Boost Your Property’s Income! Housing Tax Credit Expert Tells You How
By Caitlin Jones
4 min read
Tax Credit Advisor, November 2009: Looking to boost the cash flow in your healthy or underperforming low-income housing tax credit project?
Expert A. J. Johnson says there’s multiple ways to do this – some may even be new to you.
The current economic downturn and adverse local market conditions are squeezing many LIHTC properties today. Sagging occupancies and competitive downward pressure on rents are causing many projects to operate just around or below break even.
But for challenged projects, and even healthy ones, there are some creative and common sense actions that owners and property managers can take to boost cash flow.
Speaking on a recent Webinar sponsored by the National Association of Home Builders, Johnson, president of A. J. Consulting Services, Inc., Williamsburg, Va., described various techniques used successfully by his clients.
These include:
- Changing project pet policies. Owners with no-pet policies should consider lifting them. “If you don’t allow pets, 40% of the market has been cut out,” Johnson says. And in properties that do allow pets, he notes, arbitrary size restrictions that allow small dogs but ban large dogs don’t make sense. “The bigger dogs tend to do less damage, bark less, bite less, and create fewer problems.”
- Revising security deposit practices. “One of the toughest impediments to a low-income applicant is the ability to pay the security deposit.” One option is to return the resident’s security deposit after one year if the unit after inspection is found in good condition. A second option is to pay the security deposit for the tenant, and, at the end of the lease, give it to the resident if the unit is in good condition. “This is basically a rent concession that doesn’t look like one,” says Johnson. A third option is to use a “guarantor,” a company that will guarantee the security deposit if the new resident can’t afford it, in return for a premium paid by the resident.
- Increasing affordability. Johnson said a number of clients permit residents to pay their rent in three installments during the month. “It’s easier for them to budget to pay weekly than it is monthly,” says Johnson, noting a convenience fee can be added to each payment.
- “Pricing” units based on desirability. It may be possible to charge higher rents for some units than others, if this doesn’t cause the gross rent level for the unit to exceed the ceiling permitted under the LIHTC program. An example might be a higher rent for an apartment overlooking the pool.
- Modifying lease practices. One option might be to permit residents to go to a month-to-month lease, but pay a higher rent, if this won’t exceed the LIHTC maximum rent. Or to be flexible in the length of leases. Rather than have all leases at the standard 12 months, consider six-, 18-, or 24-month leases. Longer leases can lock in residents for a longer period, reducing turnover.
- Taking steps to minimize turnover. Noting the average turnover cost for a unit is about $3,000, Johnson says steps that retain current residents and avoid turnovers make economic sense. “Put in place programs that will reduce the desire of the tenants to move out,” he says. In addition, he advises using strong screening procedures for applicants to avoid problem tenants. “Nothing plays a stronger role [in a project’s cash flow] than our ability to retain our current residents and attractive new ones.”
Another avenue to explore is possible new fees. Johnson said a project may have extra unused space or land that can be converted to profitable use. Provided that the cost of this space or land wasn’t included in the project’s original LIHTC eligible basis, this space or land might be used to construct storage spaces that residents can opt to rent for a fee, or other revenue-generating facilities.
Johnson said there may also be opportunities to boost cash flow from market-rate tenants in mixed-income LIHTC projects.
Finally, he advised owners to “stick to the basics. Curb appeal has got to be a focus. Every day, you need to look at [your] property the way a tenant or a prospect would look at it.”
