Unlocking 6 Benefits: LIHTC in Your Property Management
Affordable Housing
Diversity in your property management portfolio will allow you to get many opportunities. Many think expensive luxury rentals make the most money, but some argue that affordable housing can be more profitable. This is because of the numerous benefits of the LIHTC or Low-income Housing Tax Credit.
With the right strategy and reliable property management software from Exact Estate, it can become a consistent revenue stream. LIHTC can become a strong foundation for the entire portfolio. How does LIHTC gain an edge over other property types? In this blog, we discuss the six benefits to adding LIHTC to your portfolio.
1. Higher Demand Brings More Value
A misconception exists that affordable housing is ineffective and doesn't yield the expected profits. This happens mostly because there is also a lack of effective property management. With the right people handling everything behind the scenes, a LIHTC rental property can become a valuable asset. The reason for this lies in the volume and demand for the property.
In today's market, more people are looking for affordable housing rental properties than luxury properties. The sheer volume of opportunities means that it’s hard to find a dry season when looking for renters. Because many other property managers believe the misconceptions, there is less competition. As such, there’s a greater chance for higher returns for those who capitalize on managing LIHTC properties.
Those greater returns, however, come with responsibilities. You are likely dealing with more people in one property, and property managers and owners without much experience may have to take a different management approach.
They must prepare to make adjustments or change their approach to maximize their returns. This could involve changing policies to fit LIHTC or hiring more people to make management easier.
2. More Savings
Entering into the affordable housing sector through the LIHTC program provides tax credits. There are two notable ones. You’ll get a 4% and 9% credit through 10 years. The savings can compound and cover most other costs required to manage the property. It’s not uncommon for the government to further reduce taxes over time.
The government encourages property managers to enter this sector because they want to promote it. As such, property managers benefit from being a part of this focus. Fewer taxes mean more savings and profits.
Also, the case of LIHTC property value exists. Most of them are affordable, and development doesn’t cost as much as it does for other housing. Despite that, these areas often experience increased value over time thanks to higher demand for real estate. The investment you make early can grow.
Investing in the property also means contributing to the area’s growth. Good management can help drive more business to the locality, increasing your bottom line. This is one reason to consider LIHTC, even in relatively new developments.
3. A Reliable Income Stream
There is a large gap between the demand and supply of affordable housing. Every part of the U.S. needs it, and more people qualify for low-income housing. Even the government is creating programs to help them get into these properties. The gap is so large that experts believe it will take years for it to balance out. That in itself is a revenue opportunity because you can become the one to fill in that gap.
A reliable revenue stream from rental properties provides you consistency in your portfolio. It can protect you from seasons when another property isn’t getting much demand.
One reason it’s reliable is its constant high demand. Data shows that these properties have low foreclosure rates. That means most of the properties you’ll own will perform as expected or better, with a few outliers.
Individuals are constantly seeking ways to economize, and you can provide them with such opportunities. Investing in LIHTC for your portfolio also offers a low-risk option that can help balance your risk.
4. You Are Helping the Community
Many people are struggling with money, and a good way to recover is by finding affordable housing. With this, they will have sufficient funds for necessities. They won't need to stress over steep rent or their source of income. You provide options for them to get food, healthcare, and education.
Creating an opportunity for them to have stability will also affect the community. You become a pillar to help low-income families find their ground, which can help revitalize a community and bring a positive light to your firm.
Over time, if a good portion of your portfolio is affordable housing, you are helping many communities. Plus, the properties provide returns that will help you bring money to your business.
5. Recession Proof
Recent years have shown us that crazy things can happen and change the world. We went from years of little demand to hotter real estate markets as the world came to terms with COVID.
However, unforeseen events can cause large-scale or mini-recessions, such as the rise in inflation and the recent tech bust of 2023. All these can impact the real estate market.
Affordable housing is immune to this impact. Regardless of world or economic conditions, there will always be a consistent demand for such properties.
It even increases further in bad economies. Property managers will enjoy high occupancy rates while getting the best opportunities possible because fewer businesses know how to manage LIHTC.
Aside from the consistency in demand, there is also support from the government. The government often provides subsidies to help people get affordable housing. That investment is money that comes into your property to help make things affordable for tenants.
6. Reducing Investment Risk
Professional property management lowers the risk of LIHTC projects losing value. A property manager handles everything needed for upkeep, from rent to maintenance. In the worst-case scenario, they can still find ways to sell the property to other interested parties. There's a rationale behind numerous firms establishing extensive national portfolios that comprise LIHTC initiatives.
Your company can also enter this environment by adding LIHTC to your property management portfolio. With reduced risk, you have more of a chance to turn that investment into something profitable long-term.
Putting It All Together
There are a lot of opportunities in affordable housing property management. Whether you’re looking for new developments, HUD, or blended occupancy, you can find that its numerous benefits will apply to your company. Apart from the tax savings, you’re also helping the community. LIHTC properties provide consistent demand and a reliable income stream that can round out your portfolio.
Before you get to that point, it will take some time to learn about the compliance requirements with LIHTC. You can easily manage that and the property with software like ExactEstate. ExactEstate is property management software designed for the ffordable housing industry, helping you succeed in this sector with its technological advantage. To learn more, schedule a call today.
