Creating Community and Building Wealth: My Investment in Workforce Housing – Part Two
Real estate investments can be a smart choice for savvy investors. Investing in alternative assets, such as real estate, can enable you to diversify your portfolio and enhance its profitability, helping you to grow your wealth and achieve your financial goals.
As I shared in a recent blog, I’ve ventured into this asset class with an investment initiative in a major workforce housing project in Los Alamos. The goal of my project is to address the lack of affordable housing in the area; by enabling employees to live near where they work, the project can provide a foundation to build a lasting community and strengthen the region’s long-term economic resilience.
All real estate development projects bring challenges that need to be overcome—I can attest to this with my Los Alamos project. However, with strategic planning, strong partnerships, and a winning team in place, a real estate project can be well-positioned to succeed.
Challenges Facing Real Estate Investment Projects
Housing development projects, like workforce housing, can often face some serious challenges that can impact a project’s progress and outcome. Understanding and anticipating these challenges can help you successfully deliver housing that meets local needs, while also fostering community support and ensuring financial viability.
Zoning and Regulatory Barriers: Zoning laws and local regulations can pose significant hurdles to real estate projects, as regulatory requirements in many areas can limit the types of housing that can be built. Developers may need to engage in lengthy negotiations and meetings with local governments, which can add time and costs to the project.
Community Opposition: Community opposition, or “Not In My Backyard” (NIMBY) opposition, is a common challenge in housing development projects (including mine). Existing residents may fear that affordable housing will negatively affect their property values, cause an unwanted increase in traffic, strain their existing infrastructure and resources, or change the character of their neighborhood.
Land Acquisition: Finding and acquiring land for projects can be difficult, particularly in high-demand areas where land is expensive and scarce. In a competitive real estate market, the challenge can be significant in finding a site that has the desired proximity to employment centers, transportation, and amenities.
Construction Costs and Delays: Rising construction costs are widespread across the country, driven by labor shortages, price fluctuations for building materials, and supply chain disruptions. Projects can also suffer construction delays due to weather conditions, permitting issues, or unexpected site challenges.
In my Los Alamos project, the zoning codes restrict the construction’s height, limiting the building density; this impacts my ability to effectively amortize the land cost. Municipal infighting and turf wars have led to inefficiencies and delays in my project as well.
Los Alamos has insufficient or overpriced land for workforce housing development, impacting investment return and decreasing the interest of potential investors. There’s also a lack of existing commercial space, hotels, or apartments for deconversion, which are cheaper than new construction.
Lastly, the unstable cost of building materials and a contractor labor shortage in Los Alamos have also been issues, creating a “chicken vs. egg” dilemma. Each factor exacerbates the challenges the other poses, making it difficult to decide which to address first and how to move forward.
Partnerships Are Key to Any Real Estate Investment Project
Partnerships are the lynchpin for real estate development projects.
As a developer, you need to coordinate the myriad of county and municipal departments to get everyone on board and obtain a “buy-in” of the project. Establishing strong relationships with government officials will help you navigate zoning and regulatory issues, secure the necessary approvals, and help address community opposition. Build that trust to facilitate a smoother development process.
You have to obtain a “buy-in” from major local employers as well, who will most likely subsidize the housing rents. Position yourself to promote a shared vision so they can see how they benefit from your project.
You also have to attract and evaluate local talent, and create your team of realtors, architects, contractors (and sub-contractors), as well as attorneys. Working with professionals who have experience in affordable housing and similar development projects can increase the success of your project—they bring knowledge of best practices, and experience to anticipate and address challenges before they become significant obstacles.
Constant communication is pivotal; collaboration and expressing information clearly and effectively will keep your project on track.
Plan for Success in Your Real Estate Investment Project
Success in any housing development project begins with thorough planning and risk management. Conduct your market research, develop realistic budgets and timelines, identify potential risks, and have contingency plans for any unforeseen challenges. Study similar communities and how they resolved the same issues you’ll likely encounter.
Create and innovate: stay informed about the latest industry trends and technology, and leverage that innovation to give your project a competitive edge.
Nurture continuous engagement with the community to build and maintain support for your project. Hold public meetings, provide updates, and be responsive to concerns—being transparent and inclusive can help prevent opposition and foster positive relationships with the community.
Practice effective project management to keep your project on schedule and within budget. Make sure you listen to feedback from your team, and be prepared to adjust and adapt as needed.
How Self-Directed Investors Can Engage in Real Estate Investment
Getting involved in workforce housing development projects as a self-directed investor can contribute to not only achieving financial goals, but bettering communities as well. You can start the process by identifying investment opportunities that appeal to you, and being extremely thorough in your due diligence.
Do your own homework on the targeted community. What are the demographics of the area, including average gross income and workforce education levels? How is land access, or are there challenges in land acquisition?
Carefully review the pitch decks and the offering memorandum of the real estate project. These will give you the details and vision of the project so that you can make informed decisions. When practical, do an onsite visit to conduct a firsthand assessment of the property, surrounding area, and market potential.
At Chicago Trust Administration Services, our knowledge and experience can help you leverage your self-directed IRA to invest in real estate opportunities. Our team is dedicated to providing the necessary regulatory guidance and compliance for alternative investments in your self-directed IRA, so that you can focus on pursuing opportunities to realize your investment goals.
To see how we can help, we invite you to schedule a complimentary meeting with us by calling 312-869-9394 or emailing steve@ctasira.com.
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*The content and opinions in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.
**CTAS professionals are not financial advisors and cannot provide advice or recommendations regarding specific investment decisions.