4D affordability program: your experience?

Question

If any of your properties are enrolled in Minneapolis’ 4D program, I would love to hear your experience. The fact the property is locked in for 10 years across new owners intimidates me. I had negative experience with low income renters in the past, fresh data points to expand my mind are much appreciated

1) how has your experience been finding tenants? Quality of tenants?

2) is there a way to back out?

3) are you concerned about a negative impact on property ability to sell while locked into this program?

Jeff Schemmel · Answer

@Cameron Wutzke it can be impactful, but it depends on your rental model, location (rental values), and how much property taxes are for that area and that property before enrolling and when considering purchasing a property that IS already enrolled.  It's worth recognizing the rental rate caps aren't bad!, I don't enroll in 4D, and I get 1500/m for one of my units which is a 2 bed, which I believe is a pretty fair market rate, but my tenants definitely make more than the AMI requirement; which I think is the largest consideration when considering the 4D program.  I wouldn't let it scare you away, but just make sure you call them and really understand it first and factor it into your long-term deal analysis.  There is a N. Minneapolis duplex listed that's enrolled in 4D that's on market right now and reasonably priced at 300k for it being a mid-century side-by-side build; it could be a 1% property even while participating in 4D.  My guess is that it still goes in multiple offers this weekend - but we'll see!Also:

What if I want to withdraw from the program?For owners who want to reduce their level of participation in the program, the City offers an option after five years to approve a reduction in thenumber of units per building participating in the program. However, at least 20% of the building must maintain participation in the program in orderto meet the conditions of the program. Here's some detail:

Affordable housing criteria

Rent is affordable to households making less than 60% of Area Median Income (AMI). Maximum rents for 2022-2023 are as follows:

• Studio/Efficiency $1,233
• 1 Bedroom $1,320
• 2 Bedrooms $1,584
• 3 Bedrooms $1,830
• 4 Bedrooms $2,041
• 5 Bedrooms $2,253
• 6 Bedrooms $2,463
• Single room occupancy (SRO) housing, $739 per bedroom. This includes single room occupancy housing, rooming houses and group homes.

As units turn over, affordable units are rented to households making less than 60% of AMI. In 2022-2023, this means that units must be rented to households making less than the following amounts:

• $49,320 for one person
• $56,340 for two people
• $63,360 for three people
• $70,380 for four people
• $76,020 for five people

Daniel Anshus · Answer

From a sales standpoint this really hinders your ability to sell. I have had many investors pass on buying a property because it was enrolled in that program.