Last modified on November 8th, 2022
By Sam Lipshutz
Access to affordable housing has been a significant issue in the United States for decades, but Harvard University reported that millions across the U.S. today are unable to afford their housing. In fact, approximately 30% of all households spent more than 30% of their incomes on housing costs in 2020, and renters are particularly hard-pressed, with 46% being moderately burdened and 24% being severely burdened by housing costs.
Fortunately, solutions exist that can help address the need for more affordable housing. In this article, we’ll explore how adding Low-Income Housing Tax Credit (LIHTC) properties to your portfolio is an opportunity to invest in communities while also future-proofing your property management organization.
Add more value for property owners
One major barrier for LIHTC property owners is finding experienced and qualified property management companies, because affordable housing management requires a different understanding and approach than conventional multifamily property management.
However, fee management businesses that do understand LIHTC gain significant advantages as they:
- Widen management offerings for existing owners and help LIHTC properties perform: With LIHTC management expertise, your property management company can provide additional value for your existing owners who add LIHTC to their portfolio in the future. In addition, studies from advisory firm CohnReznick show underperforming LIHTC properties are often the result of ineffective management or deferred maintenance issues. That means property management’s role for LIHTC owners is essential for property performance.
- Meet affordable housing management demand: The National Apartment Association notes because LIHTC is more specialized than conventional management, there’s less competition and greater certainty on return for property management businesses.
Gain capital and revenue advantages as an owner operator
In addition to the benefits mentioned above for property management companies serving property owners, owner operators who add LIHTC to a conventional unit portfolio will see even greater advantages by entering the affordable housing sector:
- Take advantage of tax credits: Because the LIHTC program offers two types of tax credits — 4% and 9% over a 10-year period — there are significant capital subsidy advantages for owner operators. In fact, it’s not uncommon to see 75%–80% of the total project cost covered by equity raised from 9% tax credits. In addition, local governments may further reduce tax burdens to encourage the development of affordable housing projects.
- Protect your portfolio with reliable revenue streams: Conventional units tend to be heavily affected by wildly fluctuating markets and economic trends. However, CohnReznik studies confirmed LIHTC property stability: “The affordable housing industry’s low foreclosure rate is attributable primarily to the fact that relatively few housing tax credit properties suffer from severe underperformance.” In short, demand for affordable housing is consistently reliable.
- Increase area property values: The Journal of Housing Economics found the development of LIHTC properties within communities has a mostly positive “spillover effect” on surrounding property values. By owning or acquiring LIHTC, your investment could ultimately be a catalyst to help increase the overall value of your surrounding community.
Make a genuine difference for low-income families and communities
While it’s clear there are significant business and revenue advantages to adding LIHTC to your property management portfolio, one of the most important benefits is supporting the communities in which we live and work.
- Help address a massive shortage of available and affordable housing: Affordable housing is already in high demand and dire need across the United States — and the number of residents who qualify for low-income housing is only projected to grow. Even with accelerated programs being put into place today, there’s an extreme shortage of affordable housing units that experts say could take up to a decade to erase. According to the National Low Income Housing Coalition (NLIHC), there are only 58 rental homes affordable and available to very low-income renter households. Affordable housing provides a pathway for families to spend more of their income on essentials like clothing, food, transportation, healthcare, and schooling.
- Boost and revitalize communities: In addition to providing more affordable housing options for households who earn modest or low incomes, affordable housing can provide neighborhood stability and promote additional local investment to meet growing resident demand.
Make LIHTC compliance more manageable with technology
Using technology to manage compliance at LIHTC properties is essential, no matter your property management company’s business model, how long you’ve been managing LIHTC properties, or the total size of your portfolio. Not only can you strengthen your compliance process, but you can also streamline your holistic property management activities by managing your affordable and conventional units in one place.
There are many nuances involved with managing LIHTC properties, so the right property management technology can help property managers:
- Manage different types of units and properties in one centralized platform
- Ensure LIHTC compliance through a single system
- Reduce the time needed to manage different property types
- Minimize data entry duplication, risk of errors, and extraneous workarounds
To learn more about adding your new or existing LIHTC units to AppFolio, contact us today to chat about LIHTC property management solutions.
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