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4 Ways LIHTC Can Help

By on Mar 19, 2020 in News

By now, you’ve heard about low income housing tax credits (LIHTC). LIHTC can boost revenues up to 9% and offset up to 80% of project costs. But the program brings its own fair share of risks, headaches and complicated paperwork. If you’re considering this funding option for your next project, there are 4 things you should know before diving in.

But first, let’s get the know more about why LIHTC is such a valuable resource.

The problem: affordable housing shortagegetting value from low income housing tax credit

The National Low Income Housing Coalition (NLIHC) reports a shortage of 7 million affordable rentals for low-income families. Of eligible families, more than 70% are “extremely low-income households.” That means that they allot more than half of their income to rent payments.

Supply growth could ease high rents and potentially alleviate financial strain on many families. Such supply growth would require investors obtain benefits from affordable housing projects.

LIHTC steps towards a solution

To make affordable housing more appealing, the US government has offered incentives for investors and property managers. These programs offset low rents collected from renters and make it possible for affordable housing to be profitable. The LIHTC program falls into this category. It has promoted supply growth in affordable housing more than any program of its kind.

Why is it so successful? The program offers value for investors and property managers: through the state, the program provides tax credits that are sold to investors. Those credits can be used as tax write-offs. They can also be combined with other programs that may make an affordable housing project more profitable. Affordable housing developers can then pursue affordable housing as viable assets, and low-income families can secure a home.

Investors have a few options from which to choose. There are two main tiers that offer 4% or 9% revenue across a 10-year period. Within those tiers, some credits are specifically for purpose-built buildings and others demand that a new construction or retrofit meets sustainability standards. Some offer rewards for proximity to public transit, major work hubs or other quality-of-life features. Many program options allow investors to customize their experience.

In the end, LIHTC projects may be well worth it. Consider this: owner operators using LIHTC can offset up to 70% of the investment.  Per the Urban Institute, up to 80% of project costs can be offset by the equity of a 9% tax crediting within 10 years.

The challenges of LIHTC

Paperwork for federal programs is notoriously time consuming.

The resident certification process can be tedious. Each year, every adult member of the household must complete an interview with leasing staff. Renters must submit a myriad of documentation on their employment, income and household arrangements.

That paperwork is managed by the property management team. Each year, recertifications siphon significant time from leasing staff. This is in addition to new certifications, which require a prequalification process that is more complex than applying for a home mortgage.

Property managers must be diligent during the certification processes. Scammers take valuable housing opportunities away from those who need it most. Fraudulent activity is also an additional burden on property managers, who risk fines, disqualification or other penalties. Even when those major woes are avoided, property managers must correct the error and process a new certification for a prospect.

Addressing the challenges of LIHTC

With the right tools, you can decrease the complications of LIHTC and enjoy its benefits.

  1. Property managers can complete training programs that familiarize them with LIHTC and its processes. This will give managers a jumpstart on what to expect and how to navigate the paperwork with finesse and efficiency.
  2. Software such as Yardi Affordable Housing Suite the can streamline and automate LIHTC management. With its single cloud-based database, property managers can eliminate redundancy, reduce human error and ensure compliance to the most up-to-date regulations.
  3. A prospect becomes a resident and a resident becomes a recertified resident. This cycle repeats, which could lead to repetitive data entry for staff and the potential for duplicate entries. Transitioning to a cloud-based system saves time, money and reduces the burden on staff. Prospect data is effortlessly converted into resident data. All resident information is maintained in a single electronic file that follows residents throughout their stay.
  4. A paperless system makes it easy to efficiently manage compliance by:
  • scheduling resident income certifications for recertifications
  • receiving reminders for recertifications
  • automatically enforcing the Available Unit Rule and Unit Vacancy Rule
  • separating income and rent restrictions
  • mapping fixed or floating set-asides
  • automatically administering income and rent limits whenever a new certification is created

Explore how Wallick Communities succeeds with Yardi Voyager for Affordable Housing.

Success without the stress for investors, managers and residents

The NLIHC reports that there are only 37 affordable and available rental homes exist for every 100 extremely low-income renter households. The high demand creates a unique opportunity for investors and property managers.

By managing LIHTC projects with robust software, real estate professionals can receive the credits needed to be profitable without the tedium of paperwork and compliance—and hardworking families in need of housing can find an affordable place to call home.

Discover a single solution for your LIHTC that promotes efficiency, compliance, and insight.