Question on affordable vs market rate apartment investments

Am currently talking to a company that specializes in both affordable housing development (apartments) as well as senior living communities (active seniors, not nursing homes). They say that they utilize tax credits and other government subsidies to finance their affordable acquisitions/developments.
At the end of the day, is there comparable profitability on the affordable side when compared to doing standard market rate apartment investing? I'm assuming that the fact that you get more "favorable" financing options might offset the fact that revenue per unit will be less, but at the end of the day on a ROI perspective, can affordable be as financially lucrative as market rate?
In Buying Property - Asked by Eric G. - Oct 30, 2009
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Aaron B.
Los Angeles, CA

Yes it can. In some cases it can be more lucrative. Often times afforable components in a new development allow for increased density as well as further incentives to developers. These include decreased parking requrements, increased building envelopes, and FAR's. All of which can produce higher yeilds on land costs. Good luck!

Oct 31, 2009
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Gregory G.
San Francisco, CA

Yes they can, if not more.
Gregory Garver - Commercial Real Estate Broker
Broker License# 01716531

Nov 6, 2009
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Nadina C.
Phoenix, AZ

Senior communities are sometimes "market rate" rather than "affordable". The market rate leases, even for active senior communities, are higher than for family tenanted market rate multihousing because there may be additional services available -- transportation, dining room meals, organized recreation, apartment cleaning, a la carte assistance services such as personal laundry, nutrition evaluation, etc. The tenants pay a premium for the availability even if they don't use and pay for the services directly. But those extra services throw off extra cash flow.
Look at any real estate investment from several perspectives: current cash flow, stability, potential for increased value of the property and increased cash flow. Only after that look at tax advantages. My advice is never to invest in property just because of tax advantages -- it has to be strong on its own to survive over the long term. Oh, and BTW, HUD-insured multifamily loans are non-recourse. No personal guarantees required.

Dec 11, 2009
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