One of the biggest hindrances to purchasing a residential or commercial property for most developers is getting their hands on capital. Investors and property owners looking for capital to rehabilitate their properties face a similar problem. Although real estate flipping has become one of the most lucrative investment opportunities in the real estate industry, the available financing options to purchase below-market value properties and rehabilitate them for profit have slowed.
Grants have become the best source of capital for real estate developers looking to rehabilitate their properties. However, you need to be knowledgeable about how you can get approved for a grant. We will discuss the steps you can take to get a real estate grant for rehabbing a property.
Steps to Get a Real Estate Grant
1. Target the state and local government grants because they are easier to qualify for and be granted. Federal grants are earmarked before they are released, hence in most cases, individuals who apply are denied the funds. Make sure you research municipalities, cities, and states that are giving out grants for real estate development to give you an idea of where to apply and gain insight into areas that qualify for the grants.
2. Create a plan indicating why you think you are the right person for the property rehab grants. Real estate developers looking to buy a property and improve it through rehabilitations should show why they think their development project should get the funding and how it will impact the local community. Ensure you write a concise and clear application letter with all the details when asking for the grant.
3. You are also required to write an executive summary detailing why you applied for the grants and clearly show how getting the money will help you rehab the property.
4. The need statement highlighting why getting the funding will be helpful to the community at large. It is important to note that the grant’s sponsor is more likely to approve a grant if it helps other people.
5. Writing a budget and timeline of when you expect the project to be completed is also helpful when applying for a grant. It also makes it easier for grantees to follow your progress and gives them confidence that the funds will be used appropriately.
How to Find Grants for Rehabbing Real Estate
Rehabilitating a property comes with costs that go into construction, renovation, improvements, and repairs. Many state and federal grants are available for real estate developers to rehab properties. Here are some of those grants:
Housing Preservation Grant Program
The U.S. Department of Agriculture (USDA) sponsors this program which helps very low-income residents renovate and rehabilitate their properties. Rental properties in low-income neighborhoods also qualify for this type of grant. To be eligible for this grant, one must be a resident of a low-income area, a nonprofit organization, a tribal-state, or a local government entity. Low-income individuals are given an amount not exceeding $7,500 for their repair works or to remove health and safety hazards on their properties.
Self-Help Homeownership Opportunity Program
This grant, sponsored by the U.S. Department of Housing and Urban Development (HUD), helps low-income home buyers to purchase their first property. It also has a provision that allows low-income buyers to use the grant money to rehabilitate their properties.
Emergency Capital Repair Grant
The HUD’s Emergency Capital Repair grant is for families looking for money to carry out emergency home repairs. The maximum amount offered for this grant is $500,000. There is also a requirement that the house undergoing repairs should serve a valuable purpose for the community or its neighborhood.
Farm Labor Housing Loans and Grants
Farm Labor Housing loans and grants, sponsored by the U.S. Department of Agriculture, finance and help farm owners to rehabilitate their properties. It also funds renovations and can be extended to farm laborers, such as seasonal and year-long laborers. To be eligible for this grant, one needs to be a U.S. citizen whose income comes from working as a farmer. The grant is also extended to nonprofit organizations and corporations, tribal and local government agencies, and farmworkers.
Do I Qualify to Get a Real Estate Rehab Grant?
As a real estate developer or a homeowner looking for capital to rehab your property, you should ensure that you qualify for the grant you are applying for. Different types of grants are tailored to meet different demands and therefore have different requirements. Below are some of the requirements you should look for before applying for a grant:
- Demographics: Grants may be released to specific demographics such as low-income residents, Native American tribes, Section 8 beneficiaries, and farmers. It is important to know that both federal and state grants are very specific on what demographic a given grant should go to. Therefore, you should pay close attention to these details.
- Profession: Some grants require applicants to work a certain job or earn below a certain amount to qualify. Grants targeted at low-income earners and farmers are examples of profession-specific grants.
- Geographical: Grants may also be given based on the locations of the applicants. State funds, for instance, are targeted towards local communities, and therefore, it is important to know the type of grant you are applying to.
- Organizations: The government directs most federal grants towards private, nonprofit organizations that develop properties for underprivileged communities. Therefore, grants such as Emergency Capital Repair Program (ECRP) help these organizations, where the money is provided for them to fix section 8 rental assistance buildings, including renovations and rehabilitation.