The Department of Housing and Urban Development has long offered grants for the rehabilitation of existing low to moderate income rental housing. The programs are usually passed through State Housing Development Authorities and administered by municipal Community Development Departments or Community Development Corporations (CDCs) formed by a local non-profit collaborative.
The programs have varied over the years but most of them have offered various amounts of matching funds to landlords who would agree to maintain a property as rental housing targeted to low to moderate income families for periods of up to ten years.
In 1990, Congress passed HOME, an Act that authorizes the HOME Investment Partnership Program. It provides funds for a variety of housing activities, including rental housing rehabilitation, new construction, home ownership assistance, rental assistance and housing for the handicapped. Congress also created valuable tax credit incentives for the rehabilitation of historic buildings. Read the "Historic Buildings" tax act. For a outline overview of the program, visit: FEDERAL TAX INCENTIVES FOR HISTORIC REHABILITATION.
Real world example. Several years ago a young man named Don purchased a two family rental property. (For no money down.) The property had several deficiencies, including high maintenance and old fashioned windows with removable storms and screens. It also had one hot water heating system serving both units. That meant that the landlord had to include heat in the rent, with little incentive for tenants to hold down costs.
There was no doubt that the highest and best use of the property would continue to be as rental housing. It was also located in an older section of town populated by mostly low to moderate income tenants. The property was an ideal candidate for a government rental rehabilitation program. The program in place at the time offered the following:
- Matching funds of up to $5,000 per unit for two bedroom housing.
- Section 8 rent subsidy certificates for the existing tenants in the event they would be unable to afford the new market rents the property could bring after rehabilitation.
The program required:
- That the landlord have, or be able to borrow, his matching funds. ($10,000.)
- That the rehab had to be done by a state licensed contractor.
- The property had to meet local buildings codes upon completion
- The building had to meet Federal Section 8 requirements upon completion.
- It must be rented to families who met Federal income guidelines for ten years.
Don decided that he would be way ahead financially by participating in the program because he could make major improvements with that amount of money. That meant that he could cut down on aggravation and maintenance costs, and also get higher rents when he was done. That kind of decision is commonly known as a "no brainer."
Don also located a contractor who agreed to hire him to do any of the work that Don was capable of doing himself. That way he could earn back a substantial portion of the funds he was required to put up. Then he borrowed the $10,000.
The heating system was upgraded with two separate hot water boilers. The windows were all replaced with vinyl thermo-pane replacement windows. Don repaired the walls, ceilings, stairways and porches. He installed new floor coverings and re-painted the interior. Don was so well paid that he was able to repay most of the $10,000 he borrowed for his matching funds.
The two family home increased in value by almost 50%. Don's cash income more than tripled to $295 a month, in part because the tenants now paid their own heating bills. The maintenance on the building was reduced substantially, and there would be no more climbing ladders to change wooden storms and screens twice a year.
Contact your local Community Development Office or State Housing Development Authority for information on programs currently available for your rental property. |