The White House has just unveiled some very big news that may mean big business for real estate investors and homebuyers. As part of his trillion-dollar infrastructure package, President Biden has officially announced the Neighborhood Homes Tax Credit to spur the development and rehabilitation of affordable homes.
In a nutshell, investors who rehab older homes can claim a credit on their tax returns, as long as the home itself is located in an area facing gentrification, the homebuyers fit the income profile of the neighborhood, and the sales price does not exceed four times the area median family income.
Why Now?
It’s no mystery that our country is facing a severe shortage of new homes for sale. The new proposal offers a new path to help alleviate that reality, especially for low- and moderate-income homebuyers. The credits are also designed to increase homeownership opportunities for underserved communities, create jobs, and protect against gentrification.
According to the White House brief, “approximately 40 percent of U.S. housing stock is at least 50 years old and more than 15 million properties are vacant even as families struggle to find affordable housing.” These distressed properties reduce values for the community as a whole but present an opportunity for willing investors.
We dove into the details of this breaking news and will break it all down for you here.
What Type of Homes Qualify?
Homes must be located in locations with very specific requirements: about one in four census tracts according to the White House, areas most primed for revitalization.
- Poverty rate of at least 130% of the area poverty rate
- Median family income below 80% of the area median income
- Median home values lower than the area median value
The property must be a single-family home (including dwellings with up to four units), a condominium, or a residence in a housing cooperative.
Are There Any Restrictions on the Sale?
Homebuyers cannot have incomes more than 140% of the area’s median income. “This will enable low- and moderate-income buyers – including homebuyers of color – to purchase their own homes and build wealth,” the White House brief notes.
What Will the Credit Cover?
The tax credit will cover the difference between the renovation (including acquisition, rehabilitation, demolition, and construction) and the sale price—but on a budget. Homes may only sell for up to four times the area median family income.
How Do I Apply for a Credit?
Your state housing finance agency will handle the tax credits, to be allocated by population. Investors, lenders, and local governments can compete for the funds, pegged at $20 billion in the Biden plan, through an application process.
What Does This Mean for Investors?
Assuming the new proposal passes through Congress, flipping distressed homes has just become even more attractive. Investors who renovate qualified properties and sell to eligible buyers could claim a credit on their tax returns. With unsold inventory sitting at record lows and homebuilders struggling with record-high material costs, this approach offers a real win-win for investors.
New Opportunity. New Western.
Homebuyer demand is incredibly high and there are simply not enough homes available. Meanwhile, current economic factors make it problematic for builders to meet the demand. These conditions make the aged housing inventory New Western delivers an exceptional opportunity for investors to revitalize. With the administration’s new proposed tax credit added to the mix, it’s an even more appealing proposition for real estate investors.
As the largest private source of distressed properties in the nation, New Western is uniquely poised to help investors identify qualified properties to take advantage of this new tax credit. Contact us today and see how we can help you find the right deal for your investment strategy.
