What You Need to Know About Multifamily

On the surface, multifamily housing may seem easy to understand – you own an asset where people pay rent to live, and you try to make a good return on investment. But the market is a bit more complicated than that. Multifamily properties are primarily categorized as market rate or affordable. Within affordable, there are several different types, as designated by HUD and other legislation to create an opportunity both for developers and for tenants to achieve their aims. In this article we break down the main categories of multifamily homes and how they operate.

Market rate apartments operate just as they sound – rents are priced according to market conditions. Owners can price rents however they wish given the supply and demand in their markets. Affordable housing is a bit more complicated. Affordable housing is the catch-all term to describe all housing outside of market rate, such as HUD/Section 8, LIHTC/Section 42, Section 202-PRAC, and new market tax credit housing, among others.

HUD/Section 8 housing can be a tenant-based or project-based subsidy. The government provides assistance vouchers that can pay for the rent that exceeds 30% of the resident’s adjusted income. For example, a resident earning $1000 per month will be responsible for paying $300 towards his rent with any rental amount over that being covered by the rental subsidy. This program allows private landlords to rent apartments and homes at fair market rates to qualified low-income tenants.[1] The Section 8 program is good for both sides – tenants can afford a much better standard of living, and landlords know that they will certainly get at least a large portion of monthly rent due to the government subsidy. This was especially the case during the eviction moratorium, as Section 8 landlords were guaranteed some income at a time when renters may have chosen to not pay rent.

Section 202-PRAC is a HUD subsidy for developers to create multifamily housing for low-income elderly. HUD provides funds to the developer as long as they adhere to the designated parameters: seniors aged 62+ with incomes below 50% of the area median income.

The Low-Income Housing Tax Credit (LIHTC)/Section 42 program provides tax credits to developers given that they provide housing according to certain parameters. If a developer wants to build a nice property but needs financial assistance, he/she can apply for LIHTC. Upon acceptance into the program, the developer must commit a certain percentage of units to rent to people making limited income; 60% of the area’s median income, for example. The goal of LIHTC is to provide quality housing to lower income individuals, benefitting both the developer/owner through tax credits, and the tenant through better quality housing for a lower cost.[2]

The New Market Tax Credit program is similar to LIHTC but with usually less restrictions. For example, only 20% of units need to be set aside for residents making less than 80% of the area median income. This is a less obstructive way to provide housing benefits to those that otherwise may not be able to afford the more high-end living spaces that may qualify for the NMTC.

As a multifamily property owner, your goal is to increase the value of your assets. Choosing a like-minded property manager with the same vision is key to your success. Following a standard process that is individualized for each unique asset is the most effective and efficient way of taking your property from its current position to a highly valuable asset. Bradley Company has experience with each one of the aforementioned property types, granting us this ability to provide individualized services. Each property deserves its own unique management, and each property type requires a distinct strategy. Our portfolio of managed properties contains every asset class, with property managers who have a proven strategy for success.

[1] What is Section 8? | Home Forward

[2] What Is Section 42 Housing? | Apartments.com

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