10 Best Ways to Invest in Affordable Housing

Real estate investments have always been attractive. Over the long term, residential property owners enjoy a 10.6% annual return on investment. This is one of the better returns you can expect, and the consistency beats out that of individual stocks.

Perhaps the consistent ROI is why 70% of rental property owners are individuals, rather than investment funds.

The issue for many investors is that purchasing an investment property requires a lot of capital. The price for a multi-unit rental property or small commercial building can rise into the seven-figure range.

Also, these investments do nothing to meet the needs of those seeking affordable housing. Since investors seek to maximize returns, such investments have created an affordable housing crisis. Currently, only 36% of low-income households have access to rental housing they can afford.

Small investors and those who want to provide capital to investments positively impact communities can help to meet this demand by investing in properties that ultimately lower housing costs.

Real estate investing in affordable housing can bring benefits to both investors and communities with a lack of low-income housing. You do not even need to purchase a physical property yourself to engage in affordable housing investment. Various funds, trusts, investment groups, and apps make it possible to invest in affordable housing units even if you lack the capital to purchase an entire building yourself.

Here are the best ways to engage in affordable housing investments.

How Did We Choose the Best Investment Methods?

The best methods for engaging in this type of property investment offer access to affordable housing either directly or through an investment vehicle such as a fund, trust, or partnership.

Also, the best methods for affordable housing investment actually address issues like low-income housing, meaning they are not only accessible for small investors, but they bring positives to the wider community with more accessible housing for people who would otherwise not be able to afford to purchase their own home or make monthly rent payments in the area where they want to live.

The methods may require different investment sizes. For example, purchasing a share in a real estate investment trust or through an app may only require a few dollars, while buying a physical property requires tens of thousands of dollars in capital. However, all affordable housing investment methods require less money than traditional property investment.

Best Affordable Housing Investment Opportunities

Here are the best methods for affordable housing investing.

1. Take Advantage of Opportunity Zones

The US Department of the Treasury has designated Opportunity Zones in low-income areas. There are currently more than 8,000 of these zones in the United States. People who invest in these areas qualify for special tax credits and other incentives from the IRS and local governments.

For example, investors who engage in affordable housing construction or other affordable housing projects can get tax credits or other advantages that regular developers cannot obtain. These breaks can increase profit margins and make affordable housing building and rehab projects good business decisions as well as helpful for the community. 

Here are the advantages and drawbacks of investing in Opportunity Zones.

Pros

• Qualify for tax credits and other incentives that can improve profits. 
• Have a positive impact on low-income communities.
• Land and properties are typically below market price in Opportunity Zones.

Cons

• These areas may suffer from low demand, so people could prefer to move away rather than rent or purchase. 
• Incentives may vary, and tax breaks could eventually change. 
• Requires a larger investment than purchasing shares in a fund. 

Small property investors who want to purchase or build physical property can take advantage of Opportunity Zones. 

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2. Adopt a Value-Investing Strategy with Fundrise

Fundrise is a fund for real estate investors. It uses the capital contributed by members to purchase a variety of real estate assets, from commercial and residential properties to property-related debt and equity in development projects.

Fundrise claims to follow a value-investing approach, meaning they focus on steady long-term profits rather than risky speculation. Investment packages start at $10, so this option is quite accessible.

Here are the advantages and drawbacks.

Pros

• Fundrise selects properties and projects, so you do not have to do the research.
• Account minimums are between $10 and $100,000 depending on the features you want.
• Value investing seeks steady profits and low risks.

Cons

• You have no control over the properties Fundrise buys.
• You cannot pursue higher returns.
• The accounts do not focus on affordable housing investments.

If you want a hands-off approach to investing in real estate, Fundrise is a good option. However, those who want more control over their portfolio may be disappointed.

See Related: Best States for Real Estate Investing

3. Take Advantage of Crowdfunding with RealtyMogul

RealtyMogul allows investors to tap into the power of crowdfunding. The site offers both real estate investment trusts (REITs) and private placements.

Investors can choose their properties and then select how much they would like to invest. Options include commercial buildings, multi-unit residential buildings, and even industrial and storage facilities.

Here are the pros and cons of using RealtyMogul to invest in housing.

Pros

• There are different property options, so you can find affordable rental housing as an investment target.
• You can diversify by investing in different properties on the same site.
• Crowdfunding allows you to invest for a fraction of the overall cost of the property.

Cons

• Minimum investments are $5,000, so you still need a fair amount of capital to invest.
• If you are looking for affordable housing property, options could be limited.
• Some of the more desirable properties could have a higher investment minimum.

RealtyMogul offers a chance to take part in attractive real estate investments without having to put up all the money yourself. However, it still requires more capital than some people may be willing to invest.

See Related: Best Real Estate Investment Websites

4. Invest in Small Businesses and Community Housing with Mainvest

Mainvest is a website focused on connecting individual investors with small businesses. The investment opportunities include small co-op housing and other affordable housing options. Businesses and co-ops share revenue with investors based on their proportion of the overall investment, so those who invest more can earn higher returns.

Here are the benefits and drawbacks of investing with Mainvest.

Pros

• The minimum investment for many businesses is $100, so you can start cheaply.
• Real estate investments include co-ops and community housing.
• There are opportunities to diversify your portfolio with non-real estate investments.

Cons

• There are many types of businesses not related to real estate.
• You earn a portion of the profits, so you do not get equity or payments from rental income.
• Returns can be modest after repayment of your initial investment.

If you want to invest in affordable housing and diversify with non-real estate investments, Mainvest could be a good option.

5. Invest in Equity REITs with Streitwise

Streitwise is a real estate investment company that offers real estate investment trusts. Its goal is to generate passive income by offering a portfolio of commercial buildings that generate a reasonable rate of return each year. Steitwise claims long-term returns of 8.96% annualized (over 23 quarters).

Here is what to expect from this real estate investment platform.

Pros

• Streitwise has a history of consistent returns over several years.
• The portfolio of commercial buildings is designed to provide passive income.
• The site offers in-depth information about all the company’s holdings.

Cons

• These are commercial properties, so you have no opportunities to invest in real estate that could be part of an affordable housing program.
• The current minimum investment is $4,615, which is a higher threshold than many real estate investing sites.
• The site currently only has one REIT offering, so you cannot diversify.

Streitwise is ideal for real estate investors who want a reasonable rate of return without having to do any research themselves.

See Related: Best Farmland REITs for Agriculture Investing

6. Take Advantage of the Low-Income Housing Tax Credit

The Low-Income Housing Tax Credit (LIHTC) is a federal program that offers money to local governments and state affordable housing programs so that they can provide tax credits for investors who build affordable housing or rehabilitate existing homes for low-income tenants.

Many of these programs are part of rural or urban development efforts, so they provide the perfect opportunity for investors interested in participating in equal housing efforts.

Here is a look at the pros and cons of LIHTC real estate strategies.

Pros

• The tax credit offers incentives to invest in affordable housing.
• The tax credits can offset construction and rehabilitation costs, leaving you with profits from property sales or rental units.
• Some of the credits may help reduce capital gains taxes.

Cons

• The tax credits vary from place to place.
• Profits will still ultimately depend on the housing market.
• Different affordable housing programs may have different requirements, limiting profit potential.

The LIHTC incentivizes low-income housing construction and rehabilitation. However, there are still risks if you choose to use this as your primary real estate investment strategy.

7. Participate in Transitional Housing Programs

Transitional or supportive housing provides accommodation for people who were previously homeless or living in unstable homes. These programs, operated by local housing authorities, use public funds to pay for housing. They may pay a rental fee for each resident or rental unit or purchase buildings outright to serve as transitional housing.

Here is what you should be aware of if you want to participate in these programs.

Pros

• The purchase price or rental fees are set, so you will be able to accurately calculate area income.
• Government programs typically have a lot of funding.
• You can participate in programs that give housing opportunities to people with very low incomes.

Cons

• You need to comply with all local regulations, which can limit potential profits.
• Long-term equity growth could be limited due to location requirements for the programs.
• Requires full investment in property.

With enough capital, investors can take advantage of transitional housing programs to earn steady rent or get a fair purchase price for their property.

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8. Delve into Private Market Investments with Yieldstreet

Yieldstreet offers private market investments in a variety of asset classes, including real estate. Some investors may find this option attractive because it is possible to locate new affordable housing projects, such as multi-family rental developments.

Here are the advantages and drawbacks of this investment option.

Pros

• Access to multiple housing development projects.
• They offer both REITs and direct project investments.
• Short terms of two to four years on development projects and quarterly payouts with REITs.

Cons

• Investment minimums of $5,000 to $15,000 put this option out of reach for new investors.
• Most of the investment options on the site are not real estate-related.
• Family housing developments will not qualify for tax credits.

Yieldstreet offers access to private market investment opportunities for well-funded individuals looking to invest in housing.

9. Invest in Student Housing

Student housing offers unique benefits and advantages. Some schools allow students to use financial aid money meant for dorm rooms to live off campus. People who invest in student housing at a school with such a program can enjoy a steady stream of tenants each school year.

Here is what you can expect when investing in affordable housing for students.

Pros

• Voucher programs make this type of investment recession-proof since you will always have students.
• Tenants will only expect basic services and features.
• The locals can help increase equity as well as provide rental income.

Cons

• A school’s financial aid policy could change.
• Most schools will expect rents at or below the market rate.
• Units could be vacant for three or more months per year.

Investing in student housing can bring steady rental income, but you need to be well aware of the seasonal nature of this investment.

See Related: Best Investments for Low-Income Earners

10. Flip Distressed Properties

Distressed properties are available across the country. It is possible to purchase these homes or buildings at a low cost and then rehabilitate them. If you can perform renovations yourself or partner with a contractor who will offer reasonable prices, you can create a home for sale or rent for an affordable price.

Here is what to expect with this strategy.

Pros

• It’s possible to get great deals on distressed properties.
• Skillful renovations could lead to a high return on investment.
• You can use this strategy for both rental income and resale.

Cons

• Some properties may have hidden issues that are costly to repair.
• Financing may be difficult unless you are an established property investor.
• You have to carefully calculate renovation costs.

If you want the potential to earn large profits and can accept the significant risks of flipping homes, this strategy could be best for you.

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