As one of the major participants in product development for investors along the gulf coast, I have been keeping a close eye on a further incentive recently approved. As national sales director of the real estate firm for a large bank, one of my responsibilities has been to provide the most up-to-date information and key available incentives in the gulf coast region. On Friday July 13th, the final amendment was finalized for the HUD Small Rental Assistance Program in Hancock and Harrison County, Mississippi. First, let me start off by saying that HUD's intentions for this program was to entice more investors to build new rental housing and provied rentals for those who make less than 80% of the median income. HUD wants to subsidize rent and make it truly affordable for locals needing affordable rental properties. Let me tell you a little about the unique situation. People, this is not Section 8. After the hurricane, thousands were left homeless and carless. Amongst those thousands, most of them had to find alternative housing and transportation. With the incurred expenses of that, they had to let go their home loans and car loans on the ones washed away. This meant a default on their loan or foreclosure/repo (if that's what you want to call it). Many who were left without jobs have in the past year re-gained that job or found another.

In addition to those unfortunate families/individuals, there is a major influx of jobs becoming available. One of the biggest demand for employees now is the hospital in Hancock County. They are begging nurses and doctors to work, however, the only holdup is NO HOUSING. Out of state potential employees in the medical field cannot even find a place to rent in the papers. There simply just isn't enough. Aside from the doctors and registered nurses, most of the first year employees make 80% or less of the median income of $42,000.

The HUD small rental assistance program is once again, an incentive for an investor to build rental property with a subsidized rent. HUD is offering a 5 year forgivable loan in the amount of $30,000 for a single family home with a 90 day completion bonus of an additional $10,000 typically only good if you are building modular, which is what I am doing. What this means is that for a single family home(s) purchased, your rent is subsidized at 80% of the market rent on 51% of your investment properties in the area. An incentive on top of the incentive is that for 49% of your homes, your rent is going to be paid at 120% of the market rent. The market rent for a 3 bedroom house is $1057 per month. You can see the obvious incentive by building numerous.

Let's say you own 3 homes. Two of those homes are going to be subsidized at 80% of $1057. You will get a rent check from the tenant each month of $846 per month. For the 3rd home, you will receive 120% of the market rent of $1057. You will be paid monthly from the tenant in the amount of the 80% rent of $846, however on top of that, the state is going to send you an additional 40%, increasing your total monthly rent to $1250 per month on that house.

The way the forgivable loan is issued is you get 50% after permits are issued from your builder and 50% at tenant occupancy. In my opinion this is a fantastic dispersement schedule one that you can leverage much greater your current and potential equity in the house.

What this does is creates truly affordable homes in the selected counties. The state of Mississippi has allocated over $220 Million for this program and will likely run throughout this and next year.

Duplexes are slightly different. Because a duplex is 2 housing units, the forgivable loan increases nearly 70% total. It is very hard to complete a duplex in under 90 days so chances are you will not get the completion bonus. But for the very few available duplex builders out there, this is a great opportunity in addition to single family homes. Because this is brand new and I had more attention on the single family homes, please keep updated on my next entry for the complete details on how duplex situations work.

Here are the criterias. You must hold the rental as a landlord for 5 years for the $30,000 to be 100% forgivable. This does not include the bonus completion award of $10,000. That is forgivable from the start. If you sell at the 3rd year, you will be able to keep 33% of the loan. After the 4th year if you decide to sell you will be able to keep 66% of the loan. After the 5th year, it is 100% forgivable and as reported is not income, but a grant. Therefore the funds are TAX FREE.

Here is an opinion on what to do with the funds: Get an aggressive construction to permanent loan for a preconstruction home/duplex. You will likely have a prepayment penalty during the first year of your end-loan after completion of the home. Your negative cash flow will be anywhere from $200-$400 per month if you consider the 80% subsidized rent. This is totally offset by the forgivable loan. Let's say (counting the completion bonus) you have $40,000 up front from the state. If your negative cash flow per month is on the higher end of $400 per month, your negative cash flow for the first year on the home you are at 80% with is approximately $4800. Big deal...Now instead of $40,000 you have just over $35,000 left. Personally, what I would do is after the first year, refinance and pay down the principal of the house with what you have left. Now you have just created yourself a cash cow by making boo-koo bucks per month on a $100,000 loan or so when the house is valued by anywhere from $50,000 and higher than your new payoff.

This is not too complicated but one that still requires further due diligence. Applications for this are not going to be available until at least July 16, 2007. Investors, start your engines. Between this new HUD incentive, the go-zone write off, and the expected appreciation, you may never find yourself in another position such as this.

More info on your stop foreclosure information search:

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