Programs such as Section 8, RD/ USDA Rural Development, RAD/ Rental Assistance Demonstration, HOME / HOME Investment Partnerships Program and Housing Trust Funds include contradictory provisions that pose challenges when they are combined with Section 42 LIHTC housing credits.
Yet rising costs and federal program changes are fueling a growing need to integrate these sources when developing affordable housing projects. Special care needs to be taken when aggregating them.
It is imperative to understand the contradictions that are inherent to these programs. Real estate developments are multi-million dollar investments and the costs of noncompliance can be high, which makes training and education essential to the process.
The affordable housing compliance experts at TheoPRO offer three suggestions for addressing the challenge:
1. Form a team that understands program complexities
It is tempting for compliance professionals to opt for simple solutions, but those can prove to be costly mistakes. While it is convenient to address contradictory rent and income rules by reducing rent and income levels to the lowest levels possible, that approach may unnecessarily reduce project cash flow. The wrong decisions can compromise a development’s long-term financial sustainability.
Student rules also complicate matters, as there is no way to find one simple common denominator when combining these programs. Potential tenants are left with confusing paperwork that may discourage them from renting. It is in the best interests of property owners and managers alike to make the rental process as simple as possible for potential residents.
Avoid the high cost of LIHTC compliance violations. TheoPRO can train your team members throughout the US to earn their HCCP (Housing Credit Certified Professional) and SHCM (Specialist in Housing Credit Management) accreditations.
For information about Section 42 rent and income restrictions, click here for an introduction. To learn more about the specifics of calculating maximum LIHTC rents, click here for a more detailed explanation, including several examples.
2. Dedicate a team member to track individual housing units
Different housing program rules may apply only to specific units. The addition of Section 8 or HOME funds to an LIHTC project with differing set-asides and/or market-rate units makes it essential to understand how each individual unit is impacted by the addition of these programs.
For example, if a project includes some units that must comply only with Section 8, other units that combine Section 8 with Section 42 and still others that use all three programs, then these differences need to be applied to each unit. Furthermore, it may be possible that these program requirements can be shifted among units, further complicating matters and creating opportunities for compliance errors. Increases in a household’s income may have different implications that vary based upon the programs that are associated with that unit, creating more potential for error during the recertification process.
3. Designate a “referee” who decides which rules apply when there are contradictory options
Different agencies oversee different programs. More often than not, these agencies do not coordinate with one another when they formulate and implement their rules.
Compliance professionals need to make thoughtful decisions when there are conflicts between program regulations. For example, if an LIHTC property with HOME funds decides to use PHA utility allowances without realizing that PHA utility allowances cannot be used for HOME units, then there needs to be a process to discover that error and an individual who has the authority to satisfactorily resolve it.
Dividing responsibilities among team members can help. Teaming personnel who are focused on details at the property and unit level with a “referee” who has the authority to review the facts and make the final judgment call can provide helpful checks and balances to your development, property management and asset management functions.
To obtain a complete listing of LIHTC income limits, Section 8 income limits, Fair Market Rents and other affordable housing data for every MSA and county in the United States, please click here to access Westmont’s LIHTC Affordable Housing Data Center.
Affordable housing becomes easier to understand once you have learned its lexicon. For a guide to common industry terminology, click here for our Affordable Housing – LIHTC glossary.
Westmont Advisors is proud to partner with LIHTC compliance experts TheoPRO to offer development compliance services and Section 42 training programs for LIHTC professionals, including property managers, developers, asset managers, syndicators and government agencies. Click here to learn more.
Proactive management will reduce the likelihood of LIHTC compliance problems and make those issues more manageable when they do arise. TheoPRO can play important roles in all aspects of your compliance process, including planning, operations oversight, training and disposition.
TheoPRO has developed a series of training programs that address the specific needs of multi-program projects. TheoPRO is led by founder Vivian Probst, one of the nation’s leading experts in Section 42 LIHTC compliance.
Let TheoPRO and Westmont customize a program for you. Contact us to learn more.
Westmont and our partners at TheoPRO can serve your needs throughout the United States. Please do not hesitate to contact us for more information about our consulting and advisory services for real estate acquisition, asset management and tax credits, including the Low Income Housing Tax Credit (LIHTC) and Historic Tax Credit (HTC), as well as other real estate matters. Click here to learn more about our team.
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