How to Fund Your Affordable Housing Startups – (Complete Guide)
Imagine spending half of your income every month to just have a roof over your head?
Sounds horrible? Right, but it’s the sad reality of 25% of US renters. It shows the need for affordable housing startups.
Starting an affordable housing business is rewarding, but let’s face the reality. Every business idea comes with many challenges- especially with getting funding.
There is no need to give up on your idea by hearing this. That’s why we are here.
We’ll help you explore various funding options for your affordable housing setup.
Keep reading to turn the dream of owning an affordable housing startup into reality!
What Does an Affordable Housing Startups Work Like?
Let’s start with first understanding the term Affordable Housing Business:
It is usually a company that works to help people find affordable homes as their budget allows.
In the US, its motto is defined as “the occupant is paying no more than 30% of gross income for housing costs, including utilities.”
Companies come up with creative ideas to cut down on building costs, such as using prefabricated materials, 3D technology, and modular construction.
Some of them also prefer to remodel the old space, like changing the old office into a condominium.
The basic aim is to build more affordable living space so that nobody has to break the bank to live happily.
Affordable housing is a growing focus area—learn how to start and scale in our Real Estate Startup Complete Guide.
Current Market Situation
Now, Affordable housing Startups are facing a huge issue as the need keep growing but supply just can’t meet.
In the big cities, increased prices are making it nearly impossible to find a secure and affordable place to live.
Governments and developers are now trying everything they can, such as constructing more affordable apartment units, giving out subsidies, or even transforming commercial buildings into residential buildings.
But the issue is that they are usually slow and cannot perfectly address the needs of the society at one time.
Also, wages in relation to the price of housing are slowly decreasing, making it almost impossible to find an affordable place to live.
This situation is tough, especially for young professionals and low-income earners.
It’s clear that creative ideas with rapid action are needed to sort out the issue as everyone deserves a place to call Home.
Challenges Affordable Housing Startups are Facing
Every housing company faces these few challenges, which might make your journey a little bumpy.
Let’s discuss them one by one:
- Funding and Financing: Getting money to make your company grow and prosper is often tough, especially in such projects where profit isn’t always great.
- Barriers: Going through the issues of regulatory and zoning barriers is also problematic. As it can slow down or even completely stop the progress.
- Demand and Supply Imbalance: Society has always needed massive amounts of affordable housing, but not enough units have been built to fulfill this need.
- High Construction Costs: These housing businesses often face unaffordable construction costs even with new methods like modular construction.
- Stagnant Wages: Low wages are the worst of all, as they even make affordable housing unaffordable.
Types of Funding Options for Affordable Housing Startups
- Grants and Subsidies by Govt.
Federal Programs: There are hundreds of federal grants and subsidies available when it comes to affordable housing.
Some of the big federal programs are the Community Development Block Grant Program (CDBG), the HOME Investment Partnerships Program, and the Low-Income Housing Tax Credits (LIHTC).
These programs provide funding for constructing, purchasing, and renovating affordable housing for low-income earners.
They’re super important because they move many projects forward to prosperity.
State and Local Programs: The states and local governments have funding sources.
For instance, the HOME Investment Partnerships Program awards grants to states and locals for affordable housing activities.
Also, most states have housing finance agencies providing grants and subsidies for these activities.
Depending on location, these programs can differ greatly, so it’s always a good idea to look up what is offered in your area.
- Private Investors
Angel Investors: Attracting angel investors to bring them on board can be a perfect deal.
These normally are the rich people who use their own capital to fund start ups.
To engage them, you have to build trust and provide compelling evidence of social value creation and financial profitability.
Angel investors are easy to find at conferences, fundraisers, and through online platforms like AngelList.
Venture Capital: A lot of money can be secured through venture capital, but always at a cost.
On the other hand, you have the opportunity to acquire massive capital and experience from businesses.
The flip side is that you may have to surrender some of your equity in your company, and you will be under pressure to perform well from a monetary point of view.
It can be revealed that consumers and businesses must consider it as a benefit and a disadvantage, respectively.
- Nonprofit Foundations and Organizations
Grants: It is possible to get funding for your affordable housing projects from several foundations, which is a noble cause.
Some of the large contributing organizations are
- Annie E Casey Foundation,
- Bill and Melinda Gates Foundation,
- Conrad Hilton Foundation,
- Ford Foundation,
- John D. and Catherine T Mac Arthur Foundation,
- The JPB Foundation,
- The Kresge Foundation,
- Melville Charitable Trust
- Oak Foundation.
These kind of foundations can offer a large amount of money and are usually attached with less condition as compared to others.
Partnerships: It is actually quite advantageous to work with these nonprofit organizations.
You should know that the partnership is about, be realistic about what you and/or your business are willing to contribute, have a good team / effective team members, and know potential repercussions.
- Crowdfunding
Housing projects need capital to function properly. To raise money by attracting small to medium investors, there are a couple of options which they can take.
Fundrise, Groundfloor, RealtyMogul and Crowdstreet offer a series of benefits including allowing owners or managers to reach out to investors who could potentially support your project.
Strategies: It’s not that you created an account in one of those crowd funding platforms and investors will throw their money into your housing projects.
For a successful crowdfunding campaign, you first need to pick the right platform according to your financial needs.
The second option to choose is aiming for the right network.
Hire a team of content creators to publish relevant, attractive, and fresh content so that buyers will be attracted to the offers you will set on one of those platforms.
Always stay focused and keep updating your backers about the progress of the project.
None can be achieved in a short span of time, but you are willing to give it time.
Getting funds and building a community on those platforms is what your housing project will need to be successfully completed, if you’re short on budget.
- Bank Loans and Financing
If you don’t want to pay a high percentage of compounding interest, then avoid this option.
However, if you are tight on funds then you can lend money from banks, subject to your housing project meeting the lending criteria of a bank.
Conventional banks offer fixed or adjustable-rate loans.
On the other hand, the government offers FHA and VA loans which you certainly can pick and choose according to your project needs to kickstart your construction.
Affordable housing often aligns with commercial ventures; find insights in our Best Commercial Real Estate Startups in 2024.
How to Prepare to Get Funding?
As we have talked about the various types of housing businesses that you can afford, now, we’ll explain how to get the desired funding:
Make a Solid Business Plan For Affordable Housing Startups
A thorough plan is like a business’s GPS– it directs you clearly to start and grow your company.
It can make you clear your vision, attract investors, and ensure your team is on the same side.
A business plan should include:
- An executive summary to attract investors
- Detailed company description of what you should do and avoid
- A deep market analysis to show what you know
- Details regarding your services or products
Think of it as your business’s blueprint, making sure it’s your business’s critical foundation.
Write the Perfect Pitch with these tips
Here, we’ll share a few best and tried tips to guide you regarding how to have the best pitch to win the trust of potential investors in the first look.
- Get to Know Your Audience: This means that when you are presenting your business to investors, you should sell them what they want to hear.
- Start with a Strong Opening: Start with a story or number that grabs a reader’s attention.
- Clearly Define the Problem and Solution: Describe what kind of business your company is in and how it solves customers’ needs.
- Highlight Your Business Model: Describe profit potential and reveal how your organization will generate revenue.
- Show Traction and Milestones: Show that improvement and important milestones have been made.
- Present Financial Projections: Report financial forecasts accurately and based on the evidence.
- Prepare for Questions: Recall and enact possible questions from investors.
- Make it Concise and Engaged: A positive and simple organizational format should be followed when preparing the document.
If you’re new to real estate, begin with our Step-by-Step Guide to Starting a Real Estate Business Without Money.
Final Thoughts
So, there you have it! Funding for affordable housing startups may seem complex at times, but with the right strategies it’s very easy.
Be sure to sell it, support it with statistics, and show that you sincerely care about it.
Regardless if you are specifically searching for investment funding or starting to look for grants or other sources of funding, tenacity and flexibility will serve you well.
The problem of affordable housing is solvable with proper planning, effort, and a pinch of creativity.
Lastly, if you still have any kind of confusion regarding the whole process to secure desired funding or to send the pitch to investors, Reliable Startup can be your mentor in the journey.
Stay tuned with us for more info like this!
