How I made money and did good at the same time

[Kevin Blanchard]

I wanted to take a moment to describe how I raised hundreds of thousand dollars, developed over 100 units with OPM (other people’s money) and feel good about it.

I am a circumspect introvert and often get trapped by my own thoughts. I could see how I personally would feel bad if I offered someone a low ball price or if they were going through a troubling time. I would naturally want to help that person. But this endeavor allowed me to do something I didn’t know I loved but would grow to love, make lots of money, and feel really good about it.

Long story short I was working at a nonprofit Organization and we started developing affordable housing. Here are some of the major benefits: our finders would often require a lot of what I call pre-development costs (appraisal, Phase I environmental, downpayment, architectural drawings, home inspection, State Historic Preservation Office ruling, etc.). These costs would run anywhere from $10,000-$25,000. However we secured a 0% predevelopment loan for up to $50k.

Then the acquisition of the property and construction cost was funded by the State with a 25% cash flow loan. The state wouldn’t fund up to 80% of the deal meaning we would have to find other sources to cover the remains 20%. This was completed through other grants either at the county, state, or federal government. Meaning no money out of our pocket.

Real life example:

10 unit building.

Acquisition and construction was $2.2 million, and my company made $150,000, without putting any money into the deal.

Plus on the operating side since it was "affordable", the rents would be around $110,000 and the operating costs (incl propert management, facilities management, taxes, insurance, annual painting, etc.) was around $70k, meaning our NOI (net operating income every year was $40k.

Typical Single Family Home:

$500,000 acquisition and construction. Our profit from developing the home was $40k and then we would also have annual cash flow.

I completed over a hundred units, raising literally hundreds of thousands of dollars in capital, and operating (project based rental assistance), made money, and housed people that desperately needed good affordable housing.

[Kevin Blanchard]

@Jay Hinrichs The Tax Credits are definitely a monster into themselves.  It takes a lot of leg work but if you can make it work it is great. I have found that you need to couple the LIHTC with some type of grant and then the bank can come in. I have also known people that have deferred their developer fee to get the project approved. Then they take that developer fee as part of their cash flow and thereby reduce their overall cash flow loans. Another thing you would have to look at when doing LIHTC is the QAP. This basically tells you what your application will score. So if you were able to have land donated to you, your project would score higher. Or perhaps the QAP would score a certain % set aside of homeless higher than regular affordable units.

Our state forces any new construction projects (SFH, MFH, Commercial, etc.) to pay a % towards a municipal affordable housing trust fund. That fund then goes towards the creation or preservation of affordable housing.

In the past, I have worked with for profit developers who have an obligation to the municipality and they will sometimes give us cash or land or whatever towards the creation of affordable housing in order to meet their obligation.

Also, the towns like us because if they have an approved affordable housing plan with us, meaning we are going to build x amount of units it that town it protects them against builder's remedy, where a for profit developer tries to jam their development down the Town's throat. For example, a developer that I became friends with attempted to build a 500 unit complex in a very rural town (I think the total population was only 2,000 people). My plan helped protect the town from a lawsuit.