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Thread: Single family development: how to make low/mod income housing profitable

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    Single family development: how to make low/mod income housing profitable

    We have 32 acres of land 50 miles south of Chicago, that is zoned for single family use.
    Development Plans for 1/2 of it have already been drawn and approved and we can start sewer, water and streets at any time for the first 40 lots.
    What can we do to make these homes available to families with lower median incomes without us losing money on the project?

  2. #2
    Cyburbian Wannaplan?'s avatar
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    Can you qualify the part about "without us losing money on the project" by stating data about the area median income and the types of homes you are building? There are a number of ways to reduce your costs for each unit built so that your market price will be cheaper, and theoretically, more affordable for the income bracket you are tageting. Of course, what's the real estate market like where you're at? In some circumstances, based on demand, your final sales price may vary significantly from your original listing price.

  3. #3
    Cyburbian cmd uw's avatar
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    Quote Originally posted by Bill Carman
    We have 32 acres of land 50 miles south of Chicago, that is zoned for single family use.
    Development Plans for 1/2 of it have already been drawn and approved and we can start sewer, water and streets at any time for the first 40 lots.
    What can we do to make these homes available to families with lower median incomes without us losing money on the project?
    Are you planning on selling individual lots to home builders or are you building the homes? Are there any state / local affordable housing programs that will help offset some of the losses of selling lots below market rate?

    If not, then your proforma will reflect a loss on return if you sell the lots below market value. You could attempt to offset some of the losses and recover your costs by selling the prime lots at premier prices above market rate. But that depends on how strong the local housing market is that area.

    It's a tough situation to comment on without more background info.
    "First we shape our buildings, and then our buildings start shaping us." - Sir Winston Churchill

  4. #4
    Cyburbian
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    Need more info....the affordability issue is a tough one and just dropping the price to something below market is usually not the answer. Often Its all about downpayment and closing costs--the big ticket needed early.

    I don't know what your land basis is or what your proforma says.....

  5. #5
    Cyburbian
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    If you are establishing deed restrictions and protective covenants for the subdivision you can help maintain affordability by being careful about what they say regarding: material type (don't require a select range of expensive roofing/siding, etc.), minimum square footages (set it at the lowest point allowed in that zoning district), attached garages (if zoning doesn't require them, don't demand that they be built with the homes, allow them to be added later at the homeowner's discretion), and home styles in general (e.g. requiring side entry garages or prohibiting raised-ranch style homes). You can mandate standards, but each must be evaluated in terms of its impact on affordability.

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    Quote Originally posted by Wanigas?
    Can you qualify the part about "without us losing money on the project" by stating data about the area median income and the types of homes you are building? There are a number of ways to reduce your costs for each unit built so that your market price will be cheaper, and theoretically, more affordable for the income bracket you are tageting. Of course, what's the real estate market like where you're at? In some circumstances, based on demand, your final sales price may vary significantly from your original listing price.
    We were originally marketing the land for 200k plus houses, thats middle of the road around here. the max hud loan for this area is 176k. the lots were supposed to go for 42k.

  7. #7
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    We are going to build most of the homes. Especially the concrete is good for us.
    We're looking into tax credits...will know more about that after the seminar next week. Yes there are hud programs for maybe 10 houses a year around here.
    the problem is that the lots will consume about 42k of the cost of the house.
    the land for this half of the project is 500k, the development costs are 650k.

    Quote Originally posted by cmd uw
    Are you planning on selling individual lots to home builders or are you building the homes? Are there any state / local affordable housing programs that will help offset some of the losses of selling lots below market rate?

    If not, then your proforma will reflect a loss on return if you sell the lots below market value. You could attempt to offset some of the losses and recover your costs by selling the prime lots at premier prices above market rate. But that depends on how strong the local housing market is that area.

    It's a tough situation to comment on without more background info.

  8. #8
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    Quote Originally posted by gkmo62u
    Need more info....the affordability issue is a tough one and just dropping the price to something below market is usually not the answer. Often Its all about downpayment and closing costs--the big ticket needed early.

    I don't know what your land basis is or what your proforma says.....


    The land for this half of the project is 500k, the development costs are 650k.
    Home avg around here 200k.
    low income avg. hom abot 145k
    lot cost 42k

  9. #9
    Cyburbian Breed's avatar
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    Quote Originally posted by Bill Carman
    We have 32 acres of land 50 miles south of Chicago, that is zoned for single family use.
    Development Plans for 1/2 of it have already been drawn and approved and we can start sewer, water and streets at any time for the first 40 lots.
    What can we do to make these homes available to families with lower median incomes without us losing money on the project?
    That is a tough question. Unfortunately, I don't know if there is an easy answer. From personal experience, in single family situations, your best bet is requireing a certain amount of the new construction to be tailored (lot size, building size, etc.) in a way that will make it affordable.

    Developers are going to do whatever they can to maximize profits. Usually that means building the most expensive house that will sell.
    Every time I look at a Yankees hat I see a swastika tilted just a little off kilter.
    Bill "Spaceman" Lee

  10. #10
    Cyburbian
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    You may want to contact the local Neighborworks organization. They may be able to help, partner or refer you to someone who can. Here is a link to the org's in IL.

    http://www.nw.org/network/Utilities/NWOLookup.asp

  11. #11
    Combine the homes with commercial space. Leave the first floor for a commercial tenant and sell the other floors as flats.

    That's assuming you are allowed to do that. If you aren't allowed, find a way to be allowed.

  12. #12
    Cyburbian
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    Bill- If I followed the thread correctly, you haven't submitted a development plan on 1/2 of the site yet. I would consider speaking to the planning dept. and even possibly the community development department (which often times handles affordable housing; and funding such as CDBG & HOME). If the lots aren't platted they may be able to allow you smaller lot sizes, 'zero lot line development', or other entitlements to prompt you into making affordable housing, particularly if you partner with a local non-profit.

    We did a project recently where we made townlhomes, the only shared wall was that the garage of the unit on the left abutted the unit on the right. Getting rid of those side yeards really helps. Also, smaller homes are more affordable. .

  13. #13
    Cyburbian SGB's avatar
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    Are accessory apartments permitted?

    An attached apartment at each home could create two housing units per lot, with the rental income supporting the cost of owning the property.

  14. #14
    Cyburbian Breed's avatar
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    While studying for the AICP exam, I noticed a mention of the book, Modern Housing, by Catherine Wurster. It deals with building quality housing for the urban poor. I'm not sure if it would be worth looking at, but maybe if the throbbing brain knows...
    Every time I look at a Yankees hat I see a swastika tilted just a little off kilter.
    Bill "Spaceman" Lee

  15. #15
    Cyburbian dankrzyz's avatar
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    Dont forget existing housing stock!

    Don't forget... sometimes the best opportunities for creating affordable housing stock isn't new, it's saving and renovating existing units. I don't mean to say it's always easier or always the most cost effective, but let's not leave it out of the discussion / toolbox altogether.

    Since when did we assume that new homes are always cheaper than old ones?

  16. #16
    Cyburbian
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    low/mod

    FHA/HUD allows up to 176k. This would not fit for low/mod. Upper end of low/mod for your area might work at $130k. CDBG not eligible for new construction per regs. Homes Funds are allowable. This is were you must of gotten the 10 assissted per year in Kanakee County(receives $160k a year in Homes funds). State mortgage tax credit would help buyer making more net revenue to access per month. Max profits on low/mod would mean large subsidies or build smaller homes. You could also develop to have some smaller homes of the total with those being offered to lower income. This might make it more attractive to the county to give some support from its Homes Funds. Especially looking at the high renter to owner ratio in the area.

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