Unlocking Housing Opportunities: Vermont's VHIP Program and How Up End This Can Help

Vermont takes on the housing shortage

Vermont is currently grappling with a housing crisis that has prompted the State to fund its own version of the Vermont Housing Improvement Program (VHIP). Funded originally by ARPA (American Rescue Plan Act),  VHIP aims to address the housing shortage by encouraging homeowners to create more housing on or within their current property. In this blog post, we'll explore the ins and outs of the VHIP program, how to apply, and why investing in an Up End This Habitation Module (HM32) is a great option.

What is VHIP 2.0

For the sake of this post we will focus on what VHIP 2.0 is for people who will be adding an ADU. For these people the program will provide a $50,000 grant or forgivable loan. To qualify for the grants you will need to rent your ADU for five years at or below HUD Fair Market Rent to someone exiting homelessness. To do this you will work with a Coordinated Entry Lead Organization to find a suitable tenant. Following the five year term your grant will be forgiven and you will be able to rent the ADU at the rate of your choice. 

If you are interested in the 10 year forgivable loan you would simply have to rent the unit at HUD Fair Market Rent to any tenant you choose. This option would allow more flexibility on the homeowner at the sacrifice of a much longer commitment.

Applying to VHIP

This program is quite enticing due to the amount of funds that are being provided. Homeowners seeking to participate in the program need to be aware of the rules and regulations outlined in the "VHIP 2.0 How To Guide." This blog will talk about the high level points but will not cover all aspects of the program.

How To Start

To kick start the application process, interested individuals should first consult with their VHIP program manager specific to their county. Various organizations cover different Vermont counties. Below I have listed the organizations that are administering the program for each county. These coordinators will be able to assist you through the application process and will be your contact during and after the project is complete.

After you have spoken with the coordinator, it is also helpful to speak with the planning commission to ask about regulations in your town around ADU’s. Once you have a good understanding of the program and the regulations, zoning, and permits in your town it is now time to get prepared for the application. 

Preapplication

To start you will need permits, scope of work documentation, and project funding secured before applying. Next you will need to make sure you have the cash on hand to match 20% of the awarded funds and have signed the rental covenants that are required (see page 3 of guide). Financing the unit is going to be key. We recommend speaking with one of the following financial institutions prior to applying:

It is important to note that to qualify as an ADU, the existing single family unit must be owner-occupied and the owner's primary residence. Below are the different types of ADU’s that qualify under the program.

Examples of ADU’s shown in “VHIP 2.0 How To Guide.”

Considerations

While VHIP 2.0 provides financial assistance, it's essential to view it more as a rebate than a primary funding source. The funding is released in tranches throughout the project. This is why they require proof of funding, a 20% match, and a scope of work document. We have heard more than once about people having cost overruns that resulted in the project not being completed which meant they were not able to receive their funds.

It is also important to note that the funds are only good for work done after the application has been approved. Some development costs, permitting/zoning fees, engineering/architect may be eligible for reimbursement but they HAVE to have been done AFTER the application was approved.  

As you can tell there is a delicate dance that has to be done here in order to take advantage of the funds while also completing the needed requirements in order to get approved. 

After Approval

Once you have been approved, VHIP 2.0-related expenses will be reimbursed at four different points in the project. When you are buying an Up End This Unit you will be able to receive the funds quickly since we will be able to complete your unit much faster than a site built structure. This is especially advantageous since You need to make sure you have completed the project and have a tenant in the unit within 18 months of the application’s approval. If you do not you will be penalized.

VHIP 2.0 funding allocation map.

Up End This and VHIP 2.0 Synergy

At this point we can imagine you understand why this is the right program for you and you are looking at your options. Now, let's explore why an Up End This HM32 is an excellent choice for VHIP 2.0 participants.

1. Freedom in Building

Building a new structure offers the most flexibility within the VHIP 2.0 program. This allows homeowners to choose their renters for the ten-year term without strict qualification criteria. If you choose to go with the Up End This option you will know that you are getting a unit that meets all program requirements and you won’t have to go through the hassle of managing a construction project. I cannot stress enough the advantage of this when you are considering this endeavor.

2. Timely Delivery

Opting for an HM32 means quick delivery and avoids the wait for contractor availability. With a 18-month window after application approval you must complete the build and secure a renter. By going with a HM32 homeowners can start collecting rent sooner. This means that you will be able to have your new unit creating rental income much faster then you would if your project takes 12 months or longer to complete.

3. Separation for Simplicity

A free-standing ADU like the HM32 allows homeowners to separate their primary residence from their new rental property. This will make the transition to becoming a landlord smoother for both the homeowner and their family. We find that people prefer to have some separation and space so their daily lives are not interrupted with the new addition.

4. Cost

The cost of an HM32 is already below market rate compared to similar structures. When you add the $50,000 forgivable loan, you are looking at one of the most affordable ways to add a revenue generating asset to your property. On top of this, the income you will get from renting the unit will cover the monthly note on the loan for the unit.

Future Benefits

Adding an ADU to your property and participating in the VHIP program brings long-term advantages. After fulfilling the ten-year rental agreement, homeowners are no longer bound by HUD-approved rates, enabling them to adjust rents to match the market.

I would recommend doing a basic financial overview of the project right now and I bet you will be surprised. My basic calculations suggest that after the ten-year term, with VHIP funding and reduced rent, homeowners would be able to have their unit paid off in a little over eight years! Let’s do a little math.

  • HM32 with Premium Heat Shield - $100,000 (With current 20% off discount)

  • Deck - $10,000

  • Delivery - $1,200

  • Site Prep (Site leveling, sewer connection, utilities connection) - $35,000

  • Sales tax on unit - $6,000

  • Total $148,200

  • VHIP 2.0 Forgivable loan - -$50,000

Project total $98,200

Long Term Commitment

This is a long commitment for a homeowner so I thought it would be helpful to dive into the numbers to see how this will play out.

If you take a look at the HUD Fair Market Rate Rent for Vermont we can see what you will be charging for your unit based on your county. Remember that this is FMR so you have to incorporate the basic utilities; gas, water, and electric, into the monthly rent amount. For the sake of this calculation we are going estimate these costs at the monthly rate of:

  • Gas $50

  • Electric $45

  • Water $25.

So you will be looking at $120 in monthly utility expenses.

If we take the average FMR for Vermont we get $1102 in monthly rent. After our utilities we get $982 in monthly rent to put towards our principle. This will provide the following in rental income for your HM32:

Monthly Rent: $982

Yearly Rent: $11,784

After 10-years without adjustments: $117,840

Number of months to pay off principle: 100 (8.3 years)

While I am simplifying the project and not accounting for costs like maintenance, interest, or increased property tax it is clear that this is an approachable option if you would like to add an ADU. The added expenses will play a factor in this timeline and cannot be accounted for since everyone’s costs will be different.

After accounting for all these factors it is clear that you will be able to pay off your unit quite quickly when you consider the upfront cost. Following the 10 year contract for VHIP 2.0 you will be left with a fully paid off unit and will be able to adjust your rents to the market rate. Current market rate for the state of Vermont for a 1-bedroom apartment are $1,500 a month.

It should be noted that the average FMR in Vermont 2014 for a one bedroom was $665. Based on the 2014 rate and the 2024 rate the monthly rental rate has increased 6.5% annually.

Impact

The VHIP program presents a unique chance for Vermont homeowners to address the housing crisis and make a positive impact on their community. Pairing this initiative with an Up End This HM32 can provide the right balance of flexibility, convenience, and future financial benefits. Consider this investment opportunity as you navigate through the hoops of the VHIP program and contribute to building a stronger housing foundation in Vermont.

I want to stress again that there are many parts to this program and I only scratched the surface on the different aspects of it. Like any government subsidy, these funds do not come without some work. However, I truly believe that the potential for this program and the added housing in our communities will make a massive impact for all involved.

As always, reach out if you have any questions about our HM32 or any other ADU/VHIP related matters. I can be reached at kennedy@upendthis.com.

Sean KennedyUp End ThisADU, Vermont, Up End This, Tiny Homes, VHIP, Affordable Housing