Part 1 of this series focused on the challenge Portland faces regarding affordable housing, as well as the unique opportunities afforded by the city leadership to help solve this problem. Part 2 focuses more on the actual implementation of solutions and how, even with limited resources and capital, meaningful progress can be made.
In Part 1, we looked at how the City of Portland has opened a door to providing affordable housing units within the city limits at a fraction of standard costs. This is great news for the city’s unhoused residents and those who are struggling to make ends meet, but the code’s requirement that units be dispersed prevents large, commercial multi-family developers from being able to capitalize on the economy of scale they receive from centralized projects.
In addition, scale operators aren’t really interested in being creative or trying something new. Despite those challenges, however, there are two sectors perfectly positioned to take advantage of these codes to both help those in need and create a return.
Religious institutions can benefit in numerous ways
Let's start with this sentence of the code, which is particularly intriguing: “Up to four occupied recreational vehicles are allowed in the parking lots of religious institutions.” There are more than 700 churches within Portland city limits, and when you factor in other religious institutions, centers, and affiliated buildings, the number of religious properties grows to more than 2,000.
Despite that large number, however, many religious institutions have seen a decline in attendance over the past decade that was accelerated by the covid pandemic. Churches are aware of their potential to contribute as a solution to affordable housing, however most of the proposals they put forward are more extreme and involve the sale of church property to be cleared for a public affordable housing development. [1]
Using our figures from Part 1, adding 4,000 housing units is the aspirational goal to make a real difference for the city. If you assume four units per property, per city rules, the goal is achieved if with only 50% participation from the churches, and no disruption to the property other than leasing 8-10 parking areas or equivalent ground area for the rentals.
In addition to sheltering the homeless, placing these units into existing church properties present some unique advantages:
- A new revenue stream: Declining attendance has led to a large number of these institutions facing financial difficulties. But opening a small portion of their property for housing provides a stable revenue stream without compromising the rest of the property.
- Integrated housing for congregants: As many churches already work with underprivileged and homeless individuals, providing on-site housing would simply be a means to extend this offering, thus serving church missions in a more complete manner.
- In-place supportive community: One significant challenge to affordable housing is a lack of true community to support and welcome someone who has recently experienced homelessness. Situating this housing adjacent to a religious facility presents an “in place” community into which these new residents can be welcomed.
- Leverage underused infrastructure: Many churches have commercial kitchens, bath facilities, and excess power/water that can be leveraged easily to accommodate these housing units.
Single family home lots can provide additional housing
While the church property presents the best use of the Portland ordinance, there is also a compelling strategy to enhance the investment value of single-family rental homes in Portland. As an owner of multiple single-family rentals, I can personally attest to this investment product. From there, it’s possible to take the investment even further by strategically acquiring properties that have space to accommodate an additional housing unit. This setup presents an ability to significantly increase rental revenue in a streamlined fashion.
With either religious institutions or private homeowners, the best investment option for getting started quickly is the manufactured or modular home.
Placing modular structures in religious institution parking lots and single-family home lots is the fastest and most capital-effective way to introduce a large number of housing units to the city. And that’s not just an educated guess—I’ve spent the bulk of my career developing creative ways to deploy modular and manufactured housing across the Pacific Northwest, and from my experience no city is more supportive of this housing type than Portland. In fact, Bridgeview Asset Management has worked with a variety of housing types that could easily accommodate 1-2 individuals. These units adhere to the city requirements outlined and can be readily set up with full kitchens and bath facilities to provide truly independent and affordable living conditions.
Affordable housing opens a door to homeownership
Affordable housing is only the first step. Attractive financing can allow residents to purchase these units vs. rent them, which gives them a means to not only be housed, but also to build wealth and savings. And from a management perspective, having homeowners vs. tenants creates both a more stable, long-term housing situation and better motivation to care for the property. Additionally, these homes then become a “savings account” that residents can sell, transfer, or even move to a new location as circumstances change. The list of benefits that comes from owning an actual asset instead of just renting a living unit is long.
Investing in on-property rental units: A financial analysis
To put numbers to this concept, here’s an example of an estimated cost to implement adding four modular units to a church property, including utility setup, unit purchase, and ongoing cash flow analysis. (Adding these units to a single-family property would be similar.) These numbers are only a general representation and are subject to change depending on circumstance, but provide a reasonable assumption of what an investor could expect:
Capital Costs
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Unit cost (4x container-style, 8.5’x20’ studio units
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$120,000
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Electric setup (200-amp service, branch 4x 50-am connections)
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$25,000
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Plumbing setup (4 frost-free hose bibs)
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$12,500
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Sewer setup (4x branch sewer connection)
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$8,000
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Site prep & landscaping
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$10,000
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Unit setup & leveling
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$10,000
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Total
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$185,500
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Cost Per Unit
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$46,375
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Table 1. Capital Costs Church Investment
The initial capital outlay includes relevant permitting and soft costs associated with set up. Beyond that, the ongoing operating expenses are shown in two forms, the first of which demonstrates a “pure rental” scenario whereby units are rented with no home purchase:
Cash Flow
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Rental
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Annual
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REVENUE
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4 units x $900 per month
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Rent
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$3,600
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$43,200
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COSTS
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Management (8.00%)
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$288
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$3,456
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Maintenance
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$150
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$1800
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Land lease
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$800
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$9,600
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Total
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$1,238
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$14,856
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NOI
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$2,362
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$28,344
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Unleveraged ROI
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15.28%
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*Tenants pay utilities directly via separate agreement with host church.
Table 2. Rental Cash flow analysis
As can be seen in Table 2, a compelling, unleveraged, return on investment can be obtained simply through a rental system. There is no increased tax burden on the property, either, because the city of Portland does not consider these units to be structures.
Now, let’s talk about selling these homes to residents. For reasons already discussed, this makes for more sustainable living and host arrangements for churches and tenants alike. And for investors, it also provides an excellent capital investment opportunity -- as the entire initial investment can be recouped while still keeping the stabilized cost of housing under $900 a month.
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Ownership
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Annual payment (15-year am, 8.00% interest)
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REVENUE
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Home sale price
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$50,000
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($5,841.48)
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Rent
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($400 rent)
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$1,600
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$19,200
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COSTS
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|
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Management (8.00%)
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$128
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$1,536
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Maintenance
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$150
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$1,800
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Land lease
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$800
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$9,600
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TOTAL
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$1,078
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$12,936
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NOI
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$522
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$6,264
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Unleveraged ROI
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N/A
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Table 3. Home sale cash flow analysis
As can be seen in Table 3, a sale price that keeps the cost of housing under $900 per month allows for a complete return of capital to investors plus an annual income. There are several third-party lending agencies that provide financing for homes of this type, so it is likely that financing can be provided via conventional means. I am presenting this data in an “investor friendly” manner, assuming no non-profit/philanthropic involvement to help subsidize the costs of this endeavor. Obviously, the introduction of these resources allows for a further reduction of rent and housing costs.
Here’s how to get started
Hopefully this brief overview of the unique environment and opportunities that exist in Portland has provided a foundational knowledge of how the private investment community can generate an immediate impact on housing in the city. A critical next step is educating and informing the religious community of how this can truly work synergistically with church infrastructure and goals. These entities are, understandably, wary of private investors making promises regarding their property, so establishing “proof of concept” with an institution willing to try this strategy is necessary to establish wide scale adoption of the strategy.