Profits chasing LURAs?

Is a LURA a character in a Disney movie or can it be a profitable component in successful multifamily investment strategies? Read on to learn more.

What is a LURA?

A LURA is a Land Use Restrictive Agreement that can be used in conjunction with a Low Income Housing Tax Credit (LIHTC) apartment property in an effort to preserve affordable housing for low-income households.

What if I don’t want to invest in low-income multifamily housing long term? Why should LURA’s matter to me? Let’s learn a little more about how LURA’s work and where underlying opportunities may be found.

Tax credits provide a source of equity financing for multifamily owners and developers to create affordable housing through new development, acquisition and repositioning strategies. In Texas, there are both competitive and non-competitive housing tax credits available.

The Texas State Affordable Housing Corporation (TSAHC) is a 501(c)(3) nonprofit organization created at the direction of the Texas Legislature to create affordable housing in Texas. Since 2001, TSAHC has issued more than $600 million in multifamily or rental tax-exempt housing bonds that can be used with low income housing tax credits to help build or preserve affordable rental housing in Texas.1

What is the purpose of a LURA?

The purpose of a LURA is to limit the maximum amount of rent that can be charged for an apartment home and also requires that a certain percentage of units within the community as a whole be made available to those earning income below a certain percentage of the average median household income for that demographic area.

LURA runs with the land. Meaning that if the property is sold, the new owner must adhere to the terms of the LURA. Lenders must also agree to be subordinate to the LURA. The initial 15-year compliance period is enforced by IRS regulations. The extended use period, which is often an additional 15 years, is enforced by state regulations. Details can vary and are found within the each LURA agreement.

What is the lure of a LURA?

So why does an apartment owner or an apartment investor want to mess with low-income properties and LURA’s? Tax credits. In exchange for land use restrictions, the LIHTC property owner receives tax credits that reduce federal income taxes on a dollar-for-dollar basis. Tax credits also run with the property. Therefore, tax credits cannot be traded or sold individually. When LURA properties are sold, the sale may result in the new owner receiving tax credits.

When does a LURA end?

During the restriction and compliance periods, the land restrictions stay in place. Termination of LURA’s occur due to: a) the compliance and restrictions periods naturally expire per the LURA agreement; b) lender foreclosure; C) certain qualified termination processes.

Identifying multifamily properties with a LURA in place that is on the cusp of expiration can lead to acquisition opportunities and equity building strategies in repositioning and remarketing. Knowing which areas are ripe for this type of transition and how the submarket is faring is important. Competent due diligence with an experienced team that understands the nuts and bolts of apartment operations and also has a creative eye to recognize the vision for the future is where success is found.

Professionals Prefer Professionals

Successful multifamily real estate investing requires knowledge, experience, nourishment, cultivation, support, some chutzpah and an educated “feel” for which direction the market is heading. Professional apartment property management can make a big difference in bottom lines very quickly.

Recognizing where these opportunities are within multiple layers of an apartment asset is a coveted skillset. At Better World Properties LLC, we have decades of experience in digging through layers. We can recognize an apartment deal quicker than a duck on a June bug and more importantly, we can recognize a bad apartment deal and respectfully shake hands, walk away and still share a cold iced tea and remain friends.

Accredited investors trust proven professionals with their money. While all investing involves some degree of risk, real estate may be the least risky of all, especially when one does their homework correctly. Be sure that you are dealing with professionals who treat your multifamily investments like they are their own.

If you would like to learn more about apartment investing in Texas or improving the results of your Texas apartment properties, give us a call.  Better yet, come visit. We love to talk apartments.


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