What is going on everybody welcome back to this week's segment of the no limit minute as always excited to be here with you guys today and I don't know if you can hear in the background a little bit but it is just rain and cats and dogs outside so if you hear a little crazy wind and rain and some lightning and thunder then.

Hi apologize that is what is going on currently in mobile Alabama is the time of this recording and but what I really wanted to cover today what I'm excited to talk about today is lie tech and what the heck is lie tech well lie tech is L I H T C low income housing tax credit so what the heck is that I wanted to take today to just cover the overview of what lie tech is.

I wanted to give you guys a direct example of how you can do what we basically call the loss to lease play the loss to lease business plan in a lie tech deal and then I want to go over with you what exactly we've been able to accomplish in one of our deals that we've done that's been a lie tech deal we've actually bought two deals in our portfolio that have been lie techs and they've been.

Basically are two best performing assets so we really like the lie tech model so I just wanted to give some overview and some explanation about what it is and how you two can go out and execute on these types of investments so low income housing tax credit or lie tech programs of federal government tax credit since 1986 to sell facilitate the construction and rehabilitation.

Over 3.6 million affordable housing units throughout the United States unlike tax deductions which create a reduction in taxable income tax credits actually provide a dollar for dollar reduction in investors tax liability which obviously can be incredibly attractive credits directly reduce tax liability dollar for dollar while deductions reduce the tax liability by the amount deducted multiplied by the taxpayers marginal tax rate.

For those in the lower income quantiles tax credits are more valuable than deductions since there's less income to deduct and refunds provide more disposable after tax income but by contrast deductions are preferred by higher income tax payers those of us larger syndicator sponsor type folk as well as just higher net worth people since they're subject to the higher marginal tax rates on income they would otherwise exclude.

So tax credits aren't necessarily the most beneficial thing for you as a real estate investor as a larger sponsor but that's not really why we like investing in lie techs I'm just trying to explain to you what exactly a lie tech deal is but then I want to jump into the actual value add play that we utilize when we target lie tech deals.

Because when you buy a lie tech deal after the fact after it's already been constructed or been rehabilitated in the program has already been activated by one particular sponsor or owner when you acquire the property even if it's still in the program you don't receive any of those tax credits so the way that we've done it is we basically bought properties on the tail end of them exiting the program so we're not actually buying it for the tax credits we're buying it for the massive value add play which we'll talk about here in a second.

To finish the overview of what a lie tech is lie tech sub fund the new construction rehabilitation variety of different property types that includes apartments, single family homes, two to four multi family properties things of that nature addition lie techs can also fund conversions of structures like schools warehouses motels into multi family properties using these credits must generally capperance for some are all of the units at a certain percentage of that locations area median income or AMI.

So to go just a little one step deeper before we jump into the next example of what lie tech is competition for the lie tech program is actually quite fierce believe it or not as each state only receives a limited amount of lie tech funds each year based on population and a specific multiplier program costs an estimated 10.9 billion dollars annually according to analysis by the federation of American scientists.

And the lie tech generally has a 15 year compliance period during which the property must remain affordable and before which the property cannot be sold but not always this however is only a minimum and many states have more stricter rules in place or more lenient rules in place right every states can have specific rules regulations and guidelines on how their lie tech program functions.

And we've bought a lie tech deal and Mississippi and Alabama and we'll talk just in just a second about what some of those rules are and how they're obviously a little bit more lenient based on the actual value add or business strategy that we had going in.

Investors should also know that the low income housing legitimate tax credits that come in two different varieties you get a 4% and a 9% the 4% is ultimately going to subsidize 30% of the total project cost while the 9% is going to cover 70%

of the total project cost so what does all this mean what does this have to do with you why should you be interested in lie tech deals here's why you should be interested.

It's because of the loss to lease so what first of all what is lost to lease we need to understand that so let's go through that just real quick lost lease important from two different perspectives investor considering a potential purchase and the owner currently managing the property from an investor standpoint from us looking actually acquire an asset.

The presence of the lost lease item on the operating statement can be an immediate tip off that there's an opportunity right there's some value out here raise rents which is why it may be considered a positive thing usually lost places result of market rents rising faster than actual rents which is a sign of a strong market and or it's a result of just inefficient management.

In efficient property management maybe you can just go in and manage a little better than the last company or the last group.

Either way it's an opportunity because commercial multifamily properties are valued on cash flow right direct NOI divided by whatever our cap rate is so closing that lost to lease gap is going to ultimately add value quickly and result in a quick win for investors from an owner standpoint lost to lease can be a metric that's a leading indicator of a property manager who isn't paying close enough

potential surrounding market by failing to raise rents to remain in sync with the broader more macro level market the property manager is actually costing the owner money and rent that could have been obtained but is air quote lost to a lower lease price.

So here's an example here's a direct example of what one might look like and then after this will go over the example of a deal we've actually done and how kind of pan down.

So to illustrate the importance of this lost lease concept and its potential impact on price consider this example let's just assume 150 in apartment complex has average rents about nine hundred dollars per unit per month right now the annual rent for the entire property would be nine hundred dollars times a hundred and fifty units equals a hundred and thirty five thousand dollars per month and you multiply that times twelve months you get one point six two million annual rent.

Now let's assume the property manager has performed some form of wide market you know survey or something of other comparable properties in the area and we've now concluded that the true market rental rate is actually a thousand dollars a unit per month.

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