Scattered Site Rental Toolkit:

Business Planning for Development & Management










VI.B. Fitting the Funding to the Project


SSR development projects, like other types of affordable housing, often take some creativity in order to obtain adequate funding. There are a variety of ways to SSR projects and challenges associated with each funding source.

Pre-development is often the most difficult project phase to fund, though it is critical in determining the feasibility of a project. Examples include engineering and architectural fees, legal fees, costs associated with acquiring and securing the site, and the cost of application preparation. Lenders often see these costs as high risk, and are reluctant to fund them. If your organization is lucky enough to have available reserves or lines of credit that can be used for this purpose, this may not be such a difficult hurdle. However many smaller non-profits do not have this luxury.

A number of States and some local governments offer some type of financing for this purpose. In addition, Neighborhood Stabilization Program (NSP) funds may be used to cover some of these costs. Community Development Financial Institutions (CDFI) may be another source of funding for this purpose. CDFIs are active in every State, and may also be a source of construction and permanent financing.

A good general guide to affordable housing finance:Financing Mechanisms for Affordable Housing (2007), an Enterprise Community Partners publication by Peter Werwath.

The Low Income Housing Tax Credit Program (LIHTC)

While this is the most common source of funding for affordable rental projects, the LIHTC program has a couple of particular characteristics that should be considered when using this as a funding source for SSR development.


Though the qualified allocation plans (QAP) developed by individual states are different, the LIHTC Program is typically geared developments of roughly 20 to 80 units.For SSR development, individual housing units should be bundled into one project for which a LIHTC application is submitted. The positive aspect of this approach is that SSR development is better done in clusters and economies of scale can be realized. The challenge with this approach is that getting and holding control over this number of units through the application process can be difficult.


The LIHTC program cannot be utilized to fund a short-term lease purchase program. As discussed in the previous chapter, the LIHTC program can a key source forlong-term lease purchase program for which it requires properties to be rented for 15 years before they can be sold. This can create a disincentive for would-be homeowners to lease such units.


The following paper discusses opportunities and challenges associated with the LIHTC Program and corresponding policy implications: Long-Term Low Income Housing Tax Credit Policy Questions (2010) by Eric S. Belsky and Meg Nipson of the Joint Center for Housing Studies of Harvard University.


The HOME Investment Partnership and Community Development Block Grant Programs

The HOME Investment Partnership (HOME), Community Development Block Grants (CDBG) are programs funded through the U.S. Department of Housing and Urban Development (HUD) and administered by state and local governments that may be used as the primary funding source or as gap financing for SSR projects. It must be noted that local government administrators have some discretion as to what activities these federal program fund in their jurisdiction, so SSR development may not be an eligible use in your jurisdiction.


A number of issues should be considered when using these funds, including the potential for increased affordability (compliance) periods, complex environmental review requirements, and specific requirements regarding procurement, acquisition and relocation. Units will have to meet an initial set of standards that may vary from location to location at development and all rehabilitations will need to meet complex lead-based paint requirements. In addition there may be ongoing required housing quality standards inspections throughout the compliance period. Local government administrators may establish additional requirements for each funding source.


Long-term compliance is also a requirement of federal subsidies. Most federal subsidies obligate the owner to annual income recertification of tenants, property inspections, and reporting.In spite of these many requirements, HOME and CDBG still provide useful sources of funding that can make otherwise infeasible projects possible.


An Excellent but Short-Lived Source for Scattered Site Rental: HUDís Neighborhood Stabilization Program (NSP)

Initiated in 2008, NSP is part of several federal economic stimulus programs designed to address the subprime mortgage crises and subsequent recession. A HUD program aimed at the acquisition, rehabilitation, and occupancy of foreclosed, vacant, and/or abandoned properties in hard-hit real estate markets, NSP stipulates that 25% of funds must benefit households earning 50% AMI or less. Hence, the program has a built-in inclination toward rental development. NSP funds are in many ways more flexible than HOME and CDBG and can be an excellent financing or funding source for SSR development because they can serve as predevelopment, construction, and permanent financing. In addition, NSP can serve households earning incomes of up to 120% of area median, and there is no federal regulatory limit to the amount of subsidy expended on a unit (though costs must be reasonable). The flexibility of NSP presents a chance to acquire, rehab, and operate rental properties with 100% NSP financing that can make SSR feasible and potentially lucrative. Avoiding a traditional permanent mortgage means NSP rental units may be able to fully cover higher-than-average annual operating costs. CDCs can earn both a developer fee and monthly property/asset management fees. It must be noted, however, that NSP is administered by state and local governments or other grantees that can elect to limit the use of funds beyond HUDís requirements. As of publication of this Toolkit, three rounds of NSP funding have been released. However, this stimulus program is unlikely to become a permanent HUD program.


Predevelopment, Interim and Permanent Financing


Because SSR development and management is riskier than traditional multifamily projects, conventional lenders are unlikely to take on the risk of providing capital early on.Building a portfolio of SSR units will require predevelopment funding and/or financing that allows you to acquire properties before all other gap subsidy and permanent financing is firmly in place. Some organizations have strategically built a pool of predevelopment funds with proceeds from previous successful projects. Most, however, will need some early predevelopment funding or financing.


Potential sources for SSR predevelopment funding or financing include local and national community development lenders, many of which are designated Community Development Financial Institutions (CDFIs).Designated by the U.S. Department of Treasury, CDFIs provide credit and financial services to underserved markets and are able to tap into an array of sources for project financing and funding.CDFI typically service a region. Search for your nearest CDFI at


Another community development lender is Community Housing Capital (CHC). CHC provides interim development and permanent multifamily loans to NeighborWorksģ organizations nationwide. CHC's primary mission is to promote affordable housing by providing access to flexible capital that is typically the missing piece in making projects possible. CHC lends to scattered site lease purchase projects. More information is available at


When looking for other state and regional sources of development capital, you should research what your state housing finance authority (HFA) offers.You should also look for a local or state loan fund that aggregated capital from several conventional banks into a loan pool that finances riskier or untested project types.


The Impact of local policies and programs


Local programs and policies can have a big impact on the options available to you as you design your SSR development program. Therefore, consideration needs to be given to these opportunities and challenges. For example, there may be funding opportunities with a local foundation, city, or state that are not available in other places. Local nonprofits or other organizations may have services available that can support your program and/or your tenants. There may be laws or regulations that can impact your program. Learn about local policies and programs as you design your program. Below are examples of local opportunities and/or hurdles encountered by three agencies involved in SSR programs.


State Funding Sources: St. Ambrose Housing Aid Center - Baltimore, Maryland

The State of Maryland funds a program called the Resident Advocate Program. Through this program, money is available to nonprofits to hire a case manager. This makes it possible for many low income households to access and maintain housing, as the case manager links them to needed services.


The State of Maryland also has generates affordable housing funds via real estate transactions. St. Ambrose has received a few grants of $50,000 each, which can be used for acquisition, rehabilitation and the provision of services.


Varying Municipal Requirements: Beyond Housing - St. Louis, Missouri

In the metropolitan area around St. Louis there are a number of different municipalities. Municipal codes change from locality to locality. Therefore, not all of the rules are the same. There are nuances such as those regarding handrails that require knowledge of that particular jurisdiction.


Property Tax Relief for Low-Income Rentals: Columbus Housing Partnership - Columbus, Ohio

A ruling from the State of Ohio Supreme Court reduced property taxes on low income rental units so that they are below what other single family homes are paying. Property taxes are now about one-third of previous levels, greatly reducing annual operating costs per unit.


Next: VI.C. Planning for Adequate Development and Operating Costs