HUD's Small Rental Assistance Program For Mississippi
For most Americans, the memory of Hurricane Katrina has faded. However, for those who are still living in FEMA trailers, the aftermath of Katrina is very much a reality.
It seems that renters were the hardest hit post-Katrina. Not only have rents gone way up, rental units are hard to find. Most of the focus has been on rebuilding houses for those who own. To give you a perspective, 42,000 rental units were destroyed by the storm. Over 75% of these units were in smaller complexes of four units or less.
Fortunately, there is a new grant that should incentivize real estate investors to provide more rental units for the thousands of people who were displaced by Katrina.
The state of Mississippi received $262 million from HUD for the Small Rental Assistance Program. The purpose of the grant is to "assist owners of small rental properties in the counties most affected by Katrina to provide affordable rental housing."
The affected counties are Hancock, Harrison, Jackson, and Pearl.
I like this program because it helps both the investor and the renter. Rental rates have increased significantly since the big storm. It's a simple matter of supply and demand. Many hard working families - those who work in the casinos, the restaurants, the construction sites - cannot afford the higher rents. This program would provide a financial incentive for the landlords to rent their units for below market rents.
How much below? The rental charts provided by HUD seem to show that 20% below market rates is the average. For example, a unit that would rent for $950 to $1,000 per month would cap at $781 per month.
Note that this is not free rent. The tenants must be working and pay their rents. The qualification is that the renters must make 80% of the area median income. These requirements will be adjusted annually for inflation.
So here is how the Small Rental Assistance Program works for the real estate investor.
First, the property must be one to four units maximum. Second, the investor must commit to the program for five years. After the fifth year, the landlord withdraws from the program, and the government forgives the loan. The minimum lease term is six months.
How much of a loan is the government willing to give the investor? It depends on the number of bedrooms. The maximum loan is $30,000 for a four bedroom unit. A three bedroom unit qualifies for a $27,500 loan. Note that you would this amount per unit. A duplex with three bedrooms per side would qualify for $55,000.
What if you sell early? Well, the government would forgive 33% of the loan if you only hold the property for three years. They would forgive 66% for a four year hold. After the fifth year, all is forgiven. And did I mention that the loan is interest free?
So how is the money dispersed? Half of the money comes at permitting. The other half comes once you obtain a Certificate of Occupancy (CO). So we're talking about receiving huge checks with this program, not small dribbles of money.
But wait there's more...As an additional incentive, the real estate investor will get a $3,000 bonus per unit on a three bedroom unit if they can CO within 12 months of receiving the initial funds.
They would get $6,000 per unit if they CO within nine months of receiving the initial funds. If they can CO within six months, they'll get $9,000 per unit. How's that for incentives?
So for the best case scenario, the real estate investor would get $27,500 plus $9,000 completion bonus per unit. That works out to $73,000 if the investor applies the loan for his duplex. The worst case is $55,000, which is not shabby either.
How do you apply? Here's the process.
1. Fill out an application once they become available.
2. You'll get the first half of the loan ($27,500) when the permit is issued.
3. Close on the property with a traditional loan.
4. You'll get the second check ($27,500) plus any completion bonus when the CO is issued.
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