One of the first words of advice that should be given to any newbie real estate investor is to decide on what segment of the market they are going to focus on and stick with it. One often overlooked investment area is that of affordable housing. Those most often rated as B or C properties.
Why Go This Route?
There is any number of good reasons such as the desire to help others in your community to achieve the American Dream of homeownership. One thing to look at here is that while unemployment is at a historical low-point according to the government, the average income here in the U.S. has not increased.
To make matters worse, the gap between the poor and rich has only become wider. What middle class is left is under siege and is slowly being squeezed into the upper class (only a small percentage) or is edging closer to the poverty line (the larger percentage). From this, it only makes sense to invest in affordable housing as demand is only likely to increase in the coming years.
The Supply is Limited
As you have probably noticed if you have done any research into affordable housing, you can’t help but have noticed that supply of this type of home far outweighs the number of available properties. It is easy to see where affordable housing properties might make an excellent investment vehicle. This becomes even more obvious when you look at the potential for increased rents (within reason based on the locale where you are investing).
On top of this, while there is plenty of new construction going on in towns and cities all over the country, not much of it is affordable housing. Instead, most developers are concentrating their efforts on B+/A grade properties with luxury features and amenities. In most cases, these projects are backed by large investment groups with lots of capital to spread around. For investors like this, affordable housing is simply not feasible as it doesn’t typically offer the ROI needed to make the project successful.
It’s the Cycle
Real estate markets tend to run in cycles, and current economic indicators say that the market is closer to the top of the cycle than it is to the bottom. Even if there is a downturn in the market (and there always is), the affordable housing market should continue to remain stable. Although only a fool would attempt to predict the future, it is safe to assume that when the inevitable downturn does come, it will hit the upper-income bracket as the prices fluctuate.
The luxury housing market is always the first to be affected by any variances in the market. On the other hand, the demand for affordable housing tends to remain the same, no matter what the market is doing. Invest carefully, renovate as needed, and let your tenants know you care. In doing so, not only will you be helping a community by providing affordable places to live, but you are all but guaranteeing yourself a steady income.