Affordable Housing Construction

11 Replies

Hello BiggerPockets Family,

I have been on the site for a while but have never pulled the trigger on buying a property, mainly because I couldn't decide on a niche or what direction I wanted to go. However, I glad to say that I think I have finally found my calling.

I've been doing research on Affordable Housing and in my opinion we are headed for a crisis. This is something I am seeing first hand in the Atlanta market.  So, I plan on developing affordable housing units. This would include SFRs, townhomes, multi-family, etc.  I would develop the property from start to finish ( buying land- completion of the building).  I know this is a great undertaking for someone starting out, but I believe in the purpose and there is a definite NEED. I'm not just talking about Section 8 housing either. I am looking to cater to a particular market at a certain price point within city limits and neighborhoods where gentrification is taking place and displacing long time residents.

I would love to hear from anyone who is currently operating in the affordable housing space. Builders, lenders, agents etc.  How are you funding your deals? If you are receiving grants, what is the process like? Dos & Don't? Success stories, etc. All feedback is greatly appreciated.

Based on my experience, you can not build affordable housing and expect any cashflow.  But, check on section 42 properties(if they are still around).  It is a tax credit deal that will offset taxes on your other profitable properties.  But, the new pending tax code may change that also.

@Greg Parker Thanks for the response. I've heard this before. What about spec builds? Building SFRs and then selling them. Any experience with this?

Yes, I have built several in the Montgomery area, but the only way I have found to make money here is in the larger custom homes. The big builders have the market wrapped up in SFR affordable. They have a small margin of profit and some of that comes from the land development. And, they have volume deals with the Realtors. They work all of their deals in volume; suppliers, subs, agents. But, one way you can profit in the gentrification outskirt areas is to find old vacant lots that can be bought dirt cheap and build a small house there, and buy vacant run-down houses and have the fire department do a practice burn, haul off the debris and build a small house there.

@Canesha Edwards This is a pervasive problem here in the South.  In many areas, the cost of even basic new construction is not affordable for the average resident. This causes the market value of existing homes to drop significantly below what it cost to build them and for land value to approach zero.  The result is often becomes uneconomical for owners to renovate, repair, or maintain existing housing stock, or even pay property they don't.  A vicious cycle ensues.

A related issue is that the market for mortgages under $100,000 is very shallow.  Because of the fixed cost involved in originating, underwriting, and closing a mortgage (~$5,000 or so), few lenders are interested in issuing mortgages in the $50,000-$75,000 range - it's not profitable.  In areas where the typical home costs less than $100,000, would-be buyers are often relegated to non-mainstream financing like lease options and contract for deed.  Or they have to rent from landlords who could afford to buy with cash.

I see what you see here in Atlanta, and I admire what you are trying to do...but it may be hard to make the math work on new affordable development.  Of course this all depends on what you mean by "affordable."  

interested to hear if anyone has used some of the modular home options for duplex design or smaller single family homes...there is a contractor crisis that exists in our area where the few that are left, work on the higher end projects in the high tourist area, really eliminates any affordable stick built housing by local contractors.  Am interested if anyone has purchase any modular (not manufactured) housing to fill the gaps that exist for lower cost housing, (which in our area, probably is in the $100-$150,000 range.   There is sure a need for student (type) housing, but more for seasonal workers...which has resulted in small mom-pop motels being purchased for housing, (inc, the good and the bad). 

Certainly a housing crisis in our area of Northern Michigan and lack of affordable land development due to scarce infrastructure, a city with no surplus funds....and a county with no housing authority and certainly no developers waiting in the game.

Ok, basically I get exhausted with this but as a business owner, REALTOR and member of a new small housing authority and economic alliance,  I'd like to think I could make a difference.   

I am so pleased that people are talking about affordable housing!  There is a lack of this type of housing in Washtenaw County, Michigan (Ann Arbor, Ypsilanti, Saline, etc).  All the developers are building luxury homes that the average person cannot afford (nor does he want to).  It's unfortunate that the smaller profit margins are driving developers (even flippers) away from modest home projects.  I work as an agent, landlord, and flipper, and I hear every day of people looking for more affordable housing.  In fact, I just lost a client to Cleveland where she will be renting a very cute home for significantly less than in my area. My portfolio of rental houses is consistently full because my tenants want to stay due to the decent quality of my homes and the reasonable rent rate that I charge.  I think investors need to step back and see their role in the larger picture of our local economy.

@Canesha Edwards I am having luck with creating additional dwelling units at existing properties - carving off a few rooms, building a casita out back - that sort of thing. This creates a modest priced rental and / or gives owners a way to supplement their mortgage payment (I'm a flipper - not a holder). 

@Cheryl Schlehuber. I have looked into modular homes but I am finding that all the other fees (site prep, shipping, finishing, etc) on top of the price of the house isn't much different than a traditional build. If you're able to cut cost here, then the margins will be great. 

@Teri S, that is very creative. I never thought about doing this. What are you seeing in terms of cost by adding the extra space? 

I'm no expert on the numbers, but what I've been told is pricing for materials and site prep, etc. makes modular comparable to stick, but it's in the labor that you make up the margins.  Sounds logical, but maybe someone else can confirm/deny.

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