When To Use Government Grants to Invest in Real Estate

Government grants for real estate development projects come with restrictions.

The Department of Housing and Urban Development (HUD), state, county and city agencies offer grants and low-interest loans for real estate development projects. These grants are intended to lower the cost of developing affordable housing for low income households. Real estate developers must demonstrate their ability to develop affordable housing to receive money for their projects. Funding can be used for acquiring, constructing or rehabilitating property.

Deferred or No Repayment Options

One of the advantages of receiving funding for a real estate project is the repayment options. Some programs offer a grant with no repayment required. Most agencies will offer no- or low-interest deferred loans. The deferment typically lasts for 40 to 50 years. At the end of the loan term, the balance of the principal and interest will be due.

Meet a Community Need

Creating affordable housing can be rewarding for a real estate developer. Most government grants for real estate work to fund affordable housing for low income households. The grant awarding agency will ask the real estate developer to demonstrate a need in the community that the project will benefit. Affordable housing for seniors or the disabled are typical real estate development projects eligible to receive government funding. Conventional housing development projects may also be eligible to receive funding; however, a portion of the rental units must be designated for low-income households only.

Limitations and Requirements of a Government Grant

One of the disadvantages to using government grants for a real estate development project is that the funding will have strings attached. Agencies will require the developer to maintain the development or a portion of the development as affordable housing and maintain limitations on rental fees. The agency will also require ongoing reporting of the tenants in the affordable units to ensure that low-income households are being selected and treated fairly. You should always consider the potential loss in rental income and added administrative burden for reporting requirements before applying for a government grant.

Coordinating with Additional Funders

A real estate development project usually requires several sources of funding to complete a project. Federal, state, county and city resources can help fund a project and will often encourage applicants to secure additional funding from other resources. The problem comes when one grant awarding agency’s program goals conflict with the other funding sources goals. City funding will typically require the property to be acquired, constructed or rehabilitated within the city limits. The same goes for county and state resources. This can make it difficult to secure all the funds needed to complete a project.

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Government Grants

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