Affordable Housing: Where Investors Find Opportunities to Rebuild Communities
Investors are finding opportunites in affordable housing.
Our blog brings you a simple, practical approach to investing in real estate. It appears on the first Saturday of each month.
Right now, investors are finding out which real estate holds up best in a recession.
Investors in offices and retail stores are suffering, as businesses close their doors due to COVID-19.
How are investors in residential real estate doing? Here’s a key insight:
In a downturn, it stays more stable than other types of real estate. “Affordable housing” is housing for which occupants pay no more than 30% of household income for housing and utilities.
Why Investors Prefer These Housing Opportunities
Compared with conventional housing, affordable housing offers:
- Higher occupancy rates
- Lower credit losses
- Regular cash flow
- Values that hold up better.
“In previous recessions, we have seen rents more stable in affordable housing,” Jonathan Needell, president of KIMC, told GlobeSt.com. “Traditionally, LIHTC [low-income housing tax credit housing] also has lower credit loss and high occupancy through a recession.
“In the Great Financial Crisis, LIHTC was 97% occupied. Market rate occupancy was 91%. The gap in occupancy is usually that this housing is 3% to 6% higher during a recessionary period.”
“With more stable rents, this type of housing is usually a safe haven, not only for income production but also for value.”
Based on our experience, choosing the right affordable housing in Nashville can provide a safe haven for investors. Here are 3 reasons why real estate investors seek out affordable housing to invest in:
1. GROWING DEMAND
Many people can’t work due to COVID-19. Unemployment is high: 13.3% nationally, and 11.7% in Nashville.That means people are seeking lower rents – increasing demand for affordable housing.
2. STRONG NEED
It’s hard to find this type of housing in the Nashville area. Median household income is $54,492. Seven out of ten households need “affordable” or “workforce” housing, based on their income, notes WKRN. Affordable housing may qualify for Section 8 rent subsidies or tax credits.
3. HEALTHY MARKET
Nashville-area home sales grew 7% in 2019, said the Greater Nashville Realtors.Nashville home values grew 5.1% from 2019 to 2020, almost twice as fast as the U.S., according to Zillow’s index. Since 2015, median home prices in Nashville have grown 55% from $186,000 to $289,142 today.Nashville’s demographics are favorable. The average age of a Nashvillian is about 33 years old, compared with an average age of 40 years for all Americans.
Here’s a picture of housing values in Nashville, from Zillow:
Today, interest rates remain at record lows. But banks are making fewer mortgage loans.
That spells a funding opportunity for private real estate investors, since buyers still need loans. Alvernia enables investors to provide financing for this type of housing.
In our next blog, learn more about how to make well-informed choices about investing in real estate.