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

Question

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 · Answer

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.

Kyle Jean · Answer

No the developer's fee in this instance would already have been received by the original developer. The developer's fee is quite literally a fee (or "bonus") if you will that is eligible as part of a LIHTC transaction at time of initial closing.

You would not be eligible for a developer's fee purely due to a loan assumption. In order to secure a developer's fee you would need to do another round of tax credits (syndication) which is not unheard of, but generally only makes sense if the property needs substantial improvements.

Marie Gore · Answer

@Kyle Jean - Thanks for the information. I was looking up information on LIHTC investments as there is a property that I am interested in. I am in the learning phase and would appreciate any inout that you could provide. If the loan is assumable, we could get the same tax benefits..IS that what you are talking about when you mention "developers fee" ?

Brandon Foster · Answer

So true. I'm selling one in Downtown Detroit it comes with the all the perks for the new owner.

Jared Carpenter · Answer

@Rama Krishna did you end up buying this asset?

Melissa N. · Answer

Hey @Rama Krishna

I think know the property you are speaking of. Any feedback on way you didn't buy?

Rama Krishna · Answer

Thank you @Kyle Jean for the help! Let me check some documents and also connect to Novo Co.

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

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

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