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MDA Small Rental Assistance Program

Here is a very good pro form on how the SRAP is going to work and some details. This is based off our clients' GFE's (Good Faith Estimates) from their lending source, in addition to our own due diligence on the program.

The MDA SRAP is designed to offer four types of assistance to landlords in Hancock, Harrison, Jackson, and Pearl River Counties, Mississippi:

-Rental income subsidy assistance

-Repair or reconstruction reimbursement for Katrina-damaged property.

-Reconstruction or conversion reimbursement for non-Katrina damaged property.

-New construction reimbursement

The MDA Small Rental Assistance Program is designed to assist landlords in creating affordable rental units. Although the MDA has been difficult to work with, we have been involved for nearly a year and are nearly certain that all of the "red tape" has been resolved and that they are fully committed to see the SRAP through. The MDA SRAP is available in only four counties along the MS Gulf Coast, exemplifying the need for affordable housing. As much of the state and Congressional funds are going toward additional infrastructure, the MS Gulf Coast is relying on the private sector and real estate investor market to assist in rebuilding the residential portion.

For those of you who would like a detailed analysis of the MDA SRAP, please call us for a one-on-one consultation, but for those of you that would like it in layman's terms, here it goes:

The SRAP allows investors to purchase a maximum of 5 building and up to 20 units, thus allowing you to purchase up to a quadraplex or 4-unit building as 5 buildings would give you the maximum of 20 units. Although many investors do not purchase that many, the SRAP is very lucrative for single family home and duplex construction. The problem that we are having with quads is that the MDA is requiring strict specifications on anything more than a duplex. Sprinklers must be installed and units must be ADA compliant, or handicap accessible. Although feasible, it gets very expensive to do this.

If approved for the MDA SRAP, you are going to be awarded with a "forgivable loan" in the amount of $27,500 for every 3 bedroom unit that you open into rental service. (Single Family is 1 unit, Duplex 2 units, etc.) If the builder completes the home within 180 days from the date the building permit was issued, an additional $9,000 will be awarded as a completion bonus. This now totals $36,500 per 3 bedroom unit that you open. A duplex would get a total of $73,000 if approved and awarded the completion bonus. So for now, just know that each door that you open and is designated as an individual 3 bedroom unit, your total is $36,500.

Now don't jump out of your seat yet. This is again called a "forgivable loan." The money is to subsidize your rent for any negative cash flow you may incur while renting your units within the means of the rental rate factor that I will get into in the next paragraph. Your commitment to the MDA is to hold these homes or units in this program for 5 full years. Prior to issuing you your funds, the MDA will place a subordinate lein on your real estate that is applied to this program. Consider the $73,000 as a temporary home equity line of credit (HELOC). Upon the 5th anniversary of ownership, the MDA releases this lein position and you are awarded to keep the surplus of the funds remaining. If, for example your negative cash flow per month is $100 on your unit, this equates to $1,200 per year or $6,000 over 5 years in negative cash flow. If a single family homes is applying here, you have $36,500 from the MDA in a forgivable loan and completion bonus, less the $6,000 after the 5th year which is your negative cash flow, giving you a profit or surplus of $30,500. This is not including any housing market appreciation. But always remember, for every 3 bedroom unit you open allows you to apply for the $27,500 plus completion bonus. There are no step-down clauses. If you apply and are approved, you get the entire amount.

For all units that you own, 51% must be rented at 80% AMI, which stands for Area Median Income; Tenants occupying these units may make no more than 80% of the areas median income. The rental rate for the 80% AMI units stands today at $1,057. So 51% of your units can be rented for $1,057, and no higher. This must include a utility allowance to your tenants of $100 per month. If you consider a $1,057 rental rate and apply the $100 utility allowance, you will net $957 per month.

For 49% of the units you own, they may be rented to tenants that make up to 120% of the AMI or Area Median Income. Well 120% rental rates according to HUD is $1,586 per month. I will be the first to tell you that you will not rent your home for that 120% amount, however, the recent increase of the 80% AMI from $836 to $1,057 has given us HUGE leverage.

It is stated that you must own 3 single family homes in order to rent just one at 120%, however on a duplex, you are allowed to rent one unit at 80% and the other at 120%. I have broken down the numbers to the right, but don't divert there yet! There is still a little more to discuss so that you understand.

The SRAP is a program that requires an application, $50 fee, and all of the documents such as the construction contract, warranty deed on your land, etc. The money is considered sensitive to the state and it is just not something you apply, ask, and get. It is a lengthy process and we have a staff member who is willing to assist in everyone's application for a $250 fee. Being that we have done these before, we can make it less confusing for you and go through the application line by line.

The MDA SRAP is not guaranteed. It must be applied for and has strict specifications, both on construction, and on the individual investor. If the investor qualifies for the loan to purchase the units outside of the MDA, then that investor should be qualified for the SRAP in terms of financial capacity.

The most distinct criteria that we are noticing a lot of investors failing for is the Base Floor Elevation. You MUST comply with the Advisory Base Flood Elevation (ABFE), which many builders ignore, however is a requirement for the program. Building under the ABFE would be considered negligent in our opinion.

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