Time is running out on a program designed to encourage development of rental properties in the GO Zone (Gulf Opportunity Zone) along the Mississippi Gulf coast. Applications for the second round of funding in the Small Rental Assistance Program (SRAP) offered by the Mississippi Development Authority (MDA) are due December 15, 2008. No time like the present to look into investing in rental properties in this area!
Under the program, property owners can get forgivable loans ranging from $20,000 per unit for efficiencies to $30,000 for four-bedroom units to repair or reconstruct rental properties that were damaged by Hurricane Katrina, rehabilitate or convert existing property to rental, or build new rental units in projects of up to four units. Half the loan amount will be disbursed when the application is approved, and the remainder will be paid when the owner presents a certificate of occupancy for each unit. The program also includes completion bonuses of $3,000 to $10,000 each for units that are ready for occupancy within nine months of the first loan disbursement.
The “forgivable” feature of the SRAP program means that the loans and completion bonuses don’t have to be repaid if all units are leased to tenants who meet income eligibility standards and at rental rates that don’t exceed specified limits. Loan principal will be forgiven on the third, fourth and fifth anniversaries after the first loan disbursement if the property continues to meet all program requirements. For the entire loan to be forgiven, properties must meet all program requirements for five years. Completion bonuses will be forgiven on the fifth anniversary of the first payment.
MDA made some changes to the program for the second round of funding, responding to criticisms aimed at its first-round funding. Among them:
- There is now an online application form, available from the MDA’s Web page for Round 2. MDA is encouraging applicants to use the online form, saying this will speed the approval process.
- Each applicant will have an MDA analyst assigned to guide them through the application process.
- Applicants may now have a designated representative to act on their behalf through some of the loan process. However, applicants must be present for the personal consultation session and loan closing.
The program is open to properties located in Hancock, Harrison, Jackson or Pearl River counties that are traditional construction or modular housing, but not manufactured housing, condominiums or single-room occupancy units. Properties that were not rentals at the time of Hurricane Katrina can be converted to rental housing as long as all zoning requirements are met.
Federal requirements issued by the Department of Housing and Urban Development for safe and sanitary housing must be met, along with minimum size standards and all local building requirements. For newly constructed properties, at least one unit in each fourplex must be accessible under the Americans with Disabilities Act. In addition, all properties must meet federal environmental impact requirements, including reviews for lead-based paint and proximity to wetlands.
MDA notes that owners may incur income tax obligations on the amount of loan principal forgiven, depending on the individual’s tax situation. However, the state agency does not mention a favorable tax aspect of the program: GO Zone rental properties are eligible for 50 percent bonus depreciation in the first year. Potential investors may want to consult a tax adviser to find out about the tax aspects of their intended transactions.
MDA also cautions that some false information about the SRAP has been distributed. In particular, it has been said that applicants must pay a fee or some other sort of monetary payment to apply, or that applicants must hire a third party representative to complete the application for them. Neither of those is true.
“The Mississippi Development Authority is the only source of authorized information relative to the Small Rental Assistance Program. Applicants should be aware that multiple websites, online videos and other materials have been disseminated which contain errors and misrepresentations regarding the program,” the MDA said in a statement.
For more information on investing in the GO Zone, see our previous article on investing in the Top 5 GO Zone College Towns.