Is it advisable to invest in Low Income LIHTC apartment complex?

[Rama Krishna]

Hi All,

 I am new to multi-family investing, is it advisable to do the first deal on a LIHTC (Low Income Housing Tax Credits) apartment complex? 

 What are the pros and cons?

 Do we need to pay fewer property taxes if we buy LIHTC property?

Any professional help I can get, so we can use their services? 

Its a senior housing in North carolina and these are the FAQ's in due diligence:

LIHTC- Low-Income Housing Tax Credit – Affordable Housing

What administrative work is required to purchase a LIHTC property?

-Within 24 hours of a fully executed purchase agreement the buyer should notice the North

Carolina Housing Finance Agency (form will be provided).

How are rents based?

-Rents are based on 60% of the current AMI (Average Median Income). 

Can I grow rents?

-Ownership can request an annual increase from the NCHFA

Can I also accept section 8 vouchers?

-Yes, you can. 

What do I have to do to be compliant?

-NCHFA conducts a random lease audit sample of 5% of leases every 3 years

-NCHFA conducts a property condition assessment every 3 years

When does the program expire?

-The property is already in an extended use period, in another 13 years the property can become

market rate.

Thanks for your answers,

Rama

[Kyle Jean]

With 13 years left it's likely the tax credit investor has left the original partnership. Request a copy of the LURA, mortgage note and any other use agreements or documents you can secure from the current owner.

With LIHTC the return on investment is typically secured in two ways - the general partner is securing a developer's fee in the early stages of the property as a "reward" for doing the transaction, and the limited partner (investor) is receiving their tax credits benefits over the first 10 year period (in addition to real estate losses).

By coming in at this point, you're not getting the up-side of the developer's fee, and you're not getting the passive return of the investor. You're basically buy a property with a low income tenant base and quite a few property restrictions...

We do LIHTC rehabs, construction, and refis frequently - I would highly recommend having a dialog with Novogradac. We use them for appraisals and other due diligence, and for borrowers like yourself their consulting services would be invaluable at this stage. 

I wouldn't necessarily run away from this deal, but be very careful about your next steps before talking in detail with a formal consultant.