Low-Income bonds for Multi-family Development

5 Replies

Hello I would like to find any information on how our corporation could partner up with my local city and surrounding areas to help build our community or maybe even how we could partner up with HUD. I quickly discovered there's alot to it! Me and my business partner were talking about this just the other day, but not to sure where we should start or if it's even really possible being a small corporation like we are. Any thoughts and advice would be greatly appreciated!

Thanks 

Andrew Clifton 

Hey @Andrew Clifton I work on the financing side of low income housing. It's probably worth paying attention to which way the wind blows with the House Tax Reform Bill. The current bill proposes removing tax exemption from Private Activity Bonds, which are how a good chunk of LIHTC and all bond financed low income housing is funded. The bill also proposes scrapping a lot of other tax credit programs for affordable housing on smaller deals. The Historical Rehab and a few others are on the chopping block, all by end of year. The likelihood is low but there is a small chance that low income housing bonds cease to exist in January.

With that being said, you should contact your local Housing Finance Agency to see what they have to offer. They act as the go between from HUD to developer. I'd wait a few days before reaching out though as a lot of them are in pure panic mode right now.

http://adfa.arkansas.gov/rental-housing-developmen...

Please feel free to reach out with more questions. Affordable housing is very near and dear to my heart so happy to answer any questions.

@Alex V.

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So far this is what I understand is that if our company wanted to build a 4 plex or complex we would submit a application to the state and they would have to approve it .They would help build / fund it to meet all there requirements. Same goes for a single family home they would help fund/rehab the home. All the while our company would owner operate/manage the property(s). While paying the state back. Also I believe that they would have to approve any tenant that lived in the home or units.

Am I at least close to or on the right track?

@Andrew Clifton generally yes and no :)

Yes, you would apply for tax credits, or bond funding with the state. They would help fund but not build it. The LIHTC is capped by statute and the bidding is very competitive so the 9% credits usually go to large development/rehab projects. You would have to check with your local HFA though, as this varies greatly from state to state.  They don't have to approve every tenant but you must provide a certain percentage of your units to people who make X% below the area median income. The compliance reporting for these programs is quite onerous so it's worth sitting down with a CPA in your area that does real estate tax credit deals to get a lay of the land locally. The structures of these deals is usually very complex, and beyond my area of expertise. I specialize in structuring the bonds that fund these so I'm a little removed from the development side of it.

These programs don't apply to single family. HFAs serve the SF market by offering subsidized mortgages to low income first time home buyers, not rental investors.

Absolutely see I just  recently  just learned about the basics of it all. All of this  is still very fresh  to me but I can  say  I  learned  a lot more  then what I did  just a couple of days ago . I understand  now  that you have  the IRS  state  developer  and  your investor or syndicate . I believe  that it starts with the developer  submitting an application  to the  IRS or the state  see there I'm not too sure I need to go over it some more. Then it's the state or IRS that approves the application and approves the developer the tax credits and the developer then sells the approved tax credits to the bank or investor which then buys the tax credits funding most of the project. I don't think anyone actually receives the tax credits, it's just a contract stating that your good for it if you do this. Also for a bank helping with LIHTC they improve there CRA ( Community rating approval). Now this is where I find it to get tricky because the developer has to manage the development all the while having to have a city inspector approve the project stating that they did what they said they were going to do and is within the guidelines. The developer makes his money from developer fees management and also having a .01% in ownership I think. I'm not too sure but I also think that the developer gets to hold the properties or project in his business name. Also you're right about the square footage and amount of units being strictly for low income tenants that's because you have to meet certain criteria to be able to receive the tax credits at year 1 and has to continue operating that way for at least 15 years but can receive all credits at year 11. There's a lot to this I discovered but it's very intriguing interesting and exciting. I know I'm probably missing a lot but that just means I need to learn! 

Thanks for taking the time and advice!

@Andrew Clifton yup, you are on the right track. The very dumbed down version of it is you apply for the tax credits with an HFA, build the project, sell the tax credits to a bank or a LIHTC syndication fund, and you retain .01% ownership. Exactly, on point in terms of the income stream. You get money for managing the building and your small slice of ownership, with essentially no money in the project. The bank gets Community Reinvestment Act credit, and they get to use the tax credits to offset gains in other areas. This is good for 15 years then there is an equity takeout.

This is a great primer on the flows of the deals:

https://www.occ.gov/topics/community-affairs/publications/insights/insights-low-income-housing-tax-credits.pdf

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