Affordable Housing Investment: High Demand and Growing Returns
Steve Nabity
October 16, 2024
Affordable Housing Investment: High Demand and Growing Returns
Affordable housing is a sub-segment of residential real estate that has been attracting a lot of attention in recent years. By attention, we aren’t talking about political attention or media attention, but investor attention. Yes, it’s possible to make a decent return while keeping rents within limits.
Sounds counterintuitive? Let us dedicate this blog to discussing why the demand for affordable housing is growing, how affordable housing can generate not just returns, but also social impact, what sort of government incentives are on offer, and how Skyline Point Capital can be a platform through which you can invest in affordable housing.
The Demand for Affordable Housing
A shortage in affordable housing has been a core issue for many cities across the US. As per the State of the Nation’s Housing 2024 Report compiled by Harvard’s Joint Center for Housing Studies, rents and home prices that surged during the pandemic era continue to remain elevated.
As per the same report cited above, the number of cost-burdened homeowners and renters is also rising. Cost-burdened owners and renters are those who spend more than 30% of their income on housing and utilities. The number of severely burdened renters, those spending more than 50% of their income on housing and utilities, also hit a new high.
Thus, there is a strong demand for affordable housing, especially in urban centers where economic opportunities are in relatively larger numbers. By the way, we encourage you to check out our post on the Best Cities to Invest in Real Estate in 2024. It covers the metro areas that Skyline Point Capital believes are among the most promising in the US.
Such strong demand for affordable housing presents an interesting opportunity for investors and asset owners. They can potentially gain from stable cash flow, low turnovers, and vacancy rates. There is also a social impact element that we will talk about next.
High Returns and Social Responsibility
For many investors, simply investing to generate a return isn’t enough. The investment philosophy also has to be in sync with their own personal philosophies. Investors who are looking to generate strong returns while also creating social impact within specific communities may find affordable housing properties an interesting option.
Affordable housing properties are real assets. They appreciate in value just like other real estate and generate cash flow just like other rented properties do. Demand for housing has always existed and will, in all likelihood, exist in the future. As urban centers evolve and grow, the demand for affordable housing is poised to remain consistent. So, affordable housing does make a return, which is what any investor would like to see.
However, affordable housing provides investors with an opportunity to create a positive impact on communities through their investments. By providing safe and stable living conditions to those who need it, investors can uplift neighborhoods and help reduce homelessness. They can cultivate a sense of social commitment and purpose while enabling families to grow and succeed. Affordable housing investments can be a potent combination of purpose and profits, allowing investors to achieve their financial goals while helping those in need.
SPC’s Role in Affordable Housing
Investing in affordable housing can be a complex task. It is recommended that you work with someone with experience in real estate investing. More importantly, that person or entity should be adept at identifying and leveraging high-demand sectors to maximize returns for themselves and their investors.
Skyline Point Capital has decades of experience in real estate investing. We have made affordable housing one of our focus areas. We strategically view the affordable housing segment as an important element of our overall portfolio. It has the potential to provide stable and consistent cash flows and the segment aligns with our financial objectives.
We believe that affordable housing not only meets the housing demand in the country, but also allows us to play a role in revitalizing a neighborhood, increasing footfalls for small businesses in the vicinity, and helping sustain a community. Investing in multifamily properties and affordable housing helps us achieve dual goals of social responsibility and financial performance.
Skyline Point Capital recently invested in Cortland Medical Center, a 344-unit multifamily property located in Houston’s Medical Center neighborhood. This property will receive an 85% tax exemption benefit from the Houston Housing Authority for restricting rents on a certain portion of the property to AMI-based rent ceilings. Prior to this investment, Skyline Point Capital also invested in Empire Apartments, a 24-unit property in Fremont, NE. Empire Apartments has a HUD loan insured by the FHA.
(Cortland Medical Center)
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Government Programs and Incentives
The government offers various programs and incentives to support rental affordable housing. There are a dozen different programs providing tax incentives, rental payment assistance, loan guarantees, and grants.
The Department of Housing and Urban Development (HUD) provides vouchers to residents who cannot afford market rents. Government authorities offer various tax benefits to investors and developers who build and invest in affordable housing projects. These tax benefits are generally long-term, generally over 10 years. One popular tax incentive program is LIHTC i.e. low-income housing tax credits.
The idea behind tax benefits for affordable and low-income housing is to make it financially attractive for developers and investors to invest in projects with rent restrictions. Some investors also look for affordable and low-income housing properties that are due to end their rent restriction tenure and become market rate.
There are grants available for affordable housing projects. Certain investors also offer equity investments at relatively favorable terms if the property is low-income or affordable housing. Certain grants can cover elements of the initial project cost which, in turn, can enhance the overall return on investment.
There are also instances where loans with lower interest rates are available for affordable housing properties. This can lower the debt service and enhance operating cash flows. Grants, loans, and tax incentives can help reduce barriers to investing in affordable housing projects. At the same time, they also help promote community well-being and a sense of social responsibility.
(Empire Apartments)
Seize The Opportunity!
In this article, we have highlighted why we believe the demand for affordable housing is strong. We also pointed out how the evolution of urban centers will sustain the demand for affordable housing.
We hope that you now have a basic understanding of how affordable housing can generate returns while also enabling investors to create a positive social impact in local communities. Affordable housing isn’t just about doing social good. It also has the potential to generate strong financial returns in the process. This is a desirable combination for investors looking to achieve their financial goals while empowering those in need to grow in their lives.
We touched upon the strategic view that Skyline Point Capital takes when it looks at the affordable housing segment and its role in our overall portfolio. We also pointed out many government incentives that make developing affordable housing and investing in such properties financially rewarding.
Skyline Point Capital has 50 years of combined experience in business, finance, and real estate. We have created, scaled, and sold businesses. Our real estate portfolio spans multiple states and we have extensively worked with business owners and entrepreneurs who have invested with us to build our real estate portfolio. We encourage you to join the Founders Investor Club to be in the loop on the deals that we are looking to invest in. We also encourage you to schedule a call with us to learn more about real estate investing.
