Pros and Cons of Purchasing an LIHTC Apartment Complex Year 15

[Skyler Southern]

I have come across a LIHTC apartment complex that is just about to complete year 15. What should I look out for or consider when looking further into this deal? I am not very familiar with the LIHTC and believe most of the benefits of the program have already been taken advantage of. I must agree to restrictions until 2034.

[Brian Burke]

You have to read the LURA to make sure you thoroughly understand the restrictions.  You need to know what you are getting yourself into and these can be tricky.

One of the reasons that LIHTC deals are attractive at certain points is that the restrictions can be stripped off through a "qualified contract" process.  The draw is that you can buy at the capitalized value of today's income stream, strip the LURA and convert to market rate at significantly higher rents.  This can yield a high return or you can then sell at the capitalized value of a much higher income stream which means that the resale value is a lot higher.  

The downside is that the qualified contract process takes a lot of time (about 4 years to fully implement) and can only be done after a specific point where it is allowed by the terms of the LURA (which is sometimes much earlier than the restriction's termination date without the qualified contract).

This isn't a do-it-yourself strategy for a beginner--you need competent counsel with experience in doing this.