I know you’ve probably heard other real estate investors talk about how they wouldn’t buy low-income housing because it’s a nightmare. Luxury housing, they say, is where it’s at—you don’t have to worry so much about neighborhood crime, late rents, keeping the property maintained, and so on. But, I believe that may be a short-sighted perspective. While affordable housing has a reputation for lower returns and you might have to jump over some red tape, it is more in demand than ever. Given the right local circumstances, investments in Queens affordable housing units could prove valuable portfolio additions.
Right now Queens is experiencing swiftly rising housing costs. As new local development plans move forward over the next few months, residents are getting even louder about demanding more affordable housing development from their city officials—and investors could benefit from being the ones who provide it.
Compounding Pressures Create Market Opportunity for Affordable Housing Investments
The story in Queens is one of gentrification. Last year, Queens was the fastest growing borough in New York City and rents rose swiftly alongside the population. Within many neighborhoods, there is a palpable fear of displacement—especially as Mayor Bill de Blasio moves forward with the comprehensive rezoning plan approved by City Council last year. Numerous community groups have created new alliances and actively protested the new developments that they believe will only exacerbate the increasing unaffordability of housing in their neighborhood. And, local leaders are responding.
With $267 million in capital investments promised for schools, parks, and infrastructure in East New York, the rezoning plan is clearly about development. But, it also affirms government officials’ commitment to safeguarding affordable housing through the Mandatory Affordable Housing stipulation now included in the rezoning plan. This requires that a certain percentage of all new housing developments are rented out under various market-rate thresholds aimed at low and middle-income earners.
In addition, an inter-agency working group is currently studying the feasibility of legalizing basement apartments and providing $12 million in city funding to help homeowners retrofit approximately 1,200 units. And, that’s just the beginning of the city’s plan to achieve 3,000 new affordable housing units in East New York within 10 years. Their strategy, however, relies on attracting real estate investors—like us—to the area.
The Benefits of Investing in Queens Affordable Housing
In a political climate committed to developing and retaining affordable housing, investors have an opportunity to diversify their real estate holdings with properties that can bring in long-term positive cash flow. In effect, this class of property can serve as a hedge against the market risks associated with higher-cost investments, which typically lean pretty heavily on rising economic tides for renters to afford.
As a result, owners of luxury properties tend to get hit the hardest in an economic downturn. But, since affordable housing units may be leased in perpetuity, their particular market vertical doesn’t respond to the same ebb and flow of others. In effect, affordable housing units can provide investors with revenue stability in an otherwise volatile larger real estate market.
Investing in affordable housing can also achieve a better real estate CAP rate in New York through rental revenue compared to luxury units. In the last part of 2016, the median sales price in Queens was $498,000, with an average rental price of $3,101. But the luxury median sales price was $1.2 million and an average rental price of $4,963.
Even without crunching the numbers, it’s apparent that the increase in the amount of rental revenue for a luxury unit is not in proportion to the substantial increase in initial investment. (For those who just have to see it in print, that’s about a 240% increase in cost between the two types of real estate investments with only a 160% increase in potential rental revenue.) The combination of lower investment output and higher percentage yield in rental revenue creates more security for investors.
Are You Ready to Jump in, Too?
Sometimes when everyone around you is vying for their own interests, it’s difficult to clearly see a mutually-beneficial opportunity. But, judging by the particular social, economic, and political circumstances here in Queens, I really do envision just that. Residents want more affordable housing, local government wants to attract developers (and has money in hand!), and investors want to increase their own financial security.
Luckily, I’m one of the handful of local real estate investors who are already positioned to leap on opportunities quickly and with confidence. As a HomeVestors® franchisee, I have tools and resources to help me understand each potential investment both in terms of larger market pressures and property particularities. If I need another set of eyes on the numbers before closing a deal, my Development Agent is always within reach to provide seasoned guidance. If you would like to be in my shoes and work toward building lasting financial security through real estate investing too, give HomeVestors a call today.
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Photo Credit: Flickr user Alex Pepperhill
Prior to joining HomeVestors, I spent 20+ years as a senior corporate executive. The money was good but I just no longer enjoyed what I was doing. I had been looking at HomeVestors for a couple of years but they were not offering franchises in N.J at that time. I had zero experience in real estate investing and was impressed with the training and support HomeVestors offered. HomeVestors opened up the NJ market in February 2007 and I started in July. Best decision I ever made. We got off to a fast start and have purchased a couple hundred properties since. We could not have done this without the training, systems, marketing and support HomeVestors provides. We haven’t looked back since. We became Development Agents in 2010 and really enjoy working with new franchisees when they come on-board and helping them build a successful business.