When it comes to affordable housing, there are special considerations investors need to make. A little bit of research and preparation can go a long way.

Costly To Build

For developers, it can be almost as costly to build new affordable housing as it is to build housing geared toward middle-income wage earners. It may be a better business decision to renovate an existing property than to deal with high construction costs.

Zoning Restrictions

In many communities, zoning laws and regulations can make it difficult to build affordable housing. Many affordable housing units are in larger, multiunit buildings. Regulations around lot size and square footage can be difficult for builders to overcome.

Management Issues

Affordable housing adds another layer of management in the form of government bureaucracy. This can make things take longer, whether it’s applying for funding or seeking new tenants.

The income per unit is reduced for affordable housing, which means repairs take up a larger percentage of profits. Most successful low-income housing landlords manage their own properties to cut down on property management fees and repairs.

A Word About Opportunity Zones

If you’ve spent much time in the affordable housing investment space, chances are you’ve heard about opportunity zones. Opportunity zones off the chance for investors who’ve experienced huge capital gains elsewhere to invest in properties to avoid paying the capital gains tax.

Opportunity zones were created to encourage long-term private investment in economically distressed areas. After 10 years, the investor enjoys a permanent exclusion from taxable income for the capital gains invested in an opportunity zone or opportunity fund.

The Bottom Line: Affordable Housing Impacts Communities And Can Be A Reliable Investment

Whether you’re a builder, landlord or passive investor, affordable housing provides an opportunity to invest in real estate with steady demand. Special considerations may need to be made for builders and landlords, but there are also many benefits that come along with affordable housing.

If you’re interested in investing in real estate, REITs that specialize in affordable housing could be a good add to your portfolio. You can feel good about investing in something that’s a positive for a community and know that you’re making a stable financial decision at the same time.