The Syndicator’s Blueprint to Mastering Tax Credit Housing in 2025

Hello.

Hello everyone, and welcome to the Raise Capital Legally podcast and YouTube channel. Sorry. Your go-to source for insights on capital raising the right way. We dive into topics that matter most to real estate syndicators and fund managers with live Q&A opportunities before we wrap up. I'm Krisha Young, your co-host and business development director at syndicationattorneys.com. And joining me is attorney Kim Lisa Taylor, Founder of Syndication Attorneys. Now, before we get started, please note that audio and video from this event will be posted on our podcast platform, YouTube channel, website, and social media, and will be made available to the public. You can go ahead and ask questions at the end of the broadcast by raising your hand or typing it in the Q&A. Information discussed during this event is of a general educational nature and should not be construed as legal advice. So today our topic is Cracking the Code on Tax Credit Housing. What Syndicators Need to Know to Compete Nationwide. Kim Lisa Taylor and Chris Young of Syndication Attorneys welcome Homero Cabello Jr., the Deputy Executive Director at the Texas Department of Housing and Community Affairs. Homero shares insights from his decades of experience managing affordable housing programs and tax credit compliance that can be applied to projects nationwide. We'll discuss what it takes to qualify for low-income housing tax credits, LIHTC, what entity structures their deals need to qualify, and how LIHTC programs benefit syndicators, investors, and low-income tenants. This knowledge is perfect for sponsors looking to enter or scale in affordable housing or looking to maximize cash flow and tax benefits for their existing and future deals. Hello, everyone.

Hey, Krisha. Hi.

Hello.

Thank you so much for taking time out of your busy day to come and talk to us. Homero and I have known each other for a few years now. We are part of a group with RE Mentor called the Insiders Club, which is a pretty cool group. Some of you may already be part of that group, or if you want more information, do check that out at rementor.com. At their website, give them a call. They can tell you about it. But Omero has a really interesting background, and he has some— I know that low-income housing tax credits can be a very, very powerful financing tool, and very few people understand how to use them. So Omero is gonna share with us his experience. So, Omero, tell us about yourself and what you do.

Oh, thanks, Kim, for inviting me. Um, um, I think it's a great opportunity. And yes, we met through, um, the RE Mentor Insiders Club, which is an awesome club. Um, you know, the things I picked up from there are— the most important things I picked up is, um, uh, positive mindset and manifestation. I think that that's great tools to have as you're dealing with life and, and the multifamily world. So, um, I've been with the Texas Department of Housing and Community Affairs, um, this August will be 33 years. How time flies. I, for the first 20, 25 years, I managed, I managed the majority of the programs at the agency at one time or another, mainly on single-family programs. And then in 2018, I was promoted to the Deputy Executive Director to oversee all aspects of multifamily, including the LIHTC, Low-Income Housing Tax Credits. From application to underwriting, scoring the applications to— I oversee the loan closers, loan servicing, and several other divisions that I oversee. I also oversee— with HUD programs, you got to do environmental clearances, you got to do labor standards, you got to do relocation. I oversee all those aspects also. And then a couple other divisions that are not related to multifamily. So, and the biggest piece on LIHTC is the compliance, is making sure that the multifamily development is in compliance and that the property is well maintained. So, yes, I bring a lot of experience in the LIHTC world.

Yeah, fantastic. Wow, we're really honored that you were able to talk to us and to talk to our audience. I'm sure there's a lot of people that are just dying to know this stuff. So can you tell us what kind of properties typically qualify for the LIHTC specifically in the multifamily realm?

Well, there's a, you know, when people talk about LIHTC, there's 2 types of programs. There's what we call the 9% program and the 4% program. The 9% program is very competitive. That's where Multifamily developers and consultants, they submit applications to the agency, and they get scored, evaluated, and then, you know, they get awarded.

The 4%—

in the 9% program, those tax credits fund about 70% of the development cost. The 4% program, you apply for tax-exempt bonds. And for those that do not know what tax-exempt bonds are, those are— investors buy these bonds and the interest that they earn, they get paid, are tax-free. They don't pay taxes on those. So that's why they're called tax-exempt bonds. And the bonds finance a minimum of 50% of the development costs. And those bonds are usually at below-market interest rates. And then the 4% tax credits fund about 30% of the development costs. So between the bonds and the tax credits, it covers about 80%, sometimes more of the total development cost. Now, the tax credit program is governed— each state has to do what we call a qualified allocation plan, and that dictates all the requirements, the rules, everything that needs to be done in the tax credit program. And the tax credit program mainly funds— the large majority is new construction. We can do acquisition rehab. We call it AC rehab. To house low-income families earning up to 60% of the area median income. It also funds senior housing. We call that— we call them elderly residents. And it can also fund supportive housing for special needs populations such as individuals experiencing homelessness or persons with disabilities. What we'd like to fund is more mixed-income developments where you got market rate and affordable housing and where they're living In the same development. And then finally, the tax credit program also funds what we call preservation, and those are developments that are at the end of exiting the affordable housing programs. And so we don't want them to exit. We give them a set-aside to keep those, keep those projects affordable.

I see, because the program itself extends for a period of time that they have to comply. And then is that how that works so that then they could exit from it or they can extend and you can offer them some incentives to stay?

Yeah, correct. So the IRS code that governs the program has a 30-year minimum affordability period, right? So if they're in years 28, 29 of that period, they can come in and apply under the preservation set-aside, get some new funding to rehabilitate the project, and then put another 30 years of affordability. To keep the development affordable.

Okay, great. So from your experience, what are the most common reasons an application gets denied or scored poorly?

Well, they can be denied or scored poorly for several reasons. Failure to meet threshold requirements. These are the minimum eligibility criteria. That is required, such as financial feasibility, site control. They need to, they need to show that they have strong financials and they have control of the site. We often see applications that are missing forms, they have incomplete financial projections, and that leads to the application being rejected or denied.

Mm-hmm.

The QAP, the qualified allocation, you know, it It outlines scoring criteria, and failure to align with those priorities can lead to a lower score. And if you score low, you're not going to get funded. One of the biggest things that we require—

What are the ranges for the scores?

Well, I think if you score, I think the score goes up to about 180, 175 points. If you score in the 170s, you're most likely going to get awarded. But there's some projects that score 130, 140, because the other applications are not as competitive, and they end up getting awarded. The QAP outlines all the various points and how they can be earned. But the maximum, I think, if you have a perfect application, I want to say it's about 178. I haven't added them in a while, but if you score in the 170s, you should get awarded. One of the biggest things that is required in Texas is local support. We require resolutions or endorsements from local government entities, cities, counties. And then we also require support from your state-elected state representatives. If a state representative does not like your deal, it pretty much kills your application. Which is a huge thing, a huge thing. We talked about financial, make sure that there's a financial plan, that the revenues and everything's projected correctly. And if it's not financially feasible, then your deal is not going to move forward. We do require market studies to make sure that the development is located in a great place, but if it's in a high vacancy or weak demand or high crime, it's not gonna score very well. And then the other things that come to mind are environmental zoning issues. If there's any environmental concerns or zoning issues, your application could be denied. So there's a whole bunch of different factors that come into play.

Okay. And then what about the sponsor themselves? What kind of requirements do they have to have to be able to qualify?

Well, they must demonstrate several key qualifications. They must have experience and a track record. They must have strong history of housing development and management. Financial stability. The sponsor must show they have financial capacity to support the project through its lifecycle, which is the 30-year affordability. We like for them to have knowledge of our compliance requirements and the regulatory requirements, the IRS code and our compliance rules. And then, as I mentioned, you know, have securing local support that the city and the county want this project in their city. And then the other thing that we, that we value is partnering with a nonprofit or a hub, historically underutilized businesses. You know, we like those projects, and they receive additional consideration in the applications.

Yeah, we have a client that's working on restructuring their deal with a nonprofit right now so that they can get some tax credits, and it's going to have a huge impact on their net operating income, which of course drives the value of the project.

That's correct.

So it can really help with your exit, right, if you put this in place. Now, of course, it— so these programs can go run with the land, right? If you put the program In place and then sell it to somebody else, then they could still continue the program, correct?

Yes, yes. And, you know, they could— many LIHTC developers sell their project after 15 years. The first 15 years, it's regulated by the IRS, and then the remaining 15 years or more is regulated by the state, in our case, the state of Texas. And so they want to, they want to stay in place for 15 years, because if anything happens that has a negative impact, those tax credits can be pulled back by the IRS, which will have financial consequences for the investors. So that's why they want to stay in for the first 15 years.

And is a new buyer with one of these LIHTC programs in place, is the new buyer required to comply with the rules for the duration of that?

Oh yes, and, and we've seen that at the agency where you have some what I call newbies into the, into the multifamily space, and they buy a LIHTC property. The first thing I tell them is there's a land use regulatory agreement that, that's put in place, and that governs that property, who you rent to, what services you must provide. And what happens with these newbies They don't read the LORA, and they tend to fall out of compliance, and we will then— we could fine them. We could even foreclose on them. We at the state, we want compliance. We will work with you to get into compliance, but if you're just not working with us, then we have some tools to take action against you.

I actually had some experience with Department of Housing and Urban Development as a consultant. for a while when they were going in and doing enforcement actions on buyers who are on landlords who were not complying with safe and sanitary housing quality standards. So they would either pull their loans or, you know, these were mostly HUD financed, so they would either pull their loans, foreclose on the property. So yeah, that was— things like that did happen. And unfortunately, there were a lot of people out there that You know, they'd get into the programs, and then they wouldn't even try to comply, and just kind of let them run into the ground until the property was taken away from them, and they didn't care. They were just pulling money out. So it's unfortunate that there's people like that out there. But those that are really trying to comply— I also managed an apartment complex in California before I went to law school, and it was partially financed through some public bonds, and so it had some low-income requirements on it. And so we were, you know, we had, we had both HUD-subsidized, and then we had some just kind of a lower-income qualification criteria, so that we had to put a certain number of people into those, those specific apartments. So I'm a little bit— I would imagine that some of those were maybe related to the programs that you're dealing with.

Yeah.

Although I didn't really understand it at the time because I was managing the project, I wasn't owning it. But yeah, so, but it can work out, you know, it can work out really well. And it was one of those situations where you had market rents alongside some of the lower income, and you just had to be, you know, careful about how you manage the type of tenants that went into those projects and making sure that they were all good quality tenants regardless of income. Yeah, that's always—

well, there's, there's, there's 2 keys. If, if we end up foreclosing, we're going to debar you from the program. We'll, you know, we'll, we'll recommend debarment, and, and that's the worst case. But to be successful in LIHTC, you need to partner with a property management company that understands the LIHTC programs, knows how to qualify the tenants, and knows all the, all the requirements. And if you have a, a, a strong property management company as your partner, you should succeed.

Yeah, yeah. And we were really careful about that. So in this case, it was a self-managed property. The owner actually hired us as the employees and taught us how to do it. So we were well in compliance with all of that. But that's, that's, yeah, they're, they're very powerful programs. And I saw how they could help people who were, you know, in sometimes unfortunate situations or otherwise, you know, a lot of senior citizens. You know, single moms, people like that, that just needed that additional assistance, but they were great tenants, you know. So that was— it was pretty gratifying to be part of that, I think. And I think it can be for a landlord, knowing that you're providing those services in a community that really needs it, I think can be really great. So you said that they have to usually have some kind of a A sponsor usually has to have some kind of a track record. Do you also look at who's on their team, all the different members of their team? They're getting separate financing, still getting Fannie Mae or HUD or some other financing in addition to the LIHTC program, right?

Well, yes and no. For the 9% program that provides 70% of development costs, they usually get a Fannie or Freddie loan or a HUD. 221 loan to help fill that gap. For the program, you have the tax-exempt bonds that can be used for construction and road to permanent. But there's a lot of developers that after construction, they end up getting a more conventional or HUD loan at the time. But we as the agency, and just like lenders, we look at the experience of the of the team. Do they have a history of successfully developing and managing multifamily? And then it's even better if they have experience managing LIHTC properties. Financial stability, solid foundation, solid financial foundation to make sure that they can carry the project as needed. One of the things that we do before we award tax credits, we look at their compliance history. If they have a history of being out of compliance, we will put a plan in place for them to make sure they stay in compliance, or we won't recommend awarding the tax credits. So we call that a previous participation review to make sure that they have a history of being in compliance. So, you know, you want your developer and your sponsor to have experience with LIHTC-funded projects. I talked about a property management company. Make sure you get a property management company that has expertise in affordable housing compliance. And then just— we also— there's only a handful of law firms in Texas that really work on LIHTC programs. And we like to see that they're working with one of those firms. It's not a— it won't kill your deal, if you will, but We know that they know what they're doing and they will structure it correctly.

And that would be like for people like their real estate attorney. Is that what you're thinking?

Well, you have real estate attorneys and then you have the tax credit attorneys, the LIHTC attorneys.

Got it.

Yeah.

With my clients that are looking at doing this with a nonprofit, that was one of the benefits that they brought. Number one, they brought the nonprofit who had the experience. They were going to completely ensure administration of the program and training of the personnel, and they also had their attorney that they brought in to help ensure that the structure was correct for them to have that authority to do it. And it was, it was kind of a little bit different than a syndication structure, a typical syndication structure, in that they had to be named as the manager. The nonprofit had to be named as the manager, and then the sponsor was actually named as the administrative manager. So it's important, I think, that you get into these projects, you know, contemplate whether you're going to do this and when you're getting your initial loan on a project, if it's an existing property, so that you can structure it in a way that the lender is not going to object to later on if you try to restructure it. But of course, if it's a development project, then you're going to be working with the LIHTC people from the beginning, I would imagine.

That's correct. And, and if you're buying an existing project, um, Fannie and Freddie have affordable programs that, that provide better, um, interest rates than if you're just doing a straight conventional product. So there's some benefits with that. Um, and then if you partner with a nonprofit in Texas, um, if you were talking about your NOI, and, and the nonprofit in Texas can can also provide a 50% property tax abatement. And property taxes in Texas is high. So if you have a large development and your property taxes are $1 million a year, just partner with a qualified nonprofit. You can, you can save 50% of that expense, which helps your bottom line.

And it doesn't have to apply to 100% of the property. It's not—

No, it's only 50% of the units. But since you're doing LIHTC, You, you already qualify for, for the, for the, for the tax abatement.

Wow.

And if you partner with a public housing authority, you can get 100% tax abatement in Texas.

Wow.

So you have a lot of LIHTC developers that partner with housing authorities and nonprofits, and there's a couple of other structures that, that you can also partner with to get those abatements. Now, You don't realize 100% of the tax payment because they are part of the deal. They, you know, they're going to want some involvement. They're going to want to be compensated also. So then again, 100%, you may get 80% tax payment, 70%, whatever you negotiate. But still, that's a big savings for the property, for the operations.

All right. So let's go back a little bit just in case somebody missed this in the beginning. And maybe I just want to make sure we all understand it correctly. So The LIHTC program itself is going to give you what specific benefits? It's going to give you tax, tax on what? Like, what taxes are you avoiding here?

Well, the 9% program, which is the competitive, right? So it's these— this program, the 4%, 9%, and the 4%, 9%, it's a multi-billion-dollar program that we administer annually.

Okay.

So let's just say you get it on the 9% program. You get a— you get $2 million— you get awarded $2 million of tax credits. Well, that $2 million is times 10 because you'll get that $2 million tax credit for 10 years. So that's $20 million. So then you— so then you will sell your tax credit to what we call a syndicator. And it's— and they usually buy these and, and sell them to big companies that need these tax credits. So if you sell them a $20 million tax credit and they give you, say, 80 cents on the dollar, so you will— they will then in, in return give you $16 million of equity. So that is equity. You don't have to pay it back. You just got to stay in compliance. So if your project costs, say, $40 million to build, you have $60 million of equity under the 9% program. So now you go get a loan or different other funding sources to make up that $14 million. So you're only carrying debt on $14 million because you got $60 million worth of equity.

Wow. Which makes cash flow go way, way up.

Well, yes, that's correct. But, but then you, you're restricted on the rents. Now, the rents tend to grow historically over the life of the program. HUD publishes annually updated rents and income limits. Historically, over the life of the LIHTC program, the rents tend to increase about 3% per year.

Mm-hmm.

So a tax credit developer at, at the very beginning of new construction or act rehab They make a lot of their money up front through a developer fee. So those are, those are some of the benefits. Now, if you bring in a nonprofit or housing authority, you get additional benefit because you're not paying 100% of the property taxes. And so that, that helps you even, even further.

Wow, that's amazing. All right, so the people that are on the call, I hope you're thinking about your questions that you're gonna have for Omero because this is really powerful.

We've already got a bunch.

Oh, good. Okay. Well, I want to make sure that we leave plenty of time for those because, yeah, I think this is just something that's so misunderstood and can really work so well for you. And so if someone is doing a renovation project, is there a certain— you know, what if— I guess you're not going to use this to buy a Class A property, but you could be using it to buy a Class C property and try to get it up to Class B standard or something like that. Is there some level of renovation that has to be done in order for a project to qualify?

Well, let me start with your Class A, Class B. A lot of people think of the tax credit affordable housing, they think of the old Section 8 developments that were built in the '60s and '70s, right? In Texas, we pride ourselves in that we build— that we require the development community to build some very nice properties. They look like Class A properties when you drive up to them, but it's actually a LIHTC property. So a lot of these properties look like they're Class A, and they have a lot of the same amenities. Now, if you're doing an acquisition rehab, yes, you can purchase a '60s, '70s, '80s, '90s, whatever you think is feasible, and you got to rehabilitate it to make sure that it's safe, sound, and sanitary. for the households. And you got to rehabilitate it and make sure that it's going to last throughout the affordability period, which is 30 years. One of the things that I'm not in agreement with, and I tend to be kind of vocal about that, is that there are some states that require 50 years, 99 years affordability. Which sounds great from a public policy point of view.

Yeah.

But they need to be able to recapitalize and remodel and update these properties because the roofs, the systems, the AC, the water heaters, all those things need to get replaced probably around year 20. And so if you're going to require 50 years, 99 years, there needs to be some assistance because you got restricted rents. To help them to remodel. So that's, you know, if you're buying in some of these other states, I highly recommend that you review your land use regulatory agreement, the LURA, to see how long this thing needs to be in the affordability space.

Yeah, plan for how you're going to do those future renovations and start actually saving reserves for them, you know, from year 1.

Right, right, right. Well, can you do a cash-out refinance and then use that cash out? But you need to be planning about those things, and some of these projects are so tight that I worry about them 15, 20 years down the road.

So they can do it. Right, right. Well, and I guess that's where, you know, anybody that's listening that lives in a condominium, what condominium homeowner associations do is they if they're run properly, should be collecting enough money to create what they call reserves for replacements. And so that you start collecting the money, you know, 10, 15 years before you need it, so that by the time you need new roofs or new balconies or some kind of stabilization project, that you've got the funds there and ready to do that. So you have to think about that, think into the future. And, you know, maybe not always. I mean, in some ways a lot of our clients are doing, you know, kind of a flip model, but it's a slow flip, right? Where they buy, they renovate, they optimize, they hold, maybe they refinance within 3 years, maybe they don't, but then they typically sell around year 7, you know, and that's generally because at that point you might need to bring in some new capital to start rehabbing again, and it's almost easier to go into a different project than it is to recapitalize the one you have, which is maybe just an artifact of the way that we finance things. But that is a reality.

And one of the issues that, you know, there's been some tax credit developments that were— we call it placed in service— that were placed in service 5, 10 years ago, and they were cash flowing just fine. But then you had the insurance double and triple. You have inflation and costs to make readies and repairs and maintenance that they started struggling just to cash flow. And so a lot of these existing developments started partnering with housing authorities and nonprofits to get that property tax abatement so they can increase their, their bottom line. But I agree, they need to start thinking about if they're going to hold it for long term. They need to start putting those reserves and start collecting those reserves so they can make those improvements.

That's right.

We have, we have a team of about 20 inspectors that we, at our agency, we have over 350,000 doors that we monitor. We have almost 3,000 properties in Texas that we, we have a very robust compliance monitoring team. We're the, we're the best compliance team in the nation. We get that all the time, but we have some developers that we send out our inspectors, a lot of deferred maintenance and a lot of issues, and we make them fix the health and safety stuff first within the first 24 hours that we identify it. But a lot of the resources and a lot of them just say, Omar, here's the property, you can have it. Well, I don't want your property. I want you to get in compliance. So how can we help you? So a lot of things, a lot of issues come into play.

All right. Well, I feel like if we've got a lot of questions, I don't— I want to make sure that everybody has access to O'Merrill. So maybe we should go to the questions. But before we do that, Christian, could you tell people about how to get copies of our books?

Yes, I can. Sorry, just moving some stuff on my screen around here. If you want to raise capital like a pro, you can grab our books. We have 2 of them. If you're new to raising capital, there's this one here. Learn the laws, the structure, and the strategies to confidently secure funding for your real estate deals. And if you're already—

Just for our listening audience, how to raise capital legally for real estate.

Legally, yes. And then this one is how to raise capital for real estate legally.

Actually, I said the wrong one. You did? How to legally raise private money. Sorry about that. Yeah. The second one is How to Raise Capital for Real Estate Legally. If you want to buy them on Amazon, look up my name, Kim Lisa Taylor, and that's the easiest way to get to them. But we do have a new book. How to Legally Raise Capital for Startups and Small Business. This one is not yet on Amazon. It should be out within a month or so. We are going to do a launch. So we just wrote this one. We've got an attorney that works with us, Jason Hargadon, that does our business offerings specifically. We've also got Michael Fugler. He's taken over 100 companies, public. And so we're looking forward to helping any of you who are also business entrepreneurs. And if you'd like a copy of this book, just send Krisha or me an email and we'll put you on our list for when it gets launched and make sure that you are notified. But yeah, let's go to some questions.

Okay, great.

Can I put a plug into your book? I think it's a great book. Yeah, I didn't read it, but I listened to it on audiobooks.

Oh, so that's, that's fun.

How to Raise Capital for Real Estate Legally.

Yes. The Audible book is awesome.

Yeah.

Yeah. So this one, just to know the difference, this How to Legally Raise Private Money is really a beginner's guide. It's short and it's a step-by-step how to syndicate for beginners. This one, longer, more like an encyclopedia. I recommend everybody have a copy of it on their desk that you can highlight and tag and look at the things you need to look up when they come up in your world. So, okay.

Yeah. All right. So some of this might have already— we might have covered it. So if we did, but I'll just read through the questions here. Alan said he's doing some TC in SoCal. So great timing. There we go. We've been working with DDA. His question is, how long is the application process and competition for getting your application accepted? Did we cover that?

Oh, that sounds like a 9%. Remember, there's the 9% and the 4% program. The 9% is very competitive. So if you're doing your first one, I highly recommend you hire— there's, there's LIHTC consultants out there that can walk you through the—

I was wondering about that.

The whole process. And once you do a few, you can probably do it on your own. But there's a, there's a, there's a lot of things you got to do up front before you even submit an application. As I mentioned, you got to have site control. So you got to find your land if you're doing new construction, and if you're doing acquisition rehab, find that property. But, but here's, here's the challenge to that. It takes about 9 months to, to see if you're going to get an award or not. So when you get these properties under contract, you need to have some extensions in there. And these owners are not going to want these properties off market for that long. So you're probably going to have to negotiate about putting some earnest money that's going to go hard immediately because you're holding this property for 9 months. So on the 9%, you got to secure— you got to get control of the property. You got to do architectural designs. You got to have engineering done. You have to get a market study done, and then you put your application together. And in Texas, you submit what we call a pre-app in January at the very beginning of the year. And what that does is, is everybody submits their pre-app and you, and you get to see where you rank. And if you're in the money, in the money, You didn't continue with the full application that is due in March. But if you're so far down the list that you're not gonna— you're not gonna be in the money, you don't go forward and incur all the expenses. It's gonna cost you about a couple hundred thousand dollars, maybe more, just to submit an application because of everything that's required. Now, under the 4— on the tax-exempt and bonds, That one needs to be— that one moves quicker. What you submit in Texas, you submit your bond application in October. Hopefully you get a reservation in January, and then you have 180 days to close that transaction. Now, this is just very high level. There's a whole bunch of other things that come into play, and we can talk— I could say days about everything that takes place with the tax credit program. But for the competitive, it's about a 9-month process.

But works well for a developer, and they would typically come in at what stage, when they're during the entitlement phase of their project or after entitlement?

Well, it's the developer that hires the consultant, and then the developer will hire a general contractor to build it, and many times they're one and the same. And then many times they're not, but what they're trying to do is secure the tax credits. And then they have 2 years to build it and place it in service.

Okay. And then for someone who's doing an existing project, it sounds like they might even need to get a bridge loan or something and even take title of the property and then plan to refinance it if they have to restructure, or You know, alternatively work with somebody who can help them structure it correctly from the beginning so that it will be in the correct structure at the time that the tax credit application is applied for and hopefully approved.

Yeah, yeah, it's, you know, if you could do an acquisition rehab, there's 2 ways you can do it. You can buy it and then you can then roll it over into your tax credit project, or You negotiate with the seller and, and have him hold it through earnest money, and a lot of earnest money, while you're working and putting your project together. Yeah.

Okay, great.

Yeah, I just highly recommend that if you're going to do your first ones, partner with the consultant and partner with the developer that has done this in the past, and that way you can learn from them and, and kind of Learn from them, and they probably have the resources to carry you for the first couple of deals, and then you can break off on your own.

Great idea.

Smart. All right, so we'll go back to some more questions in the chat, but we've got a Q&A one here. Alex said, we were talking about categories such as disabilities, elderly housing, low income. Are there tax credit incentives to invest in developments sober living homes or residential drug treatment programs?

Well, there's not a set-aside for sober living or drug addiction. Now, we have a set-aside for supportive housing, and the services that the supportive housing provides can be those types of services. And you just, you know, you can partner with— they're usually nonprofit organizations. for the most part, partner with one that had— that provides those services, or you can partner with them where you provide the services and they apply for the tax credits, and then you work together as a team. So there's many ways to do that, but there isn't a specific set-aside for that, but you can, you can make it fit under supportive housing.

And you mentioned earlier senior housing, and are we talking about like assisted living facilities or just general housing that is restricted to seniors?

It's just restricted to seniors for 62 years or older.

Got it.

The whole development. Now they can have children and grandkids and all those things, but it's— the main applicant has to be at least be 62 years old or older.

Got it.

And if I can point out, so remember I was talking about local support? Well, there's some cities and towns that don't want those kind of people living in their city. NIMBYism, not in my backyard, right? And so there's some cities that push very hard about bringing affordable housing to their city, but they tend to be more open when you're doing elderly housing. They will approve elderly housing over general housing. So depending on your city, and if it's a high-income city and You know, and you want to do something there, your probably best bet is to go in with some elderly housing, and you most likely get that approved.

And if, for the elderly housing, would the entire project have to be set aside for elderly housing?

That's what we see. I don't think I've ever seen a mixed housing development where it's just market rate and elderly. I'm sure it happens. But in today's times, because people are trying to maximize the amount of tax credits they get, we're seeing 100%. So, yeah.

Okay, great.

And if I may, one last thing, you know, the NIMBYism, these cities, it'll be the way a lot of developers get them to buy into the project is by taking them and showing them affordable housing. Remember I said they look like Class A properties? We've had some city council— I've been told that city council members and mayors and county judges said, I will live here, because they still have that thinking that it's a Section 8 housing development. So you may want to educate them first before you, you, you take your project before city council or commissioner's court.

Yeah, make sure you have some nice renderings that you can show them what it's gonna look like, for sure. And talk about the amenities if you're going to be providing amenities as well, because, you know, that's not typically something they would expect if they were, you know, had that stereotype of what it might look like in their mind. Interesting. Okay. Anything else, Tricia?

Yeah, there's a couple more. Well, Stony said, when I get your new book, I'll have all 3 of Kim's books. They're so excellent. I agree. Thank you, Stony. Okay, so Alan's got a few more questions here. How does How much does a sponsor get compensated on a TC opportunity?

A sponsor? You're talking about the developer?

I think he's talking about like the syndicator.

Well, the syndicator— so there's, there's 2 ways you can syndicate this. If you're doing new construction— well, there's several ways, but if you're doing new construction, you're selling your tax credits To a syndicator who then sells it to a Wells Fargo, Bank of America, these big companies that need these types of tax credits, and they have those relationships. And so if they buy them at 85 cents on a dollar, they may sell it to Bank of America for 87 cents on a dollar, and that's how they make their money through that spread. What I see in— what I see through your traditional syndication with 506 and 506 type of structures is when they're buying a post-'15 tax credit development, an existing tax credit development that's, that's been in the program for over 15 years. And then they, they buy it, you know, they underwrite it to try to get the returns, and then they can syndicate it that way. And that's what I, that's what I see the most is your traditional syndication with the 506 structure.

Um, Michelle actually just posted a question. What are the potential traps if I purchase an LIHTC, uh, properties which already ran out of tax credit?

So that's your post-15 properties. So your post-15s, after 15 years, the IRS is out of the picture and they can't pull those tax credits anymore. And that's why they sell them after 15 years, right? So the biggest trap is these regulatory agreements. In those agreements, I saw a LORA in Florida that somebody sent me. That LORA stated that if one of your tenants wants to buy, wants to become a homeowner, that you must pay for the down payment and closing cost. Whoa, that's, that's huge. How do you, how do you budget for that? You know, yeah, so read your LURA. Some of them require pre-kindergarten services, daycare services. There's all types of services, and and and if you don't budget for that correctly or you don't buy right, you can get yourself in trouble pretty quickly. But at the end of the day, you got to make sure that you stay in compliance because whatever state you're in, they're going to monitor you. Making sure you're leasing to the proper tenants, making sure that you're providing the services that are outlined in your LURA, and make it— and then their inspectors are going to make sure that you're upkeeping the property. And so those are your biggest pitfalls in buying a tax credit property.

Wow. Yeah. So it sounds like there's probably some attorneys out there that specialize in that that can help people understand what those requirements are, I would imagine.

Yes, yes.

Anonymous said, you're such a wealth of knowledge on such a broad and complicated topic. Thank you so much for sharing. You should write a book. And then the question is regarding compliance, are there companies/third parties who can help audit or ensure compliance with Laura and low-income housing requirements?

Yes, there's some consult— I mean, there's some companies out there. I don't have no affiliation with this company, but they're kind of the leader of the light tech world, and that's a company called Novogradac. They provide accounting services, they provide compliance services, they provide a lot of those light tech type of services. But again, at the end of the day, work with a Property management company that has experience working with LIHTC properties, because there's certain ways that you qualify tenants. There's certain documentation and disclosures and notices, and how the— without getting too deep in the weeds— is, you know, when you do tax credits, there's a building identification number that's provided, which we call BINs. And if you're at a— so there's certain ways to structure certain things to make sure that your risk is minimized of you falling out of compliance. So it's very important to work with a consultant, a tax credit attorney, a CPA that knows about tax credits, property management company. You have to have a team that is knowledgeable of this space because you can get yourself in trouble pretty quickly.

Now, so, Omero, I would imagine that you have a conflict of interest providing consulting services in Texas, but what about other states? Are you able to, you know, act as a consultant on somebody who's trying to do a tax credit program somewhere other than Texas?

Anything in Texas I cannot touch because I'm over all aspects of it, but if it's in another state, I can I can provide, I can help, I can consult, I can partner, um, as long as it's not in Texas. So remember I was telling you about the Florida? I had a group approach me, um, last year about partnering, and once I read the LORA, I had no interest. Had another group, uh, approach me from Illinois. They— their LORA is 99 years, um, and I just I had no interest. But yes, the short answer is yes, if it's outside of Texas.

Okay. So that's, that's something good to know. And just go ahead and give us your contact information now, Homero, just so that everybody has it in case somebody has to leave right at the top of the hour.

So let me give you my, my email. It's Homero. H-O-M-E-R-O dot Cabello, C-A-B as in boy, E-L-L-O at T-D-H-C-A for the Texas Department of Housing Community Affairs dot Texas. The whole 5-letter word.

Personal email that you'd rather give out?

Um, my personal email is hcabelljr@gmail.com.

Let's do that one.

H Cabello, C-A-B as in boy, E-L-L-O-J-R at gmail.com.

Was there, was there a couple letters after your last name there?

I got it, got it.

They are faster than me. Let me give you my cell.

Hold on.

Yeah, my cell is, uh, I'll copy and paste it to everybody.

Thank you.

There we go.

Yay, teamwork!

Okay, yeah, so hcabellojr@gmail.com. Let's, uh, let's use that one if anyone wants to reach out to Homero. Um, okay, uh, any other questions that we have, Krisha?

Um, hang on a sec, where's the chat?

I see there's one here from Alan.

Uh, yeah, which one are you looking at?

This one. I can trade you my book, 6 Steps to Real Estate Success on Amazon, for yours. Yeah. Oh, that's funny. I've known Alan for a very long, long, long time. He's an interesting guy. And he also says, but I have an 118-unit, 100% affordable, 95% complete to be ready for occupancy in October '25. At only $270K per door, Class B minus C plus. Can you apply for tax credits on a new to be completed under an ED one in LA, Los Angeles? Well, I think that Omero would probably have to look at the rules in California to know whether he could do that. And then saying. Alan's saying he also has an 88, 144, and 277-unit projects ready for applications. So, so maybe if you'd like some assistance on that, Alan, you should reach out directly to Omero, and you guys can talk about that, and maybe he can either consult with you or potentially partner with you on those projects.

Yeah, the, the, the new construction one. Well, there's a couple of things, you know, tax credits is one affordable program. You also, you also have other HUD programs. You have USDA that also provide funding for affordable housing. Tax credits is a Bipartisan program. There's a you know the the big tax bill that they're working on Congress right now. The the House representative just came out with the first draft. They got provisions in there to expand the the funding or the the credits for the for the LIHTC program, and they're making improvements to that. And then separate to that, there's another bill in Congress. It's called the Affordable Housing Tax. Credit Housing Program, something to that effect. And it has over 100 sponsors, and 50% are Democrats and 50% are Republicans. And so it's a very bipartisan program. It's going to continue to grow. And it's— and they love it because you have government that is awarding the credit, the private sector that's building it and managing it, and then you've got government overseeing it to making sure that They're leasing to the right, to the proper people. So I see this program growing. There's concerns that some of these other programs are going to get cut or reduced. But LIHTC is the program that many are seeing for the future to address the affordable housing need. Just the piece that was just released from the House Just the changes that they're making will probably add 2 million more affordable units just with those changes that they're proposing. So just throw that out.

Yeah, that's fantastic. Well, that's— that sounds like a great thing. Well, Omero, I think we have probably picked your brain enough for one day. Thank you so much for sharing your knowledge with us and Krisha. You mentioned something that I know is dear to Krish's mind in the beginning, that one of the best parts about the Insiders Club has been the mindset. And that is Krish's area of expertise. So she helps our clients through overcome some of their obstacles to capital raising or syndicating. You know, sometimes we think we want to go down a path and then we get there and we're like, oh, wait a minute, this is scary. And she can help walk you through that. And then she also has her own coaching program if we need some more specialized consultations. And I've seen her work some wonders. So anyhow, Krisha, if you want to reach out to her, krisha@syndicationattorneys.com. And thank you everyone for listening today. Thank you, Romero, for being here.

Yeah, thank you. Thank you, Kim.

Thank you for inviting me.

Yeah, I'm sure this is going to be one that we're going to be referring a lot of people to this podcast over time. And, you know, so everybody should listen. Tell your friends, tell them about it. And please, please, please, everybody, if you could go to Google our website, give us a review if you can. Do we have a review thing that you could pop into the chat, Krisha? I don't know.

For the podcast?

For whatever you want. You know, we love reviews, but we'd love people to tell us about our reviews. I know you can review it on iTunes, and I think you can also review on YouTube. And we would love to have you all subscribe to our YouTube channel because we are trying to build our subscriber database. So thank you so much again for all of your support, and we love giving you this information. We love the fact that you're here, so keep coming back. All right.

Yes.

All right. Thank you.

Bye-bye.

Thank you.

Bye.