Underwriting rents with HCV

2 Replies

I am looking for recommendations on underwriting a deal.

100-units with 60% occupied by tenants with LA County housing choice vouchers (HCV) - many of which rents are below current HCV payment standards, 10% vacant, 25% occupied below market.

LACDA publishes HCV payment standards annually. 2021 PS are approximately 15% below market. LACDA PS was flat for 2010-2012, and again 2018-2020. The PS increased in 2021 by 5.45%. LACDA will also increase contract rent to the lesser of current PS or amount capped by CA rent control (5%+CPI).

Back to my underwriting question:

I am assuming rents for vacant units at leased at market, occupied non-HCV units at increased up to market (over 1-2 years), HCV units increased to max allowable (current PS or rent control increase). This may be conservative since it does not assume any turnover of HCV units (which do not turn regularly).

Am I missing something here?

@Danielle Bennett , I will say my one HCV unit I own technically will pay "market rents" but every time I apply for a rent increase it comes back lower than expected.  

Therefore from what you have posted, and my lack of knowledge on LA rentals, let alone LACDA vouchers, from my experience staying conservative is never a bad option.  Are you saying CA rent control allows for 5% plus CPI?  Which CPI measure, annual increase?  If so that would allow for a 9-10% year over year increase on rent controlled units, which seems pretty high.

What has the historical trend on the PS increases been?  Has it historically run at a 5+% rate?