Operating a Home Improvement Program - A Complete Overview of the Skills and Finances Needed To Run a Successful Program
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Operating a Home Improvement Program
PROGRAM
O P E R AT I O N S
A Complete Overview of the Skills and Finances Needed
To Run a Successful ProgramLaunched in 1982 by Jim and Patty Rouse,
The Enterprise Foundation is a national,
nonprofit housing and community develop-
ment organization dedicated to bringing lasting
improvements to distressed communities.
Copyright 1999, The Enterprise Foundation, Inc.
All rights reserved.
ISBN: 0-942901-47-9
No content from this publication may be reproduced or
transmitted in any form or by any means, electronic or
mechanical, including photocopying, recording or any infor-
mation storage and retrieval system, without permission
from the Communications department of The Enterprise
Foundation. However, you may photocopy any worksheets
or sample pages that may be contained in this manual.
This publication is designed to provide accurate and authori-
tative information on the subject covered. It is sold with the
understanding that The Enterprise Foundation is not render-
ing legal, accounting or other project-specific advice. For
expert assistance, contact a competent professional.
COMMUNITY DEVELOPMENT LIBRARY™
This book is part of the Enterprise Community
Development Library, an invaluable reference collection
for nonprofit organizations dedicated to revitalizing and
reconnecting neighborhoods to mainstream America.
One of many resources available through Enterprise, it
offers industry-proven information in simple, easy-to-
read formats. From planning to governance, fund rais-
ing to money management, and program operations to
communications, the Community Development
Library will help your organization succeed.
ADDITIONAL ENTERPRISE RESOURCES
The Enterprise Foundation provides nonprofit
organizations with expert consultation and training
as well as an extensive collection of print and online
tools. For more information, please visit our Web site
at www.enterprisefoundation.org.About This Manual
What is a home improvement program?
A home improvement program is a resource for the renovation of
single-family homes in a neighborhood. Most home improvement
programs — often called owner-occupant rehabilitation pro-
grams — provide quality construction funded by grants or low-
cost financing for lower-income home owners.
This manual is designed to help board members and staff of nonprofit
community development organizations manage successful home
improvement programs. This manual can make that process easier and
clearer. It should be used with the more detailed information and help-
ful documents available in The Enterprise Foundation’s Developer
Support System found on the Web at www.enterprisefoundation.org.
This manual includes information on topics such as:
■ Strategic planning considerations
■ Program stages and design
■ Skills needed for success
■ Staffing considerations
■ Credit reports and inspection tool kits
Table of Contents
■ Relationships with contractors and banks
Introduction 2
■ Working capital and loan pools
Program Stages and Design 3
■ Potential risks
Essential Skills 5
This manual is part of the Program Operationsseries within The Staffing 6
Enterprise Foundation’s Community Development Library™. The
series provides detailed information on the housing-related programs Tools 7
used most by nonprofit organizations. Other manuals in the series
Partners 8
include information on:
■ Single-family acquisition and rehabilitation Capital and Budgets 9
■ Single-family subdivision new construction Risks and Their Solutions 12
■ Single-family housing for infill
■ Multifamily new construction
■ Multifamily rental housing through renovation
■ Scattered-site rental housing
■ Supportive housing
■ The HOME Investment Partnership Program
1Introduction
Home improvement programs can stabilize and Cost-Effective — Because someone else has
improve the existing housing stock in a neigh- already purchased the property, the nonprofit is
borhood, making communities more livable, only promoting selective repairs and upgrades.
safe and environmentally sound for families. As a result, your organization can create an
Home improvement programs can be either acceptable unit for significantly less than any
comprehensive or focused. A comprehensive other method of rehabilitation.
approach makes loans available to both land-
lords and owner-occupants for both code and Easy Start-Up — Every city has prepurchase
general property improvements. Focused pro- inspectors, contractors, home owners and banks
grams concentrate on more specific issues, such that your organization could organize into an
as exterior facade improvements or accessibility effective system in as little as 30 days. Add a lit-
or emergency repairs. Home improvement pro- tle subsidy for the lowest income applicants, and
grams may have production goals as small as you can show actual change and results faster
one unit a month or as large as 10 units a week, than in any other line of development.
but successful programs always have pipelines
with units at all stages of completion. This man- STRATEGIC PLANNING CONSIDERATIONS
ual explores the process, tools, personnel and
funding sources you can use to create a success- Location — In older neighborhoods that are
ful and efficient home improvement program. gentrifying because of increased costs, a home
improvement program allows the lower-income
REASONS TO CREATE A HOME occupants to stay put instead of selling out. It
IMPROVEMENT PROGRAM keeps an asset within the family. In deteriorating
older neighborhoods, it may be the incentive that
Meets a Great Need — In older urban neigh- persuades owners to stay in the neighborhood
borhoods, the housing stock has not been instead of renting their house out and moving
improved for years. Many lower-income owners to the suburbs. In neighborhoods with a compre-
and lower-cost landlords cannot afford to mod- hensive plan, home improvement programs are
ernize homes. From elderly home owners to new an essential way to stabilize, block by block.
and younger families, the greatest need might be
to repair a roof and replace the central heating Improvement Without Pruning — When
system — critical repairs that would allow them the goal is neighborhood stabilization, home
to address their other housing needs more improvement programs cannot do the entire job.
slowly and comfortably. Upgrading the occupied structures while leaving
the vacant buildings unaddressed may help indi-
Politically Acceptable — Any housing pro- viduals but rarely results in neighborhood stabi-
gram that improves elderly or family housing lization. At a minimum, your program must
owned by taxpayers can count on very positive support the demolition of seriously deteriorated
political support. You’ll never have to address homes in sufficient numbers to change the “feel”
NIMBY (Not In My Back Yard) issues when of the neighborhood. Decreased density provides
starting and administrating this program. green space, parking and gardens.
Augments Neighborhood Preservation — Too Little Too Late — Some neighborhoods
Unless the intent is wholesale clearance of the are seriously deteriorated, are losing populations
existing neighborhood, it is extremely important and have bad reputations. Many neighborhoods
to fix up older neighborhood assets at the same deteriorate faster than we can possibly fix them
time that you undertake new construction, sub- up, especially when a nontargeted approach is
stantial rehab, selective demolition and the cre- used. In these neighborhoods, a home improve-
ation of green space. ment program may be viewed as throwing good
money after bad.
2Program Stages and Design
The typical program involves five stages: the
intake and application phase; the inspection and S TA G E 3
specification phase; the underwriting and bid-
ding phase; the construction phase; and the UNDERWRITING AND BIDDING
postconstruction and warranty phase. Program staff underwrite the loan request based
on the earlier assessments of the building’s needs
and the client’s maximum budget. If a loan is
approved, the rehab specialist completes a bid
S TA G E 1 package, and the package is submitted to a pre-
qualified pool of contractors who specialize in
INTAKE AND APPLICATION selective rehabilitation. The organization pre-
During this first phase, the program markets pares loan documents and construction contract
its services to the target neighborhood and documents for a formal construction loan clos-
client. In response to a phone inquiry, a staff ing, after which work can begin.
member visits the home to explain what
repairs are eligible, who is eligible for various
loan products, how long things take and what
the different roles are. A formal application S TA G E 4
may be taken at that time along with permis-
sion to pull credit and income verification CONSTRUCTION
information. In the past, some groups have In the most efficient shops using the most highly
granted all of their money — a very bad prac- skilled contractors, construction takes between
tice for any organization that wants to stay in one and two weeks and is not started until key
business. Nowadays most groups provide materials have been purchased, delivered and
direct loans, with or without interest, or write stocked on the job site. In the past, much work
down the interest rate on a market-rate home was done with the occupants in place. This can
improvement loan. Usually these program be an extremely dangerous practice when lead-
choices depend on the appraised value of the based paint is being disturbed during the renova-
property and the income level of the owners. tion and children under the age of six live in the
house. Relocation during hazardous material
abatement, although mandatory, is traditionally
the expense of the occupant and a prerequisite
S TA G E 2 for enrollment in the program.
INSPECTION AND SPECIFICATION
A fee inspector or rehab specialist inspects the
condition of the property, comparing it to a pre- S TA G E 5
established minimum standard, be it housing
code, building code or energy code, and makes a POSTCONSTRUCTION AND WARRANTY
list of required repairs. The specialist then trans- Many advanced programs build up a consider-
lates the repair list into specifications and cost able loan portfolio over time. Loan payments
estimates. Computer skills and a tailored com- or repayments create a constant flow of income
puter program make this step far easier, allowing back to the organization. Other groups choose
an organization to assess many more houses in a to sell loans to secondary market investors,
shorter period of time. immediately providing more money to reinvest
in the neighborhood. All programs should
continue to monitor the quality of the
3construction, how things are holding up during
the warranty period and the appropriateness of
their design standards.
PROGRAM DESIGN
These five basic stages can be put together any
number of ways to create various types of home
improvement programs. Some agencies have
focused on improvements to decrease energy
cost and usage by installing sidewall insulation,
tuning up furnaces, replacing refrigerators and
decreasing infiltration.
Other groups have specialized in accessibility.
This might involve remodeling bathrooms,
widening doors, modifying kitchen cabinets and
sinks, creating ramps and rewiring homes for
deaf or blind occupants.
Over the last five years, the U.S. Department of
Housing and Urban Development has provided
very substantial funding for lead-paint mainte-
nance and abatement programs. These pro-
grams usually involve stabilizing surfaces,
replacing windows and cleaning houses thor-
oughly before occupancy.
In historic neighborhoods, programs often
fund exterior improvements and repainting,
including repairs to facades, fancy porch trim,
fascias and soffits, as well as refurbishing or
replacing windows and doors with historically
correct components.
This manual does not describe programs like
Christmas in April, Paint-a-Thon and
Rehabitat. Although these are home improve-
ment programs, they fall under the distinct
development strategy of building with volun-
teers, a strategy with a different structure, differ-
ent risks and different opportunities.
4Essential Skills
There are five essential skills to the success of Loan Underwriting — A skillful underwriter is
any home improvement program: outreach a good investigator and thorough paper pusher.
and sales (mostly used during the first program Each loan application will generate a two-inch
stage, intake and application), specifications stack of paper documentation before the under-
and cost estimates (mostly used during the writer can make a final determination. This level
second program stage, inspection and specifica- of due diligence requires persistence and accu-
tion), loan underwriting (mostly used during racy. An underwriter also needs a great deal of
the third program stage, underwriting and bid- flexible thinking in order to match each client
ding), construction management (used with the most appropriate class of loans.
throughout the last three program stages) and
financial administration (also used in the last Construction Management — Construction
three program stages). management skills involve: 1) qualifying and
selecting contractors who will do a good job at a
Outreach and Sales — Outreach and sales staff fair price; 2) putting out invitations to bid; and
create your client’s first impressions of your pro- 3) monitoring and paying contractors for these
gram — good or bad. Not only must your sales activities. Although construction managers will
staff be able to provide facts and answer ques- work with the same contractors over and over
tions, but they also must be able to make the again, their primary job is to protect the home
home owners feel like they are a part of the reha- owner and the agency. Traditionally, these con-
bilitation team. If the clients do not trust the struction managers have been contractors them-
salesperson, they will never allow him or her to selves or have some formal education in the
bring in a rehab specialist to inspect their bath- building sciences. In low-volume programs, it
rooms. It is also imperative that salespeople not is most cost effective to hire a consultant.
make false promises and that they make every
effort to keep expectations realistic. Your pro- Financial Administration — Although it is pos-
gram can earn an unfortunate reputation in the sible to find old contractors who are also good at
neighborhood very quickly just because of a sales and underwriting loans, it is rare that they
handful of disgruntled customers. The perfect are also capable of CPA-quality bookkeeping. A
outreach and intake person, therefore, is a bal- moderate-volume shop will generate 30 to 35
ance between the friendly extrovert and the cau- loan commitments, 25 construction contracts,
tious pragmatist. 40 to 50 change orders, 29 loan closings and, if
the organization services its own loan portfolio,
Specifications and Cost Estimates — An hundreds or thousands of monthly payments. It
entire industry has grown up around inspection is imperative that a very high-quality bookkeeper
and specification job skills. Whether these peo- keep track of sources, uses and cash flow.
ple have the title of rehab specialist, construc-
tion manager or construction specialist, they all
do the same thing. They must know old materi-
als and methods and modern ways to fix them.
They must be very thorough and systematic in
looking at buildings, and they absolutely must
know how to use a computer and one or more
of the computerized integrated rehab manage-
ment programs like The Enterprise Foundation’s
Housing Developer Pro™. These programs gen-
erate specifications that are revised and edited by
the rehab specialist for each individual job. Cost
estimates must be accurate to within 10 percent.
5Staffing
Staffing needs will vary considerably depending Established Programs — Effective home
on program volume and organizational and improvement programs are highly repetitive, so the
individual capabilities. With an able director essential trait of the manager is an ability to build
and modest volume, the director alone, with and maintain momentum in staff while accurately
some consultant and part-time help, may be suf- recording the multiple steps in the process. At each
ficient. Larger programs will require consider- task level, the work may seem repetitive, so the
ably more experienced help. manager must be motivational, constantly chal-
lenging staff to increase numbers, hone skills and
The One-Person Shop — The executive direc- learn new techniques. Once momentum has been
tor does intake and sales as well as all loan built, it is essential that weekly job progress meet-
underwriting in a one-person shop. If the pro- ings help resolve problems in the pipeline, main-
gram completes fewer than 10 units annually, taining that momentum.
inspection, specification and construction man-
agement tasks should be contracted out. A A pipeline goes only as fast as the slowest project
part-time bookkeeper can keep track of paper- on the track. Sometimes it is necessary to shove
work and payments, working, for example, one that project aside and quickly refocus effort.
half day on Tuesday and another on Friday. The manager must be a good arbitrator and
negotiator and must have a thorough under-
Growing Programs — At 25 units per year, standing of the real estate process. When every-
hire a construction manager who does sales, body else has been unable to solve the problem,
inspection, specification and construction man- the manager is the final stop.
agement tasks and a good bit of the underwrit-
ing. He or she will need good computer skills Home Improvement Program Staff
and well-established underwriting guidelines. Time Budget — 30 Units Per Year
Your bookkeeper should become a financial Full-Time Equivalent (FTE) Calculation
manager working 12 hours per week on a con-
tract basis. Remember, this is only one unit Single-Family
every two weeks. Do not hire people who believe Position Rehab
this is an extraordinary production level. Think
of it this way: one day for intake and outreach; Executive director 0.20
one day for inspection and spec writing; one day
for an invitation to bid; one day to send out the Single-family director 0.60
loan documents and receive them back; one day
for loan underwriting; one day for loan closing; Rehab specialist 1.00
two days for job site inspection; and one day for
final inspection. If you accomplish those tasks, Loan processor 0.90
you have done a unit every two weeks.
Office manager 0.25
As you grow, you may find that you need dedi-
cated outreach and intake personnel along with Bookkeeper 0.25
rehab specialists and financial analysts. For each
25 units of housing you complete, you should Secretary 0.20
consider adding one full-time equivalent position.
Total FTEs proposed 3.40
6Tools
The right tools are essential for doing a good job Accounting Software — Efficient financial
with a home improvement program. Credit management requires the use of many computer
reports and inspection tool kits are needed for all applications such as an intake and underwriting
programs, while computers and software — espe- software program based on a standard Fannie
cially useful with more program volume — will Mae form; job tracking software, either from
enable you to keep track of the details of all jobs. Enterprise’s Housing Developer Pro™ or created
on a spreadsheet; grant and financial sources
Credit Reports — For underwriting, the non- tracking software; and portfolio management or
profit should have access to credit reports or servicing software. Financial tracking is com-
become a member of a credit bureau. These $5 puter tracking: Plan on updating your hardware
and $6 reports allow for rapid verification of an at least every three years.
applicant’s loan and credit card payment history.
A computer program that creates application
forms is a simple way to collect and store data. You would not let your executive director work
Inspection Tool Kits — Inspectors need more on a typewriter with carbon paper. Do not
tools than a clipboard and a flashlight. Most allow your construction manager to remain
change orders are caused by damage that was
not discovered at the initial inspection. Many in the 1950s either.
change orders can be eliminated by using better
tools during the initial inspection. A $300 tool
kit is adequate for basic services. In a basic kit, Computers — Computer hardware is a dispos-
inspectors need ladders, electronic tape mea- able tool that becomes antique in five years, is
sures, cameras, moisture meters, lead sampling obsolete in three years and may be rationally
kits, hammers, screwdrivers and probes. For replaced every 18 months. Every business must
highly technical evaluations, advanced kits con- include computer upgrading or replacement as
taining blower doors or sophisticated lead paint a line item in its annual operating budgets.
detectors may be needed. These kits can cost as
much as $5,000 to $20,000.
Project Management Software — You would
not let your executive director work on a type-
writer with carbon paper. Do not allow your
construction manager to remain in the 1950s
either. If the most essential item a construction
manager brings to your organization is a black
book of quality contractors, the most essential
tool your organization can offer him or her is
up-to-date project management software.
Project management programs can write specifi-
cations; perform preliminary and final cost esti-
mates; execute contracts; schedule jobs; establish
partial payments or draws; track costs to date;
and provide tickler files for follow-up activities.
Cellular phones are rapidly becoming another
essential tool, both for security and essential
communications while construction managers
are in the field.
7Partners
To become a successful shop, you must build Subsidy Sources — Home improvement pro-
relationships with three prime partners: contrac- grams go nowhere without the full support of
tors, banks and government or other providers the donors in control of Community
of subsidies for low-income housing. Development Block Grant, HOME and lead-
paint abatement funding. In many jurisdictions
Contractors — If the program recommends there is already an entity designated to adminis-
low-quality, self-directed contractors who also ter home improvement programs. Donors may
happen to provide the lowest cost, staff will very be reluctant to support a competing organiza-
quickly find themselves spending most of their tion unless that organization can show that it
time solving problems. At the other extreme are will be more efficient, service a specific target
the contractors who understand and respect group or provide an additional service.
people, know how old buildings go together and
share some of the goals of the nonprofit while
efficiently completing the task at hand. One key
to a great home improvement program is a great
pool of contractors. Many neighborhoods are
avoided by the best contractors because of secu-
rity problems, historical stereotypes and the
ability to make more money in higher-income
neighborhoods doing the same type of work.
The construction manager must sell the pro-
gram and entice these high-quality contractors
into your neighborhood. Contractors make
money by efficiently working through build-
ings. Your program must be designed to help
them get in and out quickly and to pay them as
soon as possible when they are done.
Banks — If your clients are bankable and your
sources of funding are limited, your organiza-
tion should consider letting a bank make the
home improvement loans. You can more easily
write down the interest rate by lending part of
the money at a lower rate. For example, the
bank lends $10,000 at 10 percent and you lend
$5,000 at 3 percent to make a blended rate of
7.5 percent for a 15- or 20-year period. The
banks must be able to service this portfolio. In
other words, they collect the monthly payment
and credit it to the account. Only in the case of
impending defaults would you get notified. The
bank must be as competent as you are — able to
underwrite and disburse funds quickly. These
smaller loans require almost the same processing
as larger loans and, therefore, are not cost effec-
tive unless the bank is extremely efficient at pro-
cessing the paperwork.
8Capital and Budgets
All home improvement programs need at least funds, you are relying on the contractor’s own
two types of funds. Loan pools are funds bor- capital — money that he or she has put into the
rowed by home owners to pay for construction job — until government or bank funding comes
work and materials used in improving their through. You should be prepared to pay interest
houses. Operating funds are used by the pro- on this capital extension — say prime plus 2 per-
gram to pay for staff, overhead, supplies and cent or whatever you can negotiate.
everything else needed in running a successful
home improvement program. Working capital Loan Pools — While everybody likes free money
may also be needed to expedite payments to or grants, it is self-destructive to give away money
contractors for work completed. that should be recycled in the neighborhood.
Our neighborhoods need dedicated trust funds
Working Capital — The most efficient home created by building a portfolio of loans ear-
improvement programs use a lot of working cap- marked for improving the homes in the commu-
ital. Most government programs have trouble nity. After 10 years of funding, some groups have
disbursing funds in a timely manner. Most con- multimillion-dollar portfolios that recycle
tractors require a one-third down payment up between 12 and 20 percent of the funds each
front. This creates a basic conflict. A prime role year. It should be your goal to build these capital
of the nonprofit is to fund the gap between gov- resources as well as to renovate houses.
ernment reimbursement and high-quality con-
tractor draws. To get 25 units done per year in a The source of funds available to a nonprofit will
nine-month building season, it is likely you will have a large impact on who is eligible to borrow
have six jobs at some stage of completion. This and the type and scope of rehabilitation. Following
could involve from $40,000 to $120,000 in is a chart comparing common sources and charac-
working capital. If you are unable to raise these teristics of funds available to nonprofits.
Loan Sources for Home Improvements
Eligible Eligible
Funding Type Borrowers Property Rehab Amount Typical Uses
Community Up to 80% of Citywide; target Unlimited Code repair; reduce
Development Block median income areas interest rate or
Grant deferred payment
City Lead Paint Up to 80% of Citywide; “poisoned” Varies; may range Int. & ext. paint stabi-
Program median income children may have from $2,000 to lization; replace win-
priority $25,000 dows; overlay walls
HomeStyle 100% of median Owner-occupied; 30% of completed Rehab escrowed;
1st Mortgage income; no limit in up to 90% of value value any improvements
refinance central city refinanced
FHA; Title I All income Any $25,000 max Any improvements
2nd Trust
Home Keeper Over 62 Owner-occupant To value of building Emergency repairs;
Reverse deferred maintenance
Amortization
Program
HOME Investment Up to 80% of Citywide Unlimited Repair code
Partnership median income violations
Program
9Loan pools provide loans to consumers with spe- Example 3
cific terms, rates and conditions. Typically, the
terms, rates and conditions used by nonprofits to FULLY AMORTIZING LOAN WITH
lend depend on the terms, rates and conditions SLIDING INTEREST RATE
of the funds borrowed by the nonprofits. The Income Eligibility: $15,000 to 80% of
organization may add on a charge to those funds median* ($28,800)
to provide some income to help pay for the orga-
Rate: 3% to 8%; rate is determined
nization’s program operating costs.
by loan committee based upon
need and capacity to repay.
Following are four examples of loan products
used by nonprofits operating home improve- Payments/Term: Monthly principal and
ment programs. interest; 20 years
Maximum: $20,000 per unit
Example 1
Uses: To complete code repairs and
energy upgrades, to enhance
DEFERRED PAYMENT LOAN
accessibility or to undertake
Income Eligibility: Supplemental Security essential additions
Income ($3,100) to 40%
Subordination: Shall be considered on a case-
of median* ($14,400)
by-case basis
Rate: 0% interest
Assumability: Assumable by income-eligible
Payments/Term: Principal due upon sale owner-occupant with current
or conveyance rate and term
Maximum: $15,000 per unit
Example 4
Uses: To complete code repairs
and energy upgrades or EMERGENCY LOAN POOL
to enhance accessibility
Income Eligibility: $0 to 40% of
Subordination: Will subordinate to reverse median* ($14,400)
mortgage programs for elderly
Rate: 0% interest
Assumability: Assumable by income-eligi-
ble owner-occupant upon Payments/Term: Principal due upon
conveyance conveyance or refinance
Maximum: $5,000 per unit (may be
Example 2 increased to complete repair)
Uses: Replace roof; repair and
DEFERRED PAYMENT LOAN
replace furnace, water
Income Eligibility: $10,000 to 60% of heater, water service or gas
median* ($21,600) service; or eliminate life-
threatening conditions
Rate: 3% interest accruing
Subordination: Will not subordinate
Payments/Term: Principal and interest due
upon sale or conveyance Assumability: Nonassumable; due upon
sale or conveyance
Maximum: $15,000 per unit
Uses: To complete code repairs * Median = $36,000 income
and energy upgrades or
to enhance accessibility
Subordination: Will subordinate to reverse mort-
gage programs with appraised
value to support both loans
Assumability: Assumable with new rate
and term by income-eligible
owner-occupant
10Operating Budgets — The primary source Typical Annual Operating Budget
of operating revenue for home improvement 30 units annually
programs is often the city, county or state
EXPENSES
community development departments. While
Total personnel $ 161,857
some fee revenue is possible, most nonprofits
(Salaries and benefits, 3.4 FTEs)
choose to limit the fees they receive in order
Office rent 13,200
to have their programs as affordable (and as
Payroll service 3,080
popular) as possible.
Office equipment 440
Office furniture 330
About two-thirds of operating expenses for most
Maintenance contract 1,740
home improvement programs goes to pay staff,
Supplies 990
from a portion of the executive director’s time to
Postage 1,320
all of the rehab specialist’s time. Other expenses
Printing and copying 1,430
are those associated with the specific tools used
Phone 1,925
in home improvement programs (see page 7
Travel 1,630
Tools section) and normal office expenses. The
Training, publications, conferences 1,980
nonprofit will need to pay the costs of a work-
Fees 1,300
ing capital loan — fees and interest — if that is
Ads and outreach 5,000
part of the program.
Film 400
Miscellaneous 675
Following is a typical annual operating budget
Annual report and newsletter 1,210
for a home improvement program that pro-
Computer software and training 1,650
duces 30 units each year, using 3.4 FTE (Full-
Insurance 1,055
Time Equivalent) staff as detailed earlier on
Audit 3,000
page 6.
Legal 500
Working capital interest 8,000
Consultants 1,000
Contingency 3,000
Total Expenses 217,097
INCOME
Community Dev. Block Grant 192,625
Project fees 35,150
County in-kind 1,500
Total Income 229,275
NET INCOME $ 12,178
11Risks and Their Solutions
In the housing development field, the tradi- Risk — When producing fewer than 25 units per
tional risks are costs; politics; regulatory envi- person per year, all home improvement programs
ronment; pioneering; bad assumptions; cycles are inefficient. Many nonprofits have not hired
and trends; seasonality and cash flow; and devel- staff or consultants capable of higher volumes.
oper capacity and scheduling. In home improve-
Solutions — 1) Hire high-volume people.
ment programs, the five most crucial risks to
Always ask construction managers how many
address are:
units per year they think they can handle. The
ones who say 50 or more per year stay, the oth-
Risk — Generally speaking, cost estimating
ers go. 2) Contract out. If you are doing only 15
must be precise to plus or minus 10 percent.
units per year, hire the best inspector you can
When change orders exceed this amount, it not
find on a unit-by-unit basis.
only frustrates the home owner but can create a
whole slew of expensive administrative activities
Risk — Code, zoning, historic and other officials
for the nonprofit.
demand new construction standards.
Solution — High-quality initial inspections;
Solution — Create rational and supportable
computerized cost estimating; cost reviews twice
design standards and sell them to the highest offi-
a year; and hefty contingencies — up to 20 per-
cial in the local building or planning department
cent is not too much.
you or your board of directors has contact with.
And do it before the field inspector is challenging
your scope of work.
Hire high-volume people. Always ask constr
uction
managers how many units per year they think they Risk — All construction flows with the seasons,
either because of harsh weather conditions or
can handle. The ones who say 50 or more pereayr the lack of skilled workers due to high demands.
stay, the others go. Solution — Lead the seasonal trend. Get com-
mitments early. Save your inside work for the
winter and roll with this cycle rather than
Risk — Political uncertainty. To build up a against it.
neighborhood trust fund, it takes several years
of home improvement financing. Will you get
the four to 10 years of funding required? Can
you provide affordable loans instead of the very
“doable” grant?
Solution — The best defense against political
intervention is to provide high-quality services
in an efficient and low-cost manner. This must
be coupled with a plan to advertise your success
so policy-makers know about your quality work.
12THE ENTERPRISE FOUNDATION
The Foundation’s mission is to see that all low-
income people in the United States have access
to fit and affordable housing and an opportunity
to move out of poverty and into the mainstream
of American life. To achieve that mission, we
strive to:
■ Build a national community revitalization
movement.
■ Demonstrate what is possible in low-income
communities.
■ Communicate and advocate what works
in community development.
As the nation’s leader in community development,
Enterprise cultivates, collects and disseminates
expertise and resources to help communities
across America successfully improve the quality
of life for low-income people.
ACKNOWLEDGMENTS
Author: Bob Santucci, consultant
Contributors: Bill Batko, Carter Cosgrove +
Company, Ben Hecht, Catherine Hyde, Jane
Usero, Benjamin Warnke
SPECIAL THANKS
Research and development of this manual was
made possible by the National Community
Development Initiative, which is a consortium
of 15 major national corporations and founda-
tions and the U.S. Department of Housing and
Urban Development, and scores of public and
private organizations. NCDI was created to sup-
port and sustain the efforts of community devel-
opment organizations.
FOR MORE INFORMATION
The Enterprise Foundation
10227 Wincopin Circle, Suite 500
Columbia, Maryland 21044-3400
tel: 410.964.1230
fax: 410.964.1918
email: mail@enterprisefoundation.org
For more information about The Enterprise
Foundation or the Community Development
Library™, visit us at www.enterprisefoundation.org.
To review our online community magazine, check
out www.horizonmag.com.You can also read
