Low Income Housing Tax Credits (LIHTC)

[Victor Chico]

Hello!

Can anybody share their experience on using LIHTC? Also, can you point me to good resources (books, websites, etc) where I can learn more?

I recently met with my local housing finance authority to find out about this program. It seems that the program is geared toward big projects (e..g, 60+ units) and not small projects (5-10 units). There are 9% and 4% programs. After reading the requirements for the 9%, I believe the 4% is a better fit for what I am trying to do. However, it still seems like a very big mountain to climb.

I would like to acquire properties, rehab them (with LIHTC) and rent them to Section 8 or other low income tenants. I am wondering if this will be possible if my target property is a 5 to 10 unit property.

Any thoughts?

[Michael Blank]

Hi everyone --- to re-open this discussion. I, too, am starting to look into tax credits in order to purchase & renovate apartment buildings. I understand how they work in general, but my question specifically is: how do they work in terms of the capital stack?

For instance, let's suppose a project cost $400,000 for an existing apt building and that  $1,000,000 will be required for rehabilitation, for a total project cost of $1.4M. Assume that 100% of the 30 units will be used for low-income housing. Assuming you get 4% tax credits, 4% of $1.4M is $56,000 per year in tax credits, times 10 years is $560,000 in total tax credits. Finally, assume that the tax credits can be sold in the open market at 80 cents on the dollar to raise a total of 80% x $560,000 = $448,000 for your project.

How does this $448K in tax credit equity fit into the capital stack of the project?

Specifically:

Total Project Cost: $1.4M

Minus Tax Credit Equity: $448,000

Balance: $952,000

I know that I can get a construction and development loan for 75% of the total project cost, which would be $1,050,000, which would easily cover the $952K required. So the actual loan amount would be $952,000 which would be an LTV of 68%.

Is my understanding correct, then, that the capital stack looks like this and will NOT require any other equity from investors?

Tax Credit Equity	$ 448,000	32%
Construction and Development Loan	$ 952,000	68%
TOTAL	$ 1,400,000

Thanks for shedding any insights on this last missing piece of the puzzle -;)

Michael