What is affordable housing? The federal government often defines affordable housing as housing that doesn't consume more than 30% of one's income. It's about ensuring that a household can afford their home while still having enough money for other essential needs like food, transportation, and healthcare. The definition of affordable housing can vary, depending on a household's income and the local cost of living.
In Lakeland, Florida, affordable housing is not just a concept; it's a critical need. According to the National Low-Income Housing Coalition, a staggering 47% of Lakeland households pay more than half of their income in rent. This leaves many people struggling to afford other basic necessities, such as food and healthcare.
Due to the overwhelming demand for affordable housing, the government has implemented the Housing Choice Program for low-income families in need of housing assistance, commonly known as Section 8. As of August 2023, over 4.7 million people are enrolled in the program, with the average wait time for new applicants being 28 months. However, in Lakeland, the wait time is notably longer, at 48 months, while the national average is 28 months, and the Florida average is 36 months. This demonstrates a persistent need for affordable housing solutions.
So, why don't more real estate investors turn to Section 8 as a strategy for consistent income? It's a legitimate question. Section 8 offers guaranteed income, so what's the catch? In my nearly five years of real estate investing, I've had countless conversations with experienced investors who considered Section 8 but ultimately hesitated. The two primary reasons are the lower rental income compared to market rates and concerns about the property's upkeep by Section 8 tenants.
In Lakeland, the average rent for various apartment sizes is approximately $1703 per month, according to Zillow, Trulia, Redfin, and ApartmentRent index data:
In contrast, as of October, the Lakeland Housing Authority provides the following rental rates for the same apartment sizes under Section 8:
As you can see, the rents for studio to 2-bedroom apartments are below the market rates, making them less attractive for Section 8. However, the situation changes for 3-bedroom apartments, making them ideal for Section 8. Moreover, some cities offer tax incentives or assistance for renovating or building properties intended for affordable housing. While you may not achieve the rental income you desire, these opportunities can still provide a significant return through tax savings or reduced rehabilitation costs.
In my experience, I've not only rented to Section 8 voucher holders but have also been part of the system while growing up. My mother relied on affordable housing when we couldn't find other opportunities. I understand the importance of affordable housing from a personal perspective. My grandmother, who still benefits from the voucher program, is physically unable to work, and without this support, her situation would be drastically different. My grandmother is a great tenant; she pays rent consistently and takes excellent care of the property because, for her, it's a lifeline.
Becoming a landlord to a Section 8 voucher holder, Rachel, was an enlightening experience. Balancing business and empathy was crucial. To change the stigma around Section 8, I had to establish boundaries and enforce rules to ensure the investment remained profitable.
I believe in winning when everyone wins. I provided a comfortable and affordable home for a single mom with three kids who was striving to get back on her feet. By staying responsive, addressing her needs within 24 hours, and maintaining the property, I played my part in the equation. Rachel felt compelled to take care of the property, as it was close to her children's school, and her family enjoyed stability. Simultaneously, I enjoyed cash flow of hundreds of dollars each month.
In conclusion, affordable housing is a robust strategy for ensuring consistent monthly income. It is government-backed, and the demand will never diminish. Housing is a significant expense in everyone's life, and those earning 15-20 thousand dollars a year simply can't afford it. Poverty is a real issue in America, and investing in affordable housing can make a difference. While it may not be everyone's calling to solve these issues, real estate investors have the opportunity to provide quality housing backed by the government. We are the ones who choose our tenants, so it's up to us to select the right tenants who will stay for an extended period. As seen in Lakeland, the rental numbers aren't too far off, and depending on your location, it might be an ideal choice. The need for affordable housing exists in every single state in America, making it a viable option for real estate investors.
