE Investors can Earn Profits from Affordable Housing?

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Affordable housing for years has been a constant crisis for the country. As per the reports, about 7.2 million homes are required for low-income families. However, in their report, the National Low Income Housing Coalition found approximately only 36 available and budget-friendly rental homes for every hundred extremely low households. When you search for housing in the 50 metro market, the numbers worsen where only 14 available and affordable homes can be found for 100 families.

In the past years, the citizens and the policymakers asked the federal government for support using the taxpayer dollars for funding government programs that help affordable housing options. The solution aims to bridge the gap, which, however, with every passing year, continues to widen. The long-term key herein is finding individual corporations and investors who work with government agencies while using the business models to provide long-term affordable housing.

Although it might seem impossible to earn a profit from these housing options at first instance, there are always ways investors can put their money in the sector and still make a profit. Here are the details of the same.

Utilize existing programs

Some multiple existing Acts and programs serve as an incentive for the investors to develop affordable housing includes.

•          Tax benefit

In the year 2017, the Tax Cut and Jobs Act introduced opportunity zones. One of those great examples shows how powerful tax initiatives can be used to direct private capital into the desired market. The program offers numerous tax benefits for investors. This has led to an increase of over 88 opportunities owned funds focusing on developing and providing affordable housing opportunities across the nation.

This is not the only tax incentive program that focuses on affordable housing. Certain states are coming up with tax-based incentives to motivate private investors to create more affordable housing opportunities. For instance, in St. Paul, Minnesota, there is about a 40% tax break for investors who use at least a fifth of the building units for the lower-income tenants for ten years and follow specific rental rate requirements according to the income. California is yet another great example that offers developers lands for free, which values around $10 million to develop about $52 million affordable housing projects.

•          Government bonds

Bonds are also an excellent means for the local cities or states to provide investors with an incentive to develop affordable housing. The government-issued bonds reduce the cost of development for the affordable housing projects that subsides their operating cost.

 This strategy places the repayment burden on taxpayers but not the developers. Such transactions might be costly as developers pay between 5% to 6%  in the bond fees. The opportunity makes complete sense when the development project investment value is over ¢5 million.

•          Subsidy rentals

While the two options mentioned above are for the large-scale developers and investors, the small-scale commercial real estate investors too can participate in the initiative and gain profit. The Housing Choice Voucher Program allows the landlord to put out the private property for rental to approved tenants and receive the entire rental rate as per the market value in the form of subsidy.

•          Tax credits

In 1993 the low-income housing tax credit made it a permanent law to provide investors with a dollar for dollar reduction in their tax when providing funds for developing affordable rental housing. The tax credits herein for offering a subsidized house will be repaid in over ten years as annual allotments.

By reducing the cost upfront for development projects, offering tax initiatives, lower rental rates, tax credits, etc., the government is motivating the investors to take a step and invest in affordable housing.

Seek long term impactful solutions

It is quite critical for developers and investors to have a clear idea about the needs of low-income families. Although it might sound great to tear down old public housing projects to replace them with new mixed-income housing projects, this approach results in less affordable housing units.

There was a government-backed program initiated by Bill Clinton aimed to restore and offer a better quality of affordable housing options. As a result, about 220,000 public housing units between 1990 to 2008 were demolished, but only 60,000 mixed-income units were developed as replacements. The mixed-income units are aimed to reduce crime and offer better quality housing in the more geographically developed areas of the city. But the number of accommodations available for the low-income households and the allotted income projects must be the same as the number of affordable properties destroyed for the project.

The developers must understand what the social impact solutions can be offered in affordable housing development projects to benefit the residents, firstly those with social service. Most affordable housing projects are located in highly concentrated areas with low-income earners where facilities, schools, and services are easily accessible and of lower quality. Providing certain facilities on site like daycare, grocery stores, healthcare facilities, etc., will help improve the quality of the community and reduce the stress issues that can arise in public housing projects.

Positive social change with profit

The requirement for affordable housing isn’t going anywhere. In fact, as per the statistics, there are no statistical differences in the neighborhood values in areas established newly. Affordable housing projects by offering better and higher quality housing and services at fair rates help increase opportunity for the community. This further improves the success and productivity of the area as a whole. Numerous investors can participate in the initiative without jeopardizing their end goal.

A significant concern about investing in affordable housing is the quality of the tenants or the challenges that can arise if they break the lease. However, the issue applies to any tenant. To reduce the risk, the landlord can conduct thorough background checks.

If considering investing in affordable housing, it will be better to research well about different programs available. It’s an excellent way to start locally by looking at the municipality or state existing programs aimed at coming up with affordable housing. They will likely offer some sort of tax credit for financing programs to developers and landlords who strive to provide long-term affordable housing solutions.

Conclusion

The affordable housing projects are aimed at helping low-income families reside in a good space with their families. Suppose you consider taking the initiative to invest in affordable housing. In that case, it will be better if you have a clear idea about the real opportunities and the benefits the government will offer. For this, you can consider contacting a professional company like Private Capital Investors to get assistance. The professionals will ensure you know in detail about the entire available opportunities and benefit from your investment. In addition, they have experienced professionals who can guide you about the whole process and bring forward deals and offers that can be highly beneficial for your investment portfolio while ensuring you do something good for society. So contact the company to get the help you need.

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