New LIHTC Projects: Commonly Missed Compliance Details

New LIHTC lease-ups, rehabs, or takeovers often come with many compliance challenges.  Common misses often come from small - but critical - details that get overlooked at the beginning.  Here are some common gaps and a key to avoid them. 

All Funding & Subsidy Sources Matter

Most teams are aware of major programs applicable to a property - like HUD or RD.  But many projects also have layers of additional funding such as: 

• HOME

• Tax-Exempt Bonds

• Housing Trust Funds

• State or city housing programs 

Each program can come with separate income limits, rent restrictions, student rules, reporting requirements, and so on.  One of the biggest risks is not identifying requirements for all involved programs.

Unit Mix & Deeper AMI Targeting / Population Targeting

As mentioned above, different programs can often come with different AMI, unit mix or population targeting requirements.  Developers may also commit to lower AMI targeting.  Keep an eye out for: 

• Lower income and / or rent restrictions 

• Specific unit counts or bedroom-size specific targeting by AMI level

• Average Income Test projects should have a unit mix matrix and check the average.  Be aware that some investors / syndicators may impose an average lower than 60%.

• Hard or soft population targeting that requires a percentage of units to be rented or targeted to veterans, homeless, etc.

These commitments are often buried in state QAPs, tax credit applications, regulatory agreements, or partnership agreements.

Investor / Syndicator Requirements

This is one of the biggest operational disconnects I see and where teams get caught off guard.  Syndicators may impose: 

• Additional unit mix / set-aside requirements

• File preparation or documentation standards (including strict certification timing)

• Reporting timelines and formats

• File reviews - requiring either preapproval, final file, or post-rehab audits

You will also want to be on the same page with the general partner about timing.  Delays in leasing / certifying households may contribute to financial impacts to the general partner.

Schedule a call with the developer/general partner, and syndicator to align on expectations, timelines, and strategy.

Utility Allowance

Utility allowances seem to be one of the most misunderstood areas in compliance.  Questions every team should be asking: 

• Are we using the correct methodology?

• Are we using the most current allowance?

• Are all tenant-paid utilities accounted for?

One other area that is frequently missed or misunderstood is third-party billing.  If utilities are billed through a third-party provider to the resident ledger instead of directly from the utility company, there may be administrative fees that could impact gross rent calculations.  

The Key Solution

All of these issues point back to one problem - Lack of centralized, verified property information.

Before taking over a new property, starting a lease-up, or beginning a rehab, your team should gather and review:

• Tax credit application

• Reservation letters / carryover agreements

• Regulatory / Use agreements for all funding sources

• Partnership agreements

From these documents, build a property information database of all requirements and then confirm them!  The database should be created by management, confirmed with the developer/general partner and then aligned with the syndicator.

Most importantly - this information database cannot live only with ownership or upper management.  We cannot stress enough that this information needs to be shared with the people actually doing the work!

Final Thoughts

Compliance success doesn’t start at certification.  It starts before the first application or questionnaire is ever taken.  When teams operate from incomplete information or unclear expectations, they become reactive.  When expectations are centralized and verified upfront, teams are empowered to be proactive and strategic.  Key Compliance Advisors can help you create a property intake system or set up your Property Information Database.  Reach out to us if you need assistance in this area!