Affordable Housing: A Viable Option to Store Money In Uncertain Times
In today’s volatile economy, it’s more important than ever to find safe and reliable ways to store your money. Affordable housing investments are a great option for investors who are looking for a way to protect their capital and generate passive income.
Why Affordable Housing Investments Are a Smart Move
There are several reasons why affordable housing investments are a smart move:
- High demand: Affordable housing is in high demand and is likely to remain so for the foreseeable future. This is due to a number of factors, including rising population growth, increasing urbanization, stagnant wages, and a shortage of affordable housing units.
- Appreciation potential: As the demand for affordable housing continues to grow, so too will the value of affordable housing investments. This means that investors can expect to see their investments appreciate in value over time.
- Steady income stream: Affordable housing investments can provide a steady stream of income through rental payments. This can be a valuable source of passive income, especially during times of economic hardship.
- Tax benefits: The numerous tax benefits available to investors who invest in affordable housing. These benefits can help reduce the overall cost the investment while simultaneously increasing the (roi) return on investment.
How to Invest in Affordable Housing
Here are a few tips for value-add residential real estate investing:
- Develop affordable housing: This involves building or partnering with developers to build affordable housing units. This can be a capital-intensive investment. This will require advanced knowledge of developing real estate or investing in public or syndicated investment deals. Either option will provide substantial and long-term returns, but the timeline to receiving cash flow will be delayed until the development is operating.
- Fixing and flipping current housing: A fix-and-flip strategy involves purchasing existing single family and multi-family homes, renovating them, and adding additional units. An example is converting a single family home into a duplex, or triplex. This can be a great way to create more affordable housing units and generate a profit at the same time. The advantage in this strategy lies in the timeline to cash-flowing return being less than ground-up developments, and the demand for this type of housing satisfies the current high demand and low supply for mixed age, inter-generational, or co-living housing a.k.a Missing Middle Housing. It is important to do your research when employing this strategy to ensure your purchasing properties at the right location, price, and renovating them within fixed costs to generate the return desired.
- Using a buy-and-hold strategy with homes you already own. If your property is in a good neighborhood and is in high demand, the ability to lease your property to generate additional cash flow by employing a pad-split, mid-term rental housing, co-living, or house-hacking strategy can increase your cash flow by 2-3x more cash flow than could be obtained than traditional rents for the entire unit. This involves renting out individual rooms in your home or converting a single-family home into a multi-family home. This can be a great way to generate additional income from your existing property.
The following research data supports the validity of the market holding or increasing the value of money invested in affordable housing:
- A 2023 report by the National Association of Realtors (NAR) found that the median price of an existing single-family home in the United States increased by 10.5% year-over-year. The report also found that the median sales price of an existing single-family home in the United States is now $440,300.
- A 2023 report by the National Low Income Housing Coalition (NLIHC) found that there is a shortage of 7.4 million affordable and available rental homes in the United States for extremely low-income renters. The report also found that the average renter earning the minimum wage would need to work 115 hours per week to afford a two-bedroom rental home at fair market rent.
- A 2023 report by the Urban Institute found that the number of Americans who are cost-burdened by rent has increased by 3.1 million since 2010. The report also found that the number of Americans who are severely cost-burdened by rent has increased by 1.9 million since 2010.
Affordable housing investments are a smart way to store your money in a volatile economy. They offer the potential for high returns, a steady income stream, and tax benefits. If you’re looking for a safe and reliable investment, affordable housing is a great option to consider.