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Which is a 10 cap rate with NO RISK, plus upside in the project, whcih is extremely good considering the average ROI on NNN investments are about 6%
There is indeed a risk. No it's not the same risk as a straight up equity or debt investment. But to shout that there's no risk is disingenuous. It costs a fortune to insure against recapture. And how can it be a 10 cap if you have to buy the tax credit upfront? The banks that buy the credit in exchange for upfront cash to the developer do not generally share in the profits, they take the tax benefits instead. The credit over 10 years and depreciation and losses. They are not traditional investors. The cost of the tax credit can range for 75c in an economy where the tax burden is lower, to 95c at it's highest.
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Originally Posted by pghquest
you're assuming of course people wouldnt build housing without government financing which of course is ridiculous.
No, I'm not assuming that at all. Where did I say that? In fact, after some pretty serious consultations with Nixon Peabody in Washington, we've decided to do our development at full market rate, given the complicated and rigorous corporate structure, accounting and compliance regulations required to take advantage if it. Not to mention that not all developments are approved and that just going through the process costs several hundred thousand dollars.
However, in many cases it does allow institutional investors to provide equity for a project, equity that is bonded and insured against tax credit recapture, so they can make investments in properties they would not invest in or provide financing for otherwise. The government is supplying an instrument through which tax credit funds can be used to finance projects that would not qualify for traditional construction and permanent financing without it.
The process is so complicated that there's no reason to go the LIHTC route if you can finance a development in a usual fashion and it is economically feasible to do so.
The LIHTC does enable the rehab of properties in urban areas like abandoned warehouses in neighborhoods which contribute to blight, and tradtional financing is too risky and would not be forthcoming at all - and would obviously not include any affordable units. As you likely know, developers moving into a neighborhood begets gentrification, which pushes up the market rate rent for everyone, not just the people in the developments. So long time residents get an opportunity to stay in their communities, while reducing blight and enabling the rehab of large derelict vacant properties.
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Originally Posted by pghquest
if the tax "write off" for a project is $1m, then how many jobs could have been created by giving businesses $1m in write offs? That comes out to about a $8m investment give or take, which could create quite a bit of jobs, rather than creating housing which simply continues poverty.
Is it an either or situation? Are you saying that this one program prevents the government form giving other write offs? This program also benefits seniors, who are not looking for jobs anytime soon.
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Originally Posted by pghquest
Its government creating demand, didnt we learn anything from government created demands in the housing industry? Isnt there enough vacant homes all over the place already? I live a few miles away from Youngstown, where they are knocking down homes left and right..
Clearly the general partner goes into the investment with the intent to earn a profit, that was never in dispute. The question is, if the general partner loses, that doesnt equate to a loss for the limited, tax purchasing investors who have NO RISK..
"Compliance" is rather easy, especially considering once these properties are built, the general partner usually flips and sells it since they are now receiving government assisted rentals, with a 10 cap rate (note above) and the average ROI for properties are 6 cap rate, meaning they walk away with about 4% profit immediately. Sometimes before the project is even completed.
No, that's not how this works. It is unlikely that a developer that takes the LIHTC will flip the building. In order to avoid recapture of the tax credit, the building must fulfill its obligation to offer the affordable units for 15 years. Disposition of the building to a new owner is one of the primary triggers of recapture. You can sell the building as long as you can prove that the new owner will reasonably stay in compliance. But that is not usually the exit strategy, generally, in order to avoid recapture of the credit and all the interest and penalties that entails, the owners will not sell. Definitely not before it's completed.
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Originally Posted by pghquest
Its a brand new, hi rise luxury building, what on gods earth makes you think its not going to be compliant in a few years?
What does the word compliant mean to you in this context?
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Originally Posted by pghquest
The strings are small compared to the lack of risk involved.
I didnt deny the benefit, I questioned if there was a better way to receive a higher benefit at less of a cost.
That's a reasonable question. But I think it's necessary to understand the process before asking it. This thread has section 8 and the LIHTC seriously confused.
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Originally Posted by pghquest
oh just stop. As an investor who hasnt paid taxes in 15+ years, I know how the system works. The government might not be writing me a check but me not having to pay taxes is just as beneficial, if not more so since I can put the tax credits into a trust and pass them onto my estate.
If you haven't paid taxes in fifteen years, what makes you think that banks don't have other ways to avoid it? At least this way, there are tangible benefits to the community. IMHO.
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Originally Posted by pghquest
There is little difference between a for profit and non profit. I've seen non profits take $200K from the government and invest it in properties they had a hard time selling for $80K because of where it was located.
In this instance, there are really good uses of the LIHTC for non profits, such as Artspace out of Minneapolis who rehab derelict properties in downtown neighborhoods and provide affordable housing for artists, who are often displaced by gentrification of inner city neighborhoods.
I agree, time to do something about the mortgage interest deduction.
They arent.. Another ignorant posting from someone who believes all money belongs to the government, and they allowing you to keep some of it, is a subsidy.
Verde Pointe Apartments and Townhome Flats—Arlington’s newest luxury community—is currently renting 11 apartment homes at a reduced rate, also known as Committed Affordable Units (CAFs). Section 8 Housing Choice Vouchers and Housing Grants are accepted. We also have accessible units for persons with physical disabilities available under the CAF program. Move-ins to begin in June 2015.
GD do liberals know how to search ANYTHING, or do they just shove their head in the sand when things don't follow their insipid talking points?
A friend of mine that really has her head on straight recently purchased a rowhome in West Philly (her 4th home) for $15,000 and renovated it completely-it is really beautiful.
She did Section 8 and has a nice working woman with her child in there. That is how the program is supposed to work. The landlord increases the value of homes by improving the property (which was nearly a shell) and being discretionary when selecting tenants.
It's all net since it was a cash purchase-the rent is $900 per Month. She rents out another home for probably the same amount, although it is not Section 8, is currently renovating another and rents an apartment for herself and kids.
It's all net since it was a cash purchase-the rent is $900 per Month. She rents out another home for probably the same amount, although it is not Section 8, is currently renovating another and rents an apartment for herself and kids.
900/month out of a 15k home self-restored?
I may be in the wrong line of work lol.
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