An affordable property is one that has rents set at a rate that is considered affordable for low-to-moderate and low-income residents. These include properties constructed using tax subsidies (like the Low-Income Housing Tax Credit, or LIHTC) to provide below-market rents for low-income people, seniors and/or individuals with disabilities. Other affordable properties may take advantage of the HUD’s Section 8 program, which provides housing subsidizes to low-to-moderate and low-income residents.

Properties financed with HUD 221(d)(4) loans are eligible for both LIHTC and the Section 8 program, though the requirements of each program can vary. In general, affordable properties receive more favorable terms for HUD 221(d)(4) loans; as they have more relaxed LTV and DSCR requirements.

To learn more about HUD multifamily construction loans like the HUD 221(d)(4) loan, fill out the form below and a HUD lending expert will get in touch.

The benefits of buying an affordable property include the potential for higher margins, lower-cost loan options, and a steady cash flow coming into the property. Affordable housing properties also offer consistent returns, as the Department of Housing and Urban Development agrees to cover any difference between a contracted, subsidized rental rate and what a resident can pay through the use of HAP contracts. Additionally, having more units and more renters tends to mean a steady cash flow coming into the property.

In order for a property to be considered eligible for the Low-Income Housing Tax Credit (LIHTC) program, it must pass at least one of these three affordability tests:

• 20% or more of the units are occupied by (or reserved for) tenants with an income of 50% or less of the area median income (AMI).
• 40% or more of the units are occupied by (or reserved for) tenants with an income of 60% or less of the AMI.
• 40% or more of the units are occupied by (or reserved for) tenants with an income of no more than 60% of the AMI, and the property has no units occupied by tenants with an income greater than 80% of the AMI.

In addition to the above, a gross rent test must also be passed. This test requires that rents for the property do not exceed 30% of either 50% or 60% of AMI (the exact percentage depends on the number of rental units set aside for the credit). LIHTC properties are required to pass these income and rent tests for a period of no less than 15 years — or risk having the tax credits recaptured by the local housing authority.

Affordable properties are typically intended for seniors, low-income people, disabled individuals, or other disadvantaged groups. Affordable properties using the HUD Section 8 program are sometimes operated by non-profit groups, including some 501(c)(3) organizations. Investors and developers who use a HUD 223(f) loan to acquire or refinance a multifamily property have the choice to make that property affordable. Typically, this involves providing below-market rents and taking advantage of either the HUD Section 8 program or Low Income Housing Tax Credits (LIHTCs).

The top 5 reasons to invest in affordable housing are:

• Affordable Housing Has Profit Potential
• Stable Cash Flow
• Tax Benefits
• Social Impact
• Access to Low-Cost Financing Options, such as the HUD 223(f) Loan

Owners of Section 8 housing may be able to take advantage of HUD’s Low-Income Housing Tax Credit (LIHTC) program. This program offers tax incentives in two separate ways, covering either 30% or 70% of a rehabilitation or development project’s costs. Additionally, investors or developers may also be in a strong position to utilize additional credits if a property or development is located within an Opportunity Zone.