VX HAUS MARKET OPPORTUNITIES

 

 

9006427087?profile=RESIZE_710xWarren Buffett’s company Clayton Homes, the biggest mobile home manufacturer in the U.S., has continued to profit from high interest rate loans. The Oracle of Omaha has sold low-income Americans the dream of ownership for nearly 20 years, and his investment company Berkshire Hathaway makes money on the loans, since they own the company that Clayton urges its buyers to go through. Many of the people buying these homes are minorities and have helped to fuel Clayton’s $13.7 billion mortgage portfolio.

 

The Breakdown You Need to Know

 

Clayton operates the two biggest mobile home lenders, 21st Mortgage Corporation along with Vanderbilt Mortgage. Clayton finances more mobile home loans than any other lender by a factor of more than seven. CultureBanx noted that in 2105, 72% of black borrowers got their loans from Clayton’s Vanderbilt Mortgage and 21st Mortgage, according to FFEI federal data.

 

They have outsized dominance in the manufactured home market with a 49% share, and where profit margins are greater. Buffett’s Clayton company brought in $765 million in revenue, in 2017.

 

Mobile home loans are similar to car loans because they’re typically classified as personal property, instead of real estate. Interest rates can be as high as 13.5% or more, and like a vehicle, lose as much as half its value in three years. These rates make it hard for mobile-home owners to leverage equity from their purchase in order to buy a traditional home.

 

Capitalizing on Trailer Debt

 

Families who are able to get a loan for their mobile homes generally lease the land on which it sits, a common practice in this industry that can trap people in a cycle of debt. The national monthly average to rent a space in a trailer park is around $250 and can be as high as $600. Trailer parks tend to be built in warmer climates, with Mississippi and Alabama having some of the highest rates of mobile homeownership.

 

If you’re thinking mobile homes are perhaps only for an older demographic you would be wrong. The majority of mobile-home residents, 23% are between the ages of 18 to 29 and have an average household income of $28,400. If that’s not alarming enough, in 2015, the average sales price for a new manufactured double-wide home was around $110,000.

 

There are some mobile home communities attempting to rezone trailer parks, to prevent owners from selling the land to developers that may raise the rent even higher. If residents are able to pool their resources together and buy the park, it would give them the opportunity to run it as a co-op.

Diversify Into Affordable Housing Investing With LIHTC And HAP Deals

When running a multifamily investment and management business, there is no shortage of problems and complications. So why would a multifamily owner welcome more complication such as buying a Low-Income Housing Tax Credit (LIHTC) or project-based Section 8 (Housing Assistance Payments Contract, or HAP) deal?

 

There are many reasons and misconceptions that have led to market-rate investors not considering affordable housing deals. But with the stark realities of the COVID-19 crisis, primarily that over 30 million Americans have lost their jobs as of mid-May, the demand for affordable housing will continue to grow. There are several affordable housing programs that a multifamily owner should have some familiarity with, and the LIHTC is one of the biggest.

 

Affordable housing investments may not work for every owner, but some of them are less complicated than many might think. As one of few investment real estate brokers exclusively focused on the affordable housing space, I’ve been afforded a perspective on how multifamily deals are made in many different forms, from market-rate, unrestricted sales to the most complicated LIHTC deals, where multiple levels of capital financing are joined from multiple government bodies. Let me explain a little bit more about the LIHTC and HAP programs before I dive into misconceptions about this type of multifamily investment.

 

Basics Of The LIHTC

 

The Low-Income Housing Tax Credit was created by the IRS in the Tax Reform Act of 1986 as a tool to create affordable housing. Simply put, the LIHTC is a subsidy to a property developer in exchange for making housing affordable. Some might even call it a form of profitable rent control. Tax credits are allocated to state housing finance agencies to divvy up among pools of potential projects. Developers apply for the credits, which can be monetized to an investor partner for the benefit of the project, in exchange for a promise to keep rents and tenant incomes below a certain level. The baseline for incomes is 60% of the area median income, but there frequently are units restricted to lower levels as well. A developer and tax credit investor make a partnership and commitment to these restrictions for an initial term of 15 years, generally followed by an extended term of at least another 15 years.

 

Using the LITHC to create one of these developments is complicated and difficult. Many multifamily investors have asked my advice on entering the market in this capacity. My advice is don’t do it. Learning how to execute developments using the LIHTC is a full-time business for the vast majority of market participants. If you want to build or renovate housing with the LITHC and have no direct experience, I recommend finding a partner who does.

 

Diversify With Less Complication

 

Many multifamily investors assume that LIHTC properties are frequently sold to developers using a new LIHTC allocation. This is rarely the case. Most states allocate competitive tax credits toward new construction. Pricing and other deal terms for noncompetitive credits are much stronger when a property has a HAP contract. As a result, even experienced LIHTC developers frequently use conventional financing to purchase existing LIHTC properties.

 

After the initial compliance period, LIHTC properties are often sold when the tax credit investor looks to exit their partnership with the developer. While restrictions on rents and tenant incomes are still in place, the IRS can no longer recapture the tax credits in the event of noncompliance. This scenario makes for an opportune time to exit.

 

In many markets, these properties operate more like conventional housing than landlords realize. Tenants pay their rent. There is more paperwork involved, primarily from the process of income-verifying tenants, but it’s nothing that a sophisticated apartment management operation can’t handle. The LIHTC is complicated when used as a financing vehicle. In the event of a sale after the property is developed and operating, buyers will typically use conventional financing. The operation of the apartment building is only slightly more complicated than a market-rate apartment.

 

Project-Based Section 8 (HAP Contracts)

 

While the LIHTC is a subsidy to the developer, HAP contracts are a subsidy to the tenant, allowing a market-rate rent to be paid to the apartment owner. Many landlords are familiar with Section 8 vouchers, which are issued by a local housing authority for tenants to use to pay rent. Tenants can take these vouchers to any property when they are looking for a new place to live. HAP contracts, though, stay with the property. As long as there is a tenant who qualifies, the rent will primarily be paid through the contract. Usually this is a direct contract with HUD, though housing authorities can issue them.

 

There is a limited supply of these contracts and high demand from a niche group of investors. In recent years, our team has observed these niche buyers becoming more selective, making it harder to sell smaller properties (under 100 units) in tertiary markets. This could lead to excellent buying opportunities for an investor willing to roll up their sleeves to make an entrance into the affordable housing market.

 

Making The Jump

 

A qualified multifamily investment broker is a good place to start if you decide to look into these properties. There are a few of us around the country who specialize in affordable housing, but plenty of market-rate apartment brokers occasionally get a lead on a LITHC or HAP deal. Talk to one about what they have seen in the market and where the next opportunity might be.

 

There is certainly more to purchasing and operating a LIHTC or HAP property than what I’ve touched on in this article. Each state has its own agency overseeing the programs, and each has different requirements. Talk to attorneys, accountants, property managers or other investors who have worked in affordable housing. With the right help, it shouldn’t take long to be prepared to act when you see the right opportunity to enter the growing market of affordable housing investment.

 

Forbes Real Estate Council is an invitation-only community for executives in the real estate industry. Do I qualify?

 

 

The Most Disheartening Homeless Veterans Statistics (Editor’s Choice):

 

Almost 40,000 veterans are without shelter in the US on any given night.

The number of vets experiencing homelessness is down by over 40% since 2011.

The leading causes of homelessness among vets are PTSD, social isolation, unemployment, and substance abuse.

Veterans account for 11% of homeless adults in the US.

California has the highest number of vets living on the streets.

https://policyadvice.net/insurance/insights/homeless-veterans-statistics/

 

The Moment To Close The Affordable Housing Gap Is Now: Here’s How We Can Start

https://www.forbes.com/sites/forbesrealestatecouncil/2021/04/28/the-moment-to-close-the-affordable-housing-gap-is-now-heres-how-we-can-start/

Apr 28, 2021,07:00am EDT|511 views

The Moment To Close The Affordable Housing Gap Is Now: Here’s How We Can Start

LIHTCs and PABs are intertwined; to reform one without addressing the other makes for inefficient policy. To establish synchronization, Congress can reform the 50% test and help create an opening for communities to get the affordable units they need. If the current 50% baseline were reduced to 25%, for example, researchers estimate this would help build or preserve more than 1.4 million units of affordable housing over the next 10 years.

Congress recently fixed the value of the LIHTC — which previously floated in accordance with market conditions — at a 4% floor. Experts project that this change alone could help create more than 130,000 units of affordable housing over the next decade.

https://www.forbes.com/sites/forbesrealestatecouncil/2021/04/28/the-moment-to-close-the-affordable-housing-gap-is-now-heres-how-we-can-start/

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Self Sustainable Homes

President Biden Signs American Rescue Plan Act with Nearly $50 Billion in Housing and Homelessness Assistance Mar 15, 2021

U.S. Department of Housing and Urban Development (HUD), nearly 568,000 people in the U.S. were homeless in January 2019.

President Biden signed into law on March 11 the American Rescue Plan Act, a $1.9 trillion coronavirus relief package with nearly $50 billion in essential housing and homelessness assistance, including $27.4 ... Mar 15, 2021 ... These investments will prevent millions of low-income people from losing their homes during the ...

https://nlihc.org/resource/president-biden-signs-american-rescue-plan-act-nearly-50-billion-housing-and-homelessness

Affordable Housing Projects USA marketplace:

The 2020-2021 budget allocates approximately $89 million to provide affordable housing through the HOME program. By state law, 95 percent of Texas HOME funds must serve jurisdictions, mostly rural, that do not receive HOME funds directly from HUD. (CLICKHERE)

References: 

FACT SHEET: Housing Provisions in the American ...– HUD https://www.hud.gov/sites/dfiles/Main/documents/Factsheet_Housing_Provisions_American_Rescue_Plan_Act-2021.pdf

 

Arizona's affordable housing crunch is worsening ... – AZCentral  https://www.azcentral.com/story/money/real-estate/catherine-reagor/2021/04/18/morrison-institute-report-suggests-fixes-arizona-housing-crisis/7231179002/?gnt-cfr=1

2021

Monday, April 12, 2021
HUD Awards $5 Million for Affordable Housing in Tribal Communities in Arizona

Tuesday, April 6, 2021
HUD Allocates Over $11.4 Million for Affordable Housing in Arizona

Tuesday, April 6, 2021
$478,341 to Support Public Housing and Native American Residents in Achieving Economic and Housing Stability in Arizona

Thursday, March 25, 2021
HUD Makes Historic $450 Million Investment to Provide COVID-19 Relief Funding to Native American Communities Across the Nation

Tuesday, February 23, 2021
HUD Awards Almost $10.4 Million to Improve, Preserve Nation's Public Housing in Arizona

Tuesday, January 5, 2021
HUD Announces $10 Million in Capacity Building Grants for Rural America, Including Arizona

 

Atlanta City Council unveils funding priorities for next budget  Tree Protection Ordinance and a new master plan to double the city’s greenspace by 2030 to 10,000 acres. PRINCE GEORGE’S COUNTY, MD  https://www.ajc.com/news/atlanta-news/atlanta-city-council-unveils-funding-priorities-for-next-budget/RWHT7M3P3ZGOVDH4AV3BF6OHBI/

The FY 2021 approved budget for the Department of Housing and Community Development is $114,391,700, an increase of $7,287,700 or 6.8% over the FY 2020 approved budget  https://www.princegeorgescountymd.gov/DocumentCenter/View/29004/Department-of-Housing-and-Community-Development#:~:text=The%20FY%202021%20approved%20budget,the%20FY%202020%20approved%20budget.

 

Governor Hogan Submits $1.08 Billion Supplemental Budget ... https://news.maryland.gov/dhcd/2021/03/17/governor-hogan-submits-1-08-billion-supplemental-budget-focused-on-rental-assistance-higher-education-and-transportation/3

Housing Affordability and Homelessness in Texas  https://comptroller.texas.gov/economy/fiscal-notes/2021/mar/housing.php

FY 2021-22 HUD Consolidated Plan Budget ... - City of Dallas https://hogg.utexas.edu/texas-department-of-housing-and-community-affairs#:~:text=The%202020%2D2021%20budget%20allocates,HOME%20funds%20directly%20from%20HUD.

FY 2021-22 HUD Consolidated Plan Budget ... - City of Dallas http://www.tdhca.state.tx.us/board/docs/books/Item6-21SLIHP-DRAFT.pdf

FY 2020-21 Adopted Consolidated Plan Budget $29.8 million

https://dallascityhall.com/departments/budget/communitydevelopment/DCH%20Documents/FY%202021-22%20NPM%20Briefing_final%201.4.21.pdf

U.S. Department of Housing and Urban Development, Biden seeks to increase HUD’s funding by 15.1 percent, to $68.7 billion https://santansun.com/2021/04/29/biden-budget-seeks-more-affordable-housing/

HOUSING AND HOMELESSNESS. HOUSING. (Approximately $277 million in 2021-22)

http://www.ebudget.ca.gov/2021-22/pdf/BudgetSummary/HousingandHomelessness.pdf

  6000 new units of permanent and interim housing for COVID-vulnerable homeless Californians. The Governor is proposing $750 million additional dollars to continue the Project Homekey this year.

https://baysfuture.org/how-does-the-proposed-2021-california-budget-address-the-housing-and-homelessness-crisis

Missoula to receive $1.3 million more in federal affordable

https://missoulian.com/news/local/missoula-to-receive-1-3-million-more-in-federal-affordable-housing-funding/article_79360888-11d8-51e8-a4b7-17a25eeced6d.html

$150 million: A guide to proposed Portland ... - Oregon Live https://www.oregonlive.com/portland/2021/04/150-million-a-guide-to-proposed-portland-homeless-spending-next-year.html

 

HUD Awards More Than $90 Million for Affordable Housing in Tribal Communities https://www.hud.gov/press/press_releases_media_advisories/HUD_No_21_058

HUD AWARDS MORE THAN $652 MILLION FOR AFFORDABLE HOUSING ACTIVITIES IN NATIVE AMERICAN COMMUNITIES  https://www.hud.gov/press/press_releases_media_advisories/HUD_No_21_033

Utah turns $50 million into $730M for affordable housing, homelessness help https://www.deseret.com/utah/2021/3/3/22311797/2021-legislature-business-leaders-announce-730-million-dollars-for-affordable-housing-homelessness

 

International Affordable Housing News:

Budget 2021 proposes to provide an additional $2.5 billion over seven years to Canada Mortgage and Housing Corporation, including: An additional $1.5 billion for the Rapid Housing Initiative to address the urgent housing needs of vulnerable Canadians by providing them with adequate affordable housing in short order. Apr 26, 2021

https://www.canada.ca/en/department-finance/news/2021/04/budget-2021-investments-will-create-more-affordable-housing-for-canadians.html

UN-Habitat places affordability: 100 million people worldwide are homeless and one in four people live in harmful conditions that to their health, safety and prosperity. https://unhabitat.org/topic/housing