Finding low income housing opportunities are very easy to find in almost every city and town. Rentals are a big business and one that every investor looks for. The rental business is the one business that will never be bankrupt as people will always need a place to live. With the foreclosure market still here and no signs of it leaving for awhile investing in low income housing is a very smart move.
What is Low Income Housing?
Even today a family of four living in the District of Columbia, on an income of approximately $1837 a month would be considered low income. It is almost impossible for people to survive in today's society on such funds. When you consider the cost of maintaining a used automobile and supplying it with gasoline, insurance and repairs as one of the major expenses. Besides the car there is school cost for the children or the more difficult cost of college for older young adults.
Funny how money use to go a lot further just a few years ago. Now with having even to pay $600 monthly or more for rent plus utilities could bankrupt some families. The cost of food has skyrocketed in the last years with many homes not being able to afford fresh fruit anymore.
So to offer low income housing would not only be a smart investment, but one that brings much satisfaction in helping the less fortunate. Years ago low income rentals would of been in the low $200 range but not anymore. Finding a rental in that range has long gone and not even a room by itself goes for that price anymore.
Where Can You Find Low Income Housing?
Every city has low income housing. Looking for low income housing merely means looking in areas of town that are less desirable than the main hub of town. In the best areas of town there will always be the occasional building which needs repairs to bring it up to standard, but for an investor to invest large sums of money in a building does not make good sense. One rule of thumb for most investors is to use as little cash as possible in any investment.
When doing a net sheet, making a 25% net gain is considered a good investment. So when looking for a good investment in a low income area, only look for homes where the net gain is 25% and one that includes all repairs. Many first time investors will buy in low income areas and they are not represented properly with a qualified season agent. These agents do not have enough knowledge to write a proper net sheet.
This reminds me of the scams in Florida years ago where the agents were contacting veterans to buy rentals in Florida and allowing the agents to manage the properties. The ideal was that the low income homes were so cheap that they could be rented out and the veteran had to put zero down on the investment. The agents were not disclosing the full cost of managing the home with upkeep, utilities, repairs and anticipated vacancies. The veteran was only told of the mortgage payments minus the rents.
In low income areas, the investor must allow a minimum of a 25% vacancy allowance, as does the bank. When qualifying for a loan on rental property, the bank will allow the borrower to use 75% of the rents towards qualifying. So the banks are anticipating also a 25% vacancy possibility.
Financing Low Income Housing:
When the prices are lower of course they are easier to finance. The investor has less money involved and a lower payment each month. So when finding a mortgage, use as little money and get the best deal. That is why many investors will take out variable rate mortgages to get the lowest points on the mortgage and have a lower payment for the first few years. Financing a building is a big variable in the price of the home. If the building is dilapidated or in need of repairs, most mortgage companies will want the repairs done prior to the closing of the deal.
When purchasing a low income housing unit make sure that due diligence is use in the apartment building or home that is purchased. Find out about each tenant currently residing in the home. Make sure all lease contracts are deposited in escrow along with all deposit money. Research to make sure that the tenants are current on their rents.