How Biden’s Neighborhood Homes Proposal Affects Investors

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Auction.com buyer and real estate investor Sue McCormick is at the forefront when it comes to President Joe Biden’s plan to revitalize underserved neighborhoods and provide affordable housing for low- and middle-income homebuyers.

“My passion is to return to the areas I grew up in and help improve those areas through rehabilitation,” said McCormick, who lives in Atlanta but buys investment property in her hometown of Dayton, Ohio. “And of course I want to make a profit.” Interaction with other people

Since buying her first investment home in early 2020, McCormick said she has bought or is in the process of buying 11 more in the Daytona area – all under $ 50,000 and all in need of serious rehabilitation.

“The first home I renovated last year was a home that had a kitchen fire damaged and it was just an eyesore on a beautiful quiet street,” said McCormick, who said she bought the home for $ 25,000. and then put $ 65,000 in refurbishment before selling to the owner-buyer for $ 134,000.

“It was in a predominantly African American neighborhood not far from my childhood home,” McCormick continued. “Seeing a step-by-step guide from seniors and even some young homeowners and literally thanking me … It really made this project special.”

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Local investment on a larger scale

McCormick’s real estate investment strategy and its results in under-served areas of Dayton are a microcosm of what the new tax break proposal from the Biden administration is intended to encourage across the country in similar areas. The proposal, dubbed the Neighborhood Home Tax Credit, is part of a larger US Employment Plan Act, also known as the Biden Infrastructure Plan.

The goals of the tax credit include attracting “private investment in affordable housing development” and increasing “ownership of real estate for low- and middle-income homebuyers in underserved communities,” according to White House newsletter

According to Julia Gordon, president of the National Community Stabilization Trust (NCST), the tax credit is structured to stimulate the homeownership development that McCormick does, but on a broader scale.

“NCST strongly supports this law, which differs from other real estate development incentives because it is for homeowners only. Our organization has been working on this for about five years, and we manage large coalition it kept it going, ”Gordon said. “The goal is to support large scale home rebuilding or construction so that we can potentially see comprehensive community revitalization projects that will affect 50, 100 or even more homes.”

Identifying underserved areas

Real estate in underserved census areas will be eligible for a tax credit that will help cover losses that developers may incur when investing in these areas. The White House estimates that about one in four census districts are underserved, that is, those where the poverty rate is at least 130% of the poverty level in the area, the average family income is below 80% of the average family income in the area and the average home value is below than the median cost of houses by area.

IN Neighborhood Coalition, a coalition led by NCST in support of the proposal, created map showing which census parcels are eligible.

Almost a third of the more than 70,000 census districts nationwide (32%) are classified as low-income, which means that the average income in the area does not exceed 80% of the average income for the territory, according to the data. Low Income Neighborhood Dossier 2019 from the Federal Housing Finance Administration (FHFA).

In Montgomery County, Ohio, where Dayton is located, 39% of census sites are low-income. The 59 low-income county census districts rank 80th out of more than 3,000 counties nationwide.

Markets with the most suitable stocks

Between 2018 and 2020, a total of 218 distressed properties – either foreclosure Bank Owned Sales or Sales (REO) – in low-income census areas were sold through the Dayton Auction.com platform. It was the 20th largest city in the country and accounted for 64% of all distressed property sales in Dayton during that period. In comparison, according to data from Auction.com, only 34% of all distressed property sales nationwide between 2018 and 2020 came from low-income census lots.

The top five cities with the most problematic low-income census sales between 2018 and 2020 included Chicago (902), Baltimore (606), Memphis (541), Columbus, Ohio (533) and Philadelphia (531). … The average price of distressed property located in the low-income census area in these five cities ranged from $ 40,592 in Memphis to $ 86,338 in Philadelphia. The average price of dysfunctional properties located in the low-income census area in Dayton was $ 38,668, just in the middle of the McCormick purchase price range.

Achieving Better Neighborhood Results

Just buying real estate in underserved areas will prevent developers from claiming the tax break. They will also need to sell the refurbished property to eligible home buyers – presumably tenant owners, although the offer does not explicitly state this – at an affordable price. The proposal defines this affordable price as one that does not exceed four times the average household income for the region. In addition, the property must be sold to buyers with an income not exceeding 140% of the average family income in the area.

Local investors like McCormick are also well versed in achieving the desired results in the form of home ownership and affordable inventory. And investors like McCormick are achieving these socially responsible results, even increasing the cost of housing through extensive rehabilitations and creating wealth for themselves in the process.

Of the over 110,000 distressed property sales on Auction.com between 2018 and 2020 with census area information available, 49.2% were subsequently resold, according to an analysis of subsequent sales using public data and multiple listing service (MLS) data. Public records data also shows that 69.7% of these resales were owner-occupied, well above the national home ownership rate of 65% in the first quarter of 2021, according to data Census Bureau

The average distressed property price was 63.6% of the 2021 appraised market value (assuming good condition), but the subsequent resale price was 101.2% of the 2021 appraised market value. This 38 percentage point increase in value implies extensive repairs between the troubled purchase and the resale, averaging 262 days.

Results for low-income countries

Resale and owner occupancy rates were about five percentage points lower, but still impressive for a subset of over 37,000 distressed property sales in low-income census areas: 44.3% were subsequently resold and 65.3% of those resales went to the owner. … – busy buyers. Among minority census sites – identified by the FHFA as minorities with a population of at least 3% and an average income of less than 100% of the regional median income – 47.3% of problem sales were subsequently resold, and 66.8% of those resales were to owner-buyers.

In some cases, the results were even more impressive in low-income and minority areas. In low-income areas, the resale price was 105.0% of the 2021 assessed market value, up 45 percentage points from the 55.6% of the 2021 market value represented by the problem selling price. In minority segments, the resale price was 104.1% of the 2021 assessed market value, up 42 percentage points.

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Even with a sharp rise in housing costs, low-income areas continue to lag significantly behind affordable housing rates. The median resale price of previously distressed properties in low-income areas was $ 193,444, which is 20% lower than the median resale price of $ 240,589 for previously distressed properties not located in low-income areas.

The resale rate of distressed properties in low-income areas in Dayton was below the average of 28.5%, but the owner employment rate for these resales was above the average of 68.3%. Through extensive rehab, smaller community-focused investors like McCormick are improving value for money by an astounding 63 percentage points. Even with this significant increase in value, the average resale price of previously dysfunctional properties in low-income areas of Dayton is well below the national average at $ 86,405.

“It was really nice,” McCormick said of her first rehab and resale of distressed property, noting that selling the property helped other homeowners in the neighborhood earn money. “After we went public, a couple of others sold their homes and received a premium.”



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