What are the benefits of investing in low-income housing?
You may be thinking about investing your money in real estate and are considering doing so with low-income housing or low-income apartments. The first questions you should address are some benefits of investing in low-income housing and whether it is a good idea.
While many real estate investment opportunities seem to be available in high-rent luxury developments, you should realize there are advantages to investing in affordable housing developments too.
Affordable Housing as an Investment
While not as fancy or flashy as private housing at an initial glance, there are some key benefits you will likely receive when moving forward with investing in low-income housing that you might not have thought about. Here you can learn more about affordable housing and why it may be a wise investment.
What is Affordable Housing?
Those with limited or low income are best suited for affordable rental housing, which offers them an opportunity to live independently. You must qualify as an eligible household to live in housing assistance units.
As defined by the U.S. Department of Housing and Urban Development (HUD) and local housing authorities, those residing in low-income housing must spend no more than 30 percent of their gross income on housing costs and pay utilities.
Who Occupies Affordable Housing?
You may find groups and people such as adult students, college students or international students off campus, seniors and people with disabilities, military service members, or rehabilitation and re-entry programs such as the homeless or recovering addicts living in these rental units.
Why Invest in Affordable Housing?
There is a need for affordable housing options all over the country. Families in cities, towns, and rural areas faced with rising housing costs need a place to live that they can afford. You’re likely to find that a lot of this housing is occupied by seniors with disabilities.
If you review the figures and profitability opportunities that come with investing in low-income housing, you’re likely to discover many upsides, such as profits, that come with doing so.
The Benefits of Investing in Low-Income Housing
There are several benefits of investing in low-income housing to be aware of. For starters, you’ll receive tax credits when a certain percentage of the property is leased to low-income tenants. You’ll discover you get a lot more value for your investment dollars spent since some investors get between 30 and 70 percent in subsidies through the Low-Income Housing Tax Credit (LIHTC).
Profitability of Low-Income Investment Property
Next, it’s a reliable revenue source for you as well, so you’ll make a profit when it comes to your expected gross income. As an investor, you can expect reliable and consistent revenue streams and monthly payments from even extremely low-income developments.
As an investor in low-income housing, you will receive government subsidies, like Section 8, and tax credits. Plus, more people qualifying for affordable housing, means there is not only a steady demand for housing of this nature, but the demand is increasing. Vacancies are easy to fill, and you’ll have consistent occupancy rates too.
Another benefit of investing in low-income housing is that it’s essentially recession-proof. Consumer incomes are impacted during such times, so you’ll notice a decline in people renting upscale properties. But affordable housing is less sensitive to market cycles.
However, the demand for low-income housing only goes up with a recession. Even in a bad economy, you’ll find a consistent demand for affordable housing from new tenants.
Good for the Economy
Finally, there’s the benefit of building community and local economies when investing in low-income housing. You’re choosing to invest in the greater good but also in the general economy, which can ultimately lead to additional positive outcomes on other investments in your portfolio.
Assistance from State and Local Governments
As an investor in affordable housing, you’re likely to have an instant sense of gratification since you’re providing housing to people in need. You’ll also enjoy the security of government incentives that come with building and providing low-income housing. With these governmental programs, you’re guaranteed to receive rental income on time and in full, since much of it will come directly from government assistance.
There’s high demand for this housing choice, and renters in low-income housing usually have a housing choice voucher program to help pay for their rent as part of government assistance.
Pros of Investing in Low Income Housing
While there is great potential profitability in low-income housing investing and building within designated opportunity zones, you must also take into consideration the level of repairs that need to be done before you take on cheap properties to rehab and make available for everyday living.
Other factors to consider include zoning restrictions, costly construction or repairs, adherence to specific guidelines set forth by government agencies, and management issues.
Construction and Rehabilitation Costs
You should always consider that construction and rehabilitation costs will likely be associated with your low-income housing purchase. You may want to consider finding foreclosures instead of new construction since building low-income housing from scratch can end up costing you nearly as much as it does for middle-income residents.
Another challenge for affordable housing property owners is that repairs and other fees can remain challenging. Rents are much lower for low-income housing, so you may find that your rental income is quickly used up with costly repairs, depending on the condition of the property and how much work must be done to modify units. You may also discover that it’s hard to build affordable housing due to some zoning laws and restrictions and grounds maintenance costs.
How We Can Help: Affordable Housing Construction
If you do decide to build, then the construction professionals at Rockford Construction would be happy to step in and help. Our company has provided general contracting work to clients for over 10 years.
Many benefits come with investing in very low-income housing, such as government incentives, the properties are fairly easy to fill, and you’re doing your part in helping to build the community. Therefore, it may be a less risky investment for you overall.
The Rockford Construction team has experience in a wide range of construction project types and developments, including HUD Insured projects, transitional housing, Low Income Family Housing, Special Use Residential Construction, Turnkey Construction Contracts, Urban Infill, and Commercial Projects.