I do a lot of work w/ subsidized housing and see this frequently. HAP means Housing Assistance Payment. Basically it is a Section 8 contract for your entire property.
Many of the contracts that were written in the 1970s and 1980s are now expiring or are on annual renewals (i.e. could go away within a year). As Mark found out the hard way, HUD is not obligated to renew these contracts, and if they do renew, they can “mark to market” meaning if you have above-market rents at present, you will lose them.
The main reason people are interested in selling these properties right now is because the HAP contract has expired or is about to expire. If that is the case, I could not recommend that you get involved in the property without having someone involved with some prior experience in subsidized housing, both for the purposes of knowing what your various options are and how to navigate them.
54 unit apt. complex under HAP contract- - Posted by Jen-LA
Posted by Jen-LA on November 01, 2000 at 12:55:29:
Hi- I haven’t posted here in a looong time- I had a baby 6 weeks ago and have been a little (“outa pocket” as my cheesy re agents likes to say when he doesnt return my phone calls- but anywaaaay)- my hubby and I are about to sell a rehab and will have a chunk to put into something bigger that will generate some cashflow for us.
Well, we found this 54 unit apt. complex near downtown (in a soso area that is near an area which is being revitalized and will probably be really nice in several years- probably)
They are asking $650k for it- it needs some cosmetic work (broken windows etc.) but the main drawback i see is that it’s sort of a slummy- project type complex (used to be nice in the 50’s) and it’s under a HAP contract until 2004 or so.
The apts rent for 485-525 the agent said and 80% are occupied with a gross each month of $18,000 (at least) with a potential of 25 or so. The owner is willing to take a second for 50k.
This seems almost too good to be true and we are really not familiar with hap and what comes with it. I get the impression it’s a lot like section 8 (which isn’t bad b/c you get paid by the gov’t, but the agent said you have to fill out paper work etc. to get the money??)
I don’t know. We have just started investigating it and don’t know a lot about it yet, but were wondering if anyone knows anything about hap or has exp. with big apt. complexes.
Re: 54 unit apt. complex under HAP contract- - Posted by ray@lcorn
Posted by ray@lcorn on November 01, 2000 at 15:42:50:
Jen,
Please read my article titled “Analyzing Commercial Real Estate: Due Diligence” published in the How-to Artcles section of this web site. You can either access the menu from the top left navigation bar on the newsgroup, or go to the direct URL at http://www.creonline.com/articles/art-148.html
Be very careful with subsidized housing programs. Whether state or federal, my experience has been that they write the leases and agreements entirely biased to the agency and the tenant. Mark’s experience below is a very typical endgame to many of these scenarios. Further, be sure you get the real income and expense numbers before deciding on how good of a deal this is. Many times I have been offered a property at what seemed to be a bargain price, only to find out there is good reason for the bargain. Be sure to quantify the deferred maintenance needed, especially heating and air conditioning systems. Lead paint is also a huge issue with government subsidized units, and it would behoove you to examine the latest lead paint regulations available at the hud website.
Proceed carefully, and let us know more details as you find them out.
Re: 54 unit apt. complex under HAP contract- - Posted by Mark (SDCA)
Posted by Mark (SDCA) on November 01, 2000 at 13:04:04:
I would be VERY careful with this. I bought a property under a similar program in AZ. The rents were well above market. That was all well and good. The problem is that when the contract expired the property converted to a straight Section 8 and I could not fill the vacancies with Section 8 tenants. (No applications.) So I had to go on the market and fill 75% of the units with at market rents. So the cap I thought I was getting lasted only 6 months. It may be a deal but do your analysis VERY carefully as to what market rents are in the area.