When I purchased my first mixed-use property in East New York, I knew that Section 8 would be the perfect fit for the residential units. What I didn’t know was the insatiable demand for large apartments. My three-bedroom unit received over 30 qualified applications within 2 weeks. Not only was I able to pick the best candidate, but with the new rental prices for Section 8, I was able to charge 25% more than the normal rate in the area. This was definitely my Eureka moment. Affordable housing could be the key to building long-term wealth.
According to CNBC, the luxury real estate market has seen its biggest slump in over a decade. High-end inventory rose 14%, marking four straight quarters of annual increases in the market. Number don’t lie, and one truth that I’m willing to take to the bank is that the natural-occurring affordable housing communities are both cashing in and addressing the housing crisis of our time.
Three things I’ve learned in the past two years:
· There is a void in the affordable housing market
· The luxury market is oversupplied in New York City
· Section 8 pricing models provide high income in opportunity zones like East New York
Here’s an example of how a vacant 4 family property in a neighborhood like East New York can create a 30-40% increase in property value within months:
· A four family in East New York would cost $800,000
· The income from four section 8 three-bedroom units is $9,600 per month
· After expenses (taxes, insurance, maintenance) the net income is $88,000 per year
· At a 7% cap rate, the property that was purchased for $800,000 is now worth upwards of $1.2M based on cash flow.
With numbers like these, there’s no doubt that the big winners are going to be made in affordable housing, not to mention the positive impact on communities that need it most.
The time is now for investment groups to come together and make the power moves within the Opportunity Zones across America.