Idaho-based transitional housing company finds a way to net profit for residential real estate investors while it re-integrates recovering addicts
Contact: Martin Johncox, 208-658-9100, Dennis Mansfield, 208-672-9200, 208-353-3252 cell
MEDIA ADVISORY, Dec. 26 /Christian Newswire/ -- News about the down housing market is everywhere, but there's one segment that's doing well in Idaho – and with a fairly unorthodox approach to real estate investment.
Typically, people who purchase and rent a home for investment have to pay around $300 a month to cover the difference between the rent and the mortgage. But Pinnacle Real Estate has found a way to give the owner $150 to $300 a month – as well as covering all taxes, maintenance and insurance – over a five-year lease.
What's the secret? Pinnacle works with New Hope Community Health and a subset of the population that will share a home with up to 12 people. At that density, a typical home that might go for between $1,200 and $1,500 a month is instead pulling up to $4,800.
Pinnacle is the real estate management arm of New Hope Community Health, a private, for-profit company that provides comprehensive transitional housing and social services to recovering substance abusers.
"I'm surprised no one has thought of this for-profit model before; it succeeds because it fills a particular demand for affordable housing that no one else has yet found a way to meet without complete government assistance or non-profit donations," said Dennis Mansfield, founder and Executive Director of New Hope Community Health, which opened for business in October 2006.
As of Jan. 1 2008, New Hope will have around 180 people living in its transitional housing but there is a waiting list of 305 people to get in. In other words, New Hope has unmet market demand to fill another 25 homes. They're landing approximately 4 new homes a month.
"Time is of the essence, especially in this downward turning investment market," said Mansfield.
Helping people recover
New Hope differs in several ways from a typical halfway house. Most notably, their entire program is Faith-Based, and Christ-centered. Many clients are Christian but there have even been atheists and Pagans, too. Clients must be employed or in job training, they must attend all court-ordered substance abuse training and they must pay $350 to $400 a month in program fees, which cover housing and other services.
The clients don't find the living density particularly difficult, Mansfield said. About 90 percent of the clients are paroled, or have completed their prison or jail sentences, while 10 percent are recovering addicts who have never been in prison.
"Some of these people are used to a living situation where 100 folks are sharing 3 or 4 toilets so this is like luxury to them," Mansfield said. "Twelve people to a home isn't something the general population would tolerate, but it's a model that works well for this segment of the population."
The homes are strictly for people who have been convicted of alcohol or drug-related offenses or who are otherwise working to overcome substance abuse addiction. People convicted of sex offenses, violent crimes and arson are excluded and the program rejects about 20 percent of applicants because they don't meet these or other criteria. All residents who are attempting to overcome substance abuse addiction and who are in an active recovery program are classified as having a disability under the Fair Housing Act. That's a crucial component of the business, as this law prohibits neighbors, cities or anyone else from denying them a place to live.
"The same laws that protect the rights of disabled people to live anywhere they choose also protect us," said Larry Durkin, head of administration for New Hope. "As you can imagine, we're usually not warmly received into a neighborhood at first. In a free society, law-abiding citizens have a right to live anywhere they choose. Our nation learned that in the 1960s and '70s, didn't it?"
New Hope notifies city officials who then are asked to notify neighborhood associations when they are planning to open a home. The houses are well-kept inside and out, both to encourage good living habits and to ward off potential complaints from neighbors.
"Neighbors do a valuable service in keeping us on our toes," Durkin said. "The homes must be immaculate inside and out and we aim to serve as an example. If we park a car on the wrong side of the street, we hear about it."
While the clients are encouraged to settle in the homes, it's better that they don't get too comfortable, Mansfield said. These people are trying to re-assemble their lives, re-connect with their families, learn work skills and generally how to live in free society. Prior to admission, prospective residents are screened and tested to assess their suitability for rehabilitation and the New Hope program. They adhere to a regimen of work, religious study, substance abuse counseling and household chores. The austerity has some parallels to a monastery or a military academy, where religious devotion, honor and communal work is emphasized.
In six months to a year, the clients are expected to leave the home and make their way in the world, although they usually continue substance abuse counseling, often for the rest of their lives. So far, no resident has committed any crimes, although a few have been expelled from the program for failure to abide by its rules. With expulsion, they face return to prison or they have to cut it on their own finding housing, a job and meeting the terms of their parole. Police occasionally visit the homes to interview residents for other investigations.
"Entry into our program is competitive and residents must give themselves over to it completely," Durkin said. "They know there is no other comprehensive support system on the outside that is affordable and will re-integrate them into society. With few exceptions, they mind their Ps and Qs."
How it works
The investment component of the business consists of three parts: Dimensions Real Estate, Pinnacle Real Estate and New Hope Community Health. Dimensions scouts out suitable properties and finds investors, while Pinnacle is the holding company for the homes and New Hope finds the residents.
Homes usually range from around 1,700 square feet to 2,500 square feet with some even larger. While New Hope doesn't operate standard halfway houses, they are subject to Idaho regulations governing halfway houses and that means a limit of four people per "bathing station," defined as a bathtub or shower. To make the enterprise pencil out, homes must have at least three bathrooms, each one of which must have at least a bathtub or shower. Half-baths don't count for meeting the requirement, but ¾ bathrooms do. The homes must also pass an inspection and the neighborhood must be suitable – high-crime areas are not wanted for obvious reasons and homes that are remote or far from jobs and services won't work either.
Dimensions Realtors are on the lookout for homes that meet the criteria and when they find a suitable home, they line up investors for it. Pinnacle then purchases the home and sells it to the investor, who then leases it back to Pinnacle, which holds it for New Hope to use. Having Pinnacle buy and then sell the home generates additional income, some of which is needed to outfit the home and do minor repairs and modifications. Each home typically needs $15,500 in new furniture, kitchen appliances, lamps, washers, dryers, plates and kitchen and eating utensils. Pinnacle pays taxes, insurance, utilities and maintenance.
"This is a highly innovative approach and investors aren't familiar with it but the experienced ones catch on fast and understand the value because we assure them a stream of income, instead of them having to pay to make the mortgage," said Mac Mayer, the real estate broker for Dimensions. "Some call us and want to purchase several homes at once."
At the end of the five-year lease, investors may re-lease the home to Pinnacle or they are free to sell it on the open market. Mayer said the current real estate market is excellent. The average time on the market for a home in the Boise area is currently about 60 days, although it's up to 76 days in Nampa. The median price of a Canyon County home has fallen 4.4 percent in the last year, and the median Ada County price has fallen 1.3 percent, according to the latest Intermountain Multiple Listing Service figures. October's statistics showed 7,411 single-family homes in the Treasure Valley awaiting buyers, compared with 6,595 in October 2006.
"People are motivated to sell and we can close a transaction in a very timely manner," Mayer said. "Once we find a suitable home for sale, our objective is to put it into production as soon as possible and investors and sellers like that."
In October 2007, Steve Caven purchased a $250,000 West Boise home and leased it to Pinnacle. He's a builder and Realtor who used to manage 180 rental homes in the Boise area and considers himself knowledgeable about real estate investment.
"Finding a rental that cash flows is like finding a needle in a haystack," Caven said. "Now I have something that produces a positive income and I don't have to bother with the time and energy of collecting money and doing maintenance. It just takes care of itself."
Caven also said he likes the mission of New Hope and investing in a program that helps recovering addicts turn their lives around. Based on his experience as a property manager, he said he's very comfortable having New Hope's clients live in the home.
"The house used to be very stark and the residents have painted it and turned it into a very warm home. I used to beat my head against the wall trying to get tenants to take care of the place, but these residents mow the lawn and keep the place neat and tidy," Caven said. "They're just grateful to have another chance at life and that's a big reason why I invested in them. They're proud of their home and they care as much about their neighborhood as the people who already lived there."
Out of the $4,200 to $4,800 income from each home, New Hope must pay the mortgage, insurance, utilities, maintenance, administration, household supplies and full-time staffing. They employ 21 people, including case workers, clerical staff, administrators, live-in staff and maintenance people. When all the expenses are paid, New Hope has about $150 to $300 a month profit per home (between 3 and 6 percent) – about the same as what the owner gets.
While New Hope representatives have a good working relationship with corrections, law enforcement officials, Probation and Parole and state regulators, New Hope itself receives no direct federal, state or local funding. Instead, New Hope relies completely on its clients, some of whom receive public funding through Business Psychology Associates (BPA), which gives the company freedom and flexibility.
"We have a business that is profitable, provides a valuable service to society, helps people put their lives back together and serves the Lord," Mansfield said. "Think about it, does it get any better than that?"
Background on story found here.