All Forum Posts by: Kevin Blanchard

@William Coet In this instance the 420k is a cash flow loan, not a bank loan.  Plus, no taxes! Or perhaps I should say I secure PILOTs on all these developments.

@William Coet Depends on what county it is in and bedroom distribution, but we could be looking at $2k/mo for a 4-bedroom SFH, and about $10k/mo for a 10-11 unit building. These rents are market rate rents in the area.

@Alina Trigub thanks for your kind words. Yeah we have permanently housed people who are chronically homeless, veterans, victims of domestic violence, as well as other marginalized groups. I stumbled into it but have love it. It is extra rewarding in NJ where the price of a home and taxes are so overpriced! Plus it has helped me now grow my own portfolio of buy and hold properties.

@Teri S. New Jersey

It is the Buy, Rehab, Rent, Refinance method. You can find a lot of information on Bigger Pockets. Basically it is a cash out method. Example - you purchase home for $100k, put $30k of cash into rehab it, rent it out, and refinance at $130k taking out all the money you put into it. You would need to factor in the after repair value as some banks will only allow you to take 80-85% of the loan to value. So if your home is worth $150k after repairs a 85% LTV would only allow you to take out a $127,500 mortgage...then in this example you would only have $2,500 of your own cash left in the deal. You would also need to ensure that your rents could cover this new refinanced loan.

@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.

@William Coet It is profitable by the fact that there is almost no money down or whatever money you do put down is rolled into the total development costs (which includes a one-time "developer fee" profit line). So on a $200k per unit development with total development cost of $2.2M I would somewhere around $150-$175k. Then there is also the ongoing cash flow. We secured grants for many of these developments and the loans we secured were cash flow loans, meaning that we would repay a certain portion of year end cash flow. Some of the programs were 50% cash flow, others 25% cash flow after expenses and debt servicing.

Same thing with a SFH. It would cost about $500k, our profit would be about $30k and then ongoing cash flow. The cash flow wouldn't be a lot but it was basically a nice source of income while we beefed up our property and facilities management teams.

The key for us was securing project based rental assistance. Think of this as section 8, however the rent stays with the building not the tenant.

The non-profit was a 501 (c) 3 corporation.

@Dee James

I think it depends. Whenever I did project management for friends they would pay me hourly plus reimbursements.

If you are going to be doing the BRRR method you could setup a flat fee with him and pay him out when you refi.

@Teri S. There is actually a lot of money out there to develop affordable housing. There are federal funds that go down to a county (or sometimes a city level) . Funds include HOME, Neighborhood Stabilization Program, National Housing Trust Fund to name a few. There is also HUD McKinney Vento that is directed towards homeless individuals (which you could always do a set aside in a Multifamily if you don't want to do 100% homeless).

We always stuck to 11 units or under because 12 units would trigger Davis Bacon (prevailing wage) which would increase the cost of construction by about 30% and thereby make the development not feasible. If you were going to do more than 11 units you would have to jump to at least 50 units (this may be specific to my area but I am not sure) and this could be funded through Low Income Housing Tax Credits (They have 4%, 9%, New Market, Historic). This program literally gives you $0.85-$0.98 towards the development and then you would bridge the gap with other funds as described above and with a commercial market rate loan.

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.