How to start investing in affordable housing

According to the National Low Income Housing Coalition, as of 2025, there is a shortage of nearly 7.1 million rental properties for those considered extremely low-income. This number only increases when you consider those in other income brackets who are still struggling to get by. More affordable housing is needed to alleviate this crisis, but how can this be achieved?

Investing in affordable housing is a way to earn money while helping people and improving the community. We’ll go over what affordable housing is and how you can invest in it, as well as the pros and cons.

What is affordable housing?

As defined by the U.S. Department of Housing and Urban Development, affordable housing is when the tenant pays 30% or less of their income to cover all housing costs, including utilities.

There are programs both public and private that try to make more affordable housing available to people who need it. You may have heard of Section 8 housing, for example.

Many government programs subsidize the cost of housing for eligible tenants. Charities and nonprofit groups also sponsored affordable housing. There also is “naturally occurring affordable housing,” which is priced so that those without significant income can afford it.

Today’s affordable housing market

There is a shortage of affordable housing in the United States, and there has been for quite some time.

In 2023, 49.7% of all renters in the United States were considered rent-burdened, meaning they spent more than 30% of their income on housing expenses. Surprisingly, this data point isn’t so different from what it was in 2022 and every year since 2011.

It can take a long time to move through the waitlist for affordable housing programs. The average wait time for subsidized housing in the United States was 2 years and 3 months in 2024.

Thresholds for low-income households

You might wonder how affordable housing programs decide who is eligible for support. While charities and nonprofits have the flexibility to set their own criteria, there are clear guidelines for housing subsidized by the government.

Access to HUD’s affordable housing programs is based mainly on the area median income (AMI) where the property is located. An individual’s age or physical disability also can qualify them for housing assistance.

For example, let’s say that the AMI for a one-person household is $60,000. Income brackets would be categorized by HUD like this:

• Extremely low income = below 30% of AMI (less than $18,000)
• Very Low Income = below 50% of AMI (less than $30,000)
• Low Income = below 80% of AMI (less than $48,000)
• Moderate Income = between 80% and 120% of AMI ($48,000 – $72,000)

Let’s consider the threshold for being rent-burdened. If someone is of moderate income here, making $50,000 a year, then their rent must be less than $1,250 a month to avoid being rent-burdened. Meanwhile, someone with an extremely low income, making $17,000 a year, would have to find housing for less than $425 a month.

As you can see, even those in the moderate income bracket might struggle to pay rent.

If you’re curious about your area’s median income, HUD offers an income finder. If you’d prefer a visual, check out the Fannie Mae income map.

Investors in the affordable housing market

There are many people involved in the affordable housing market. This is because it’s not strictly government subsidized. Anybody with the know-how, motivation, and resources can help expand affordable housing options.

If you plan on getting into affordable housing investing, you can expect to work with some of these key players:

• Affordable housing developers
• Affordable housing real estate investment trusts (REITs)
• Public housing agencies
• Affordable housing investors and lenders

Types of affordable housing

There are many kinds of affordable housing available.

Low-income housing tax credit (LIHTC) properties

The low-income housing tax credit was created by Congress in 1986 to encourage developers and landlords to offer affordable housing. If a property owner agrees to rent out a percentage of their units – at least 20% to 40% at a lower rate to low-income families making 60% or less of the AMI – they qualify for a tax credit. Rent must be set at a price that does not exceed 30% of either 50% or 60% of the AMI, depending on the location.

LIHTC properties are in high demand and often have long wait lists.

Housing choice voucher program (Section 8)

Section 8 vouchers are a way for low- and very-low-income people to pay rent. While the amount varies widely by locale, Section 8 typically is available only to people earning 80% of the AMI at most.

Someone with a Section 8 voucher can rent most properties regardless of whether the housing itself is classified as low-income. When they use their voucher, the government pays the difference between the actual cost of rent and utilities and 30% to 40% of your monthly income. Keep in mind that it is not illegal in some states for a landlord to refuse a tenant with a voucher.

The wait lists for these vouchers are very long, with many people waiting years.

Nonprofit or government-sponsored housing

Nonprofit and government-sponsored housing programs play a significant role in making housing affordable. Public housing is property owned by HUD and rented out to people who meet specific income requirements.

Nonprofits include such well-known organizations as Habitat for Humanity, a charity that builds homes for those in need. Another well-known charity is Mercy Housing, which offers affordable housing with services included for the elderly and disabled.

Workforce and middle-income housing

Many Americans earn too much qualify for Section 8 vouchers but still have trouble affording rent. This housing is available for those making between 60% and 120% of the AMI. The exact guidelines vary by state and might be different for owning versus renting. Some states even require this kind of housing to be available.

Community land trust (CLTs)

A community land trust is a nonprofit organization that holds a large piece of land with homes that they sell at a low price to those in need. The buyer pays only for the house and leases the land from the trust. That makes the price more affordable. When owner decides to sell, they sell the home back to the CLT at a low cost. This ensures that the home stays affordable for the next owner.

How investing in affordable housing works

While investing in affordable housing has many similarities to investing in other kinds of housing, there are some differences in how you find them and how you earn revenue.

Finding affordable housing investment properties

You don’t have to buy properties on the standard market. It may be worth looking into some alternatives.

• Historic buildings: Unused historic buildings can be acquired and turned into affordable housing. When this happens, you might be eligible for the Federal Historic Tax Credit.
• Foreclosures: These homes can often be purchased inexpensively, though they might require hefty repairs.
• HUD and Homepath homes: Both HUD homes and Homepath homes are specific types of foreclosed properties that are, again, inexpensive.

Revenue streams from affordable housing

Revenue from affordable housing investments come from a variety of sources, only one of them being rent.

You can gain tax credits as well as tax exemptions. One of these comes from opportunity zones. These zones are low-income areas recognized in 2017 to encourage those with substantial funding to create more affordable housing. Large-scale investors who have significant capital gains elsewhere can invest in affordable housing in opportunity zones and gain tax benefits. After 10 years, income from capital gains invested in the zone is exempt from taxes.

How to begin investing in affordable housing

If you’re interested in investing in affordable housing, you might be wondering how to start. Follow these four steps before putting any money down.

1. Do your market research

When getting into real estate investments, it’s always important to understand the market. Just as you don’t want to buy a vacation home to rent out at a resort location that’s been in sharp decline, you don’t want to invest in affordable housing in an area that has low demand and high supply.

Here are some of the questions you should consider when conducting research:

• How much affordable housing is available compared with the need?
• How long are the waiting lists for affordable housing? This will tell you more than just looking at income statistics, as not everyone eligible for affordable housing is looking for it.
• How many housing nonprofits and charities are active in the area?
• Are low-cost properties that could be bought and rented out at a net gain available?

2. Consider partnering with developers or nonprofits

You don’t have to get into this kind of investing alone. Look for a real estate investment partner who can balance out your own strengths and weaknesses.

Because this is a niche investment market, it’s important to find a partner who knows what they’re doing. Maybe you’ll be able to partner with a local nonprofit to expand housing options for those in need. Or you can find a developer who can build that much-needed housing, funded by you and an investment partner.

3. Exhaust all your funding options

We’ll cover some of your funding options later in the article, but there are many opportunities out there. On the downside, acquiring funding can be challenging, as many government grants are competitive or limited to specific regions. It’s important not to give up. Funding for affordable housing investment exists. It just might take some time to get it.

4. Consider working with an investment advisor

You might want to work with an investment advisor before financing a project. An investment advisor experienced in affordable housing can help you find financing and understand local laws and regulations while offering market expertise. They also can review the risks and benefits for your specific situation.

Ways to finance affordable housing projects

As mentioned, there are options when it comes to funding affordable housing projects. Much of this is gap financing. This is the money needed to fill the gap between what money is available and what is needed to develop affordable housing. This is a general term that isn’t tied to a specific organization. However, gap financing can be found through government subsidies, nonprofits, and donors. Here are some of the opportunities available.

Government-backed loans and grants

The most well-known funding source is the government itself. Federal, state, and local governments offer loans and grants to affordable housing developers. Many are offered through HUD.

Here are just a few federal programs and grants that provide funding and support to developers and investors in affordable housing:

• HOME Investment Partnerships Program
• Community Development Block Grants
• National Housing Trust Fund

To learn more about state and local opportunities, reach out to your local government or browse the Rental Housing Programs Database.

LIHTC

The low-income housing tax credit is a tax credit program that subsidizes affordable housing. If a developer agrees to set aside a certain amount of their properties for affordable housing, they receive a tax credit. Nonprofits, for-profit organizations, and individuals can take advantage of this credit when offering mixed-use properties.

Private and public partnerships

Given how competitive government funding is, you might also want to look at private and public partnerships. While these vary widely across the country, there are some that are available in most regions. One of these is the Affordable Housing Program, which is funded through Federal Home Loan banks. The Ford Foundation is a significant contributor as well, offering large grants to charities developing affordable housing and housing for individuals with disabilities.

Search online for what’s available near you. Don’t be afraid to ask around. Even if a foundation does not directly mention affordable housing, but it offers grants to bolster the community, it’s worth asking.

Benefits of investing in affordable housing

There are plenty of benefits to investing in affordable housing. Here are just a few of them.

Consistent demand

The demand for affordable housing is high. Even when you consider that not everyone eligible for it is looking for it, it’s reasonably safe to believe that there is still a significant demand. This is unlikely to change.

The percentage of renters (nearly 50%) who are rent-burdened and could benefit from affordable housing has been relatively stable for the last 14 years

Lower vacancy rates

Because the demand is so high and consistent, vacancy rates in affordable housing are low. At the end of 2024, these housing units sat at a 2.7% vacancy rate, compared with 7.6% for housing geared towards those with higher income, despite the available housing having grown more than 17% in the past 5 years. This means that even as affordable housing increases, vacancy rates likely will remain low.

Government incentives

There are several government incentives for affordable housing investors, particularly when it comes to taxes, subsidies, and grants.

The government backing of some affordable housing also reduces risk. If you manage a Section 8 property, the government still pays the subsidy even if a tenant loses their job.

Positive social impact

Stable and affordable housing is known to significantly improve the mental and physical health of occupants. Children perform better in school when they grow up without the constant fear of losing their home. Ensuring everyone in the community has a place to live builds a stronger and safer society overall.

Portfolio diversification

Diversifying your investments is usually a wise choice when it comes to real estate. You probably don’t want all your investment money to go into one thing due to changing markets.

Expected challenges when investing in affordable housing

Here are some of the disadvantages of affordable housing investing.

Regulatory hurdles

Because affordable housing is often subsidized by the government, there might be more regulatory hurdles to meet. For example, some regions prohibit using manufactured homes for affordable housing. Even when it’s allowed, you might face issues with local zoning laws.

Rent control

You might have heard that landlords make less money on affordable housing tenants. This is not necessarily true, as the government subsidizes the rent even if the tenant fails to pay. However, these properties might have to be rent-controlled, which means that even during times of inflation, the rent cannot be increased or can only be increased a small amount. Research has shown that rent control increases affordable housing to very low-income tenants while decreasing the housing available to those of moderate income who still struggle to find homes.

Higher than normal maintenance demands

You might have maintenance demands that are higher than average when offering this kind of housing. This is sometimes due to the fact that most of this housing is acquired through foreclosures, and such homes are more likely to need extensive repairs.

Because of government regulations on housing requirements, maintenance might take longer and be more expensive. If the housing is rent-controlled, you might have a smaller margin to pay for necessary fixes.

FAQ

Here are answers to common questions about investing in affordable housing.

What is the average ROI on affordable housing?

The average return on investment varies when it comes to affordable housing, as it does for anything. However, estimates suggest it’s usually in the range of 4% to 7%.

What is the maximum income for affordable housing?

Eligibility for affordable housing is based on AMI, which varies across the country, so there is no one maximum income. Areas with more demand may have stricter requirements. There also are other factors considered, such as disability, veteran status, and age.

Do you need a license or certification to invest in affordable housing?

No. There are certification options for managing such properties, such as the National Affordable Housing Professional Certification, but they aren’t generally required.

Can you invest passively in affordable housing?

Yes. Look for real estate investment trusts that manage affordable housing if you’d like to get involved without getting too involved.

The bottom line: Investing in affordable housing will take extra effort

Affordable housing is a worthy investment that can contribute greatly to a community’s qualify of life. There are many benefits, but there are also complexities that come with working closely with the government. Funding opportunities are widely available, though there can be a lot of competition for them. Be sure to research your area before investing.

If you think you’re ready to look for investment properties or find out what you can afford, start the approval process today with Rocket Mortgage^®.