What Role Do Investors Play In Affordable Housing

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What Role Do Investors Play In Affordable Housing

Dustin Ruff
Minneapolis, MN · Member since 2017 · 40 posts · 70 votes
As housing investors, what role do you play in creating affordable housing? What strategies have you used to avoid raising rents or contributing to gentrification?
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Account Closed
Rental Property Investor · Central, FL · Member since 2016 · 950 posts · 821 votes
7y
Originally posted by @Dustin Ruff:
As housing investors, what role do you play in creating affordable housing? What strategies have you used to avoid raising rents or contributing to gentrification?

I’m an investor and as such my goal is to get market rent for my property.  If I can do that and provide affordable housing by having a Section 8 tenant and the government pay part of it so be it. But I’m here to increase and get bigger pockets, not subsidized someone else. 

You can call me cold and heartless, but you’ll have to call me on vacation because I’ll be there more often then any where else. :)

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  • Thomas S.
    Member since 2016 · 13k+ posts · 12k+ votes
    7y

    Investors are involved in affordable housing the same as any housing. Investors invest to make money. Government and charities create affordable housing, investors take advantage of it assuming they wish to invest in C/D tenants. Your goal is not to avoid raising rents it is the opposite in order to increase income. As for gentrification that is a natural process that is a benefit not a negative.

    If you want to create affordable housing join or contribute to a charity organization don't start a business. Charity and business only go together as a tax deduction. 

    5Reply
  • Dustin Ruff
    OP
    Minneapolis, MN · Member since 2017 · 40 posts · 70 votes
    7y
    @Thomas S. Interesting point of view. Obviously investors invest to make money, but housing isn’t like any other commodity out there. Do you not think you have some responsibility to a community in that regard or is it simply about maximizing your profit?
    2Reply
  • Bryan Devitt
    Contractor · Oxford, MA · Member since 2018 · 807 posts · 745 votes
    7y

    If the neighborhood goes from a B to a C do the tenants stay there and continue to pay me market rent for a B property? Why should anyone feel obligated to do the opposite? 

    3Reply
  • Account Closed
    Rental Property Investor · Central, FL · Member since 2016 · 950 posts · 821 votes
    7y
    Originally posted by @Dustin Ruff:
    As housing investors, what role do you play in creating affordable housing? What strategies have you used to avoid raising rents or contributing to gentrification?

    I’m an investor and as such my goal is to get market rent for my property.  If I can do that and provide affordable housing by having a Section 8 tenant and the government pay part of it so be it. But I’m here to increase and get bigger pockets, not subsidized someone else. 

    You can call me cold and heartless, but you’ll have to call me on vacation because I’ll be there more often then any where else. :)

    7Reply
  • Thomas S.
    Member since 2016 · 13k+ posts · 12k+ votes
    7y

    "Do you not think you have some responsibility to a community"

    Who ? Me personally....No.

    My responsibility is to my tenants. Conditional on them being able to afford my rent. 

    1Reply
  • John Hickey
    Rental Property Investor · Chappaqua, NY · Member since 2015 · 1k+ posts · 947 votes
    7y
    @Dustin Ruff personal responsibility is key in life. Think about give a man a fish/teach him to fish. Not raising rents sounds like you propose to give him a lifetime supply of fish. Do you think that benefits a man? Should the landlord also fill the fridge once in while for the needy tenant? Maybe take the family clothes shopping once in while as well....where does it stop. Benefits seem to get better lately. Free healthcare, free phones, subsidized housing. Q is that working? Do poor people benefit from all the free stuff? You’ll need to raise the rents, The less you raise your rents the more the tenants tear up the apts. that’s my experience. Unless your plan is to be a slumlord.
    3Reply
  • Dustin Ruff
    OP
    Minneapolis, MN · Member since 2017 · 40 posts · 70 votes
    7y
    I’m just curious what everyone’s mindset is. Maximizing profits on housing is inherently different than maxImIzIng profit on some widget. Obviously the market sets the price. Let me ask everyone this... What types of things have you folks seen from cities/government entities that have been helpful for investors while creating affordable housing? And what types of things have been harmful?
    1Reply
  • John Hickey
    Rental Property Investor · Chappaqua, NY · Member since 2015 · 1k+ posts · 947 votes
    7y
    @Dustin Ruff In the past I would try to avoid any kind of housing investment where the local, state or federal gov has much ability regulate. How ever now where I invest the have a rental lic. The city inspects all apts every two years. And they charge for it. Comes out to about 125 a unit for me and a lot of wasted time making sure they get into every apt. This is the same city that has been in the news for having deadly mold in their police and fire stations and city hall is falling down with numerous stories about how the building is partially condemned. What’s the result? I pass along the fee to the tenants in a rent increase. The landlords that’s wouldn’t pass the inspection don’t get them inspected no rhe city has so little resource they don’t enforce the reg so only legit landlords have the lic. Typical great idea from gov that has the opposite effect intended. It does however help me bc many investors are scared/of or avoid dealing with a rental lic/ gov oversIght so it keeps the competition out.
    1Reply
  • Dustin Ruff
    OP
    Minneapolis, MN · Member since 2017 · 40 posts · 70 votes
    7y
    @John Hickey Interesting. So the idea is obviously to make sure units are kept up. Which makes sense in theory but in practice doesn’t work. Maybe it added a couple new jobs for inspectors and a paper pusher. What’s the license portion supposed to be for exactly?
    0Reply
  • John Hickey
    Rental Property Investor · Chappaqua, NY · Member since 2015 · 1k+ posts · 947 votes
    7y
    @Dustin Ruff exactly what you said. Plus it gives them money to hire some people. It works on landlords that are scared of the law. But the really bad ones doesn’t faze them at all.
    1Reply
  • Matthew Paul
    Severna Park, MD · Member since 2013 · 7k+ posts · 7k+ votes
    7y

    What is  " affordable" ?  Who determines that ?   The landlord ? , the tenant ?   the government ? 

    Affordable is in the eye of the beholder 

    0Reply
  • Lee RipmaPro Member
    Rental Property Investor · Prairie Village, KS · Member since 2015 · 2k+ posts · 2k+ votes
    7y
    @Dustin Ruff I fundamentally do not believe it is the responsibility of private citizens to sacrifice income for the “benefit” of others. If affordable housing doesn’t make economic sense for a business that is where tax credits come in. Then suddenly that thing that didn’t make economic sense now does!
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    1Reply
  • Dan H.Pro Member
    Investor · Poway, CA · Member since 2015 · 7k+ posts · 8k+ votes
    7y
    Originally posted by @Dustin Ruff:
    @Thomas S. Interesting point of view. Obviously investors invest to make money, but housing isn’t like any other commodity out there. Do you not think you have some responsibility to a community in that regard or is it simply about maximizing your profit?

     I feel my responsibility is to provide safe, clean housing.  It is not my responsibility to minImize my profit, supplement someone’s rent, or in any other way be responsible to provide low income housing.   

    1Reply
  • Dustin Ruff
    OP
    Minneapolis, MN · Member since 2017 · 40 posts · 70 votes
    7y
    @Matthew Paul Affordable is not difficult to figure out. Especially if you’re really doing your research on your market neighborhoods. You know the demographics. You know the median income. You know the businesses and jobs available. You know all kinds of information that can tell you what’s affordable. Let’s not pretend that we don’t know what affordable for a neighborhood. To not know or to disregard it is either going to be detrimental to your investments or is purely greedy selfishness.
    1Reply
  • Dustin Ruff
    OP
    Minneapolis, MN · Member since 2017 · 40 posts · 70 votes
    7y
    I find it interesting that some folks commenting here think affordable housing is only low income or section 8 or D neighborhoods. We’re all familiar with markets that have become so expensive to live that even middle income earners are priced out. The consensus seems to be that as investors you don’t feel a responsibility to the community as a whole. Yes a responsibility to the individual renting or buying from you, but not the community. Or am I missing something?
    2Reply
  • Jay HinrichsBusiness Member
    Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
    7y

    @Lee Ripma  as Lee stated affordable housing in the private sector is handled with Tax credits.. there are developers who specialize in this asset class..  its hard to crack that nut though

    I tried it in Oregon on the coast with a 120 unit apartment complex I wanted to build.. I needed  back in the day 6% tax credit bonds.. but I could not get them the only ones I could get were 9% and the deal did not work.  and you have to hire experts to put it together Bond councils etc etc. can cost you 100k or more. 

    for us average investors its a non starter.. you need to rely on church groups Habitat .. and in a small way the 

    little Chairty that a few of us BP members started called  aheroshome.org  were we are giving a home away to a first responder free and clear..  that's our way of giving back.. directly. 

    so in short  the govmit  be it city county state federal / and big banks and Bond companies have to lead the charge for affordable housing.

    So take what I face as a small home builder building 30 or so homes annually for fair market prices.

    its rare that we have a parcel that all in buying the land putting in all the UTLS paying for all the permits etc we are less than about 125k before we put one foot on the lot to go vertical.. so in our markets affordable housing is right at 350k and up to 400k. that's as cheap as the private sector can bring a new product to market ( detached SFR).. And still make a profit based on risk and such.. and we could never get the banks to loan us money if we were not making a profit :)

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  • Jay HinrichsBusiness Member
    Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
    7y

    Also in some markets of very high priced real estate like Bay area .. Planning departments can condition new developments and REQUIRE a certain amount of units or homes be for low income. 

    this becomes a negotiation you can get a density bonus for doing this in some areas.

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  • John Hickey
    Rental Property Investor · Chappaqua, NY · Member since 2015 · 1k+ posts · 947 votes
    7y
    @Jay Hinrichs I agree with 99# of what you said I’ve spent almost 15 years in government built housing and there is one thing you can say about It Across the board it’s an abysmal failure. Look at Chicago, NYC to see how gov built housing works. IMO Big things in housing are accomplished one at a time by private sector.
    0Reply
  • Lee RipmaPro Member
    Rental Property Investor · Prairie Village, KS · Member since 2015 · 2k+ posts · 2k+ votes
    7y
    @Dustin Ruff I would basically agree with that. I don’t feel a responsibly to provide housing at below market rents so the “community” can stay the same in any given market. I provide clean, safe, market rate housing. I’m not running a charity. I’m not in biz to subsidIze. The market is the market and people can pay market rate rents or they can move elsewhere. In CA cities especially SF and LA there is rent control which doesn’t allow you to take units to market until someone leaves or you pay them to leave. So then regulation steps in an doesn’t allow a free market to set rental rates. There are opportunities in rent controlled housing because those buildings are artificially worth less than they “should” be. So there can be great upside in these buildings if you’ve got the capital to unlock it.
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  • John Hickey
    Rental Property Investor · Chappaqua, NY · Member since 2015 · 1k+ posts · 947 votes
    7y
    @Dustin Ruff affordable is difficult. Of course I’m construction there are fixed costs that are not going to change based on who your catering to. Is land more affordable? 2x4 insulation, HVac concrete, labor etc? You can make the apts small, finishes like tile, cabinets and counters are a fraction of the cost and that’s what separates luxury from affordable in my area. Location is that same as you mentioned. Margins are thin. I don’t know any “greedy” investors. The successful ones I know are sensible. By Building “affordable” are you talking about getting grants? Builder recently built 45 apts in my area for 15million....affordable I can do the same work for 100k and rent it out at market. But he wasn’t spending his own money. It was public funds. He’s also not trying to hit a number to stay in biz. Good for him take advantage of the gov. Give away expensive stuff for free. But if anyone says that helps anyone but the guys spllitting the grant money up of day let’s go back in 20 years and talk about it. See if it really helped people.
    0Reply
  • Jason D.
    Rental Property Investor · St. Petersburg, FL · Member since 2017 · 3k+ posts · 4k+ votes
    7y
    @Dustin Ruff That's an interesting question that I think about from time to time. As a liberal / borderline Socialist, my personal opinion is that I do feel a responsibility to the communities in which I live and own property. At first, I felt that my political views could hinder my business profitability, because I didnt want to feel like I was putting my profit over everything else. My current feeling on this is that my properties have always been clean, safe, and energy efficient. The way I feel that I contribute to affordable housing is that I am perfectly fine renting to section 8 tenants. There isnt a whole lot that you can do as an investor, other than support programs that enable housing to be affordable, and be a part of those programs.
    0Reply
  • Frank S.
    Specialist · Chicago, IL · Member since 2015 · 870 posts · 345 votes
    7y
    Originally posted by @Dustin Ruff:
    @Matthew Paul Affordable is not difficult to figure out. Especially if you’re really doing your research on your market neighborhoods. You know the demographics. You know the median income. You know the businesses and jobs available. You know all kinds of information that can tell you what’s affordable. Let’s not pretend that we don’t know what affordable for a neighborhood. To not know or to disregard it is either going to be detrimental to your investments or is purely greedy selfishness.

    I would assume you are you saying 25% or 30% of income in C or B areas? Then, do the reverse math at current market price, property taxes, maintenance, renovation cost, etc., and see what a building "should" cost. Then, evaluate the risk and define an "affordable" ROI. It's funny how easy is to blame the landlord for charging more after spending more.

    Without improvements, many areas will remain stagnant and deteriorate.

    What's affordable is not easy to define. It is a very valid question.  Is it what people would like to pay for a 2/1, what they can afford,  or what it actually costs to provide it with a decent return on the risk taken? 

    If 35% to 50% of income vs. rent is not "affordable",  there are a few options,  they could make more money, reduce expenses,  get roommates,  or move.  

    What role do you expect landlords should have? Negative returns? 

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