Affordable Housing Investment - Maxwell Drever Explains The Existing Challenges

Currently, the affordable housing industry vertical is a challenging real estate domain. And a crucial factor that contributes to this obstacle is the housing market. As conventional renters focus more on their credit score, financial situations, and other vital factors, most affordable housing renters can't maintain similar standards.

Maxwell Drever points out that in the low-income housing community, several tenants possess earlier evictions or poor credit in their records.

The Current Price Changes And The Cap Rate

There are cycles in each market, and the same applies to real estate. Currently, the Class D and Class C properties get sold at a 5-6 cap rate. According to an article published on May 2nd, 2021, the median home costs increased 20% every year and insinuated the foundation for the bubble. The fund availability and reduced interest rates on the loans are vital factors that led to the housing price increase.

The principal issue is that the industry cap rate is fluctuating, and it highlights the business risk. Low-income housing comprises property upkeep, cash flow risks, security and taxes, materials maintenance, and many more. All this doesn’t make the 6% cap rate acceptable. The other factor which adds to the bubble is the new players that have ventured into the market. For instance, huge insurance funds and large pensions looking for a new start to investment funding and investment capital on Class D and Class C property, which usually have increased returns instead of conventional investments, are posing a risk on the system.

The Scene Before The Pandemic

Maxwell Drever says that before the COVID-19 outbreak, the affordable housing investors had managed all their property. They also micro-managed their management company. Today, the management organizations are enormous winners, maximizing the portfolio from the investors having access to the funds. They don't access the affordable housing risk appropriately. For instance, before the pandemic, over 20 multifamily properties were up for sale in certain areas. And according to the April 2021 update, there was hardly any single property. It gives rise to new challenges and risks in a market that’s laden with risks and challenges.

Additionally, affordable housing is a crucial sector in America. Based on the Census Bureau's research in 2019, over 25% of American households have low-income income, which generates less than $35,000 annually. Also, one in every four households in America resides in affordable housing. People with a low income live in poor conditions. Hence, affordable housing is crucial for societal development, and it can effectively generate a stable foundation for children and adults so that they enjoy a better future. But if it gets neglected and mismanaged, it will increase the crime rates. It will also bring down the rate of tenants and profitability and displease the management.

Hence, to arrive at the correct balance of community improvement and business objectives, the developers and investors should consider every factor that comprises the concerned properties' base price. One can attain balance by hearing what the community says and creating a renting process surrounding it.

Post a Comment