John Day

The opening of Broad Street Place, a 40-unit multifamily project financed with LIHTC. The author led pre-development as Associate Director of Multi-Family Housing for People’s Self-Help Housing prior to Cap Ex.

Introduction

The Low-Income Housing Tax Credit (LIHTC) program is one of the most powerful tools for developing affordable housing—but it’s also one of the most demanding. For nonprofit leaders with big ambitions, the road to LIHTC funding is paved with regulatory hurdles, detailed documentation, and the need for sophisticated financial coordination.

  1. A Clear Mission-Fit Projct Concept

Not every affordable housing idea is suited to LIHTC funding. Before you begin the application process, make sure your project aligns with both your organizational mission and the program’s guidelines.

Is your project truly targeted to serve low-income residents long term? Can it demonstrate community need through third-party market studies? Do you have internal clarity around the number of units, income levels served, and amenities provided?

If these fundamentals aren’t yet defined—or if they’ve been shaped primarily by outside funders—it may be worth stepping back to ensure alignment and sustainability.

2. Internal Capacity or a Plan to Fill the Gaps

Managing a LIHTC project requires staff bandwidth and expertise in areas like finance, compliance, real estate, and stakeholder engagement. Few small-to-midsize nonprofits have this depth internally—and that’s okay, so long as there’s a plan to supplement.

Identify your internal champions. Who will own the application? Who will manage the consultant team? Who will interface with zoning officials or oversee procurement?

If you don’t yet have answers to these questions, start now by mapping out your internal roles and seeking external partners with a track record in LIHTC coordination.

3. Early Legal and Development Partnerships

One of the most common points of friction in nonprofit LIHTC projects is unclear or rushed partnership terms. Whether you’re working with a co-developer, architect, general contractor, or syndicator, it’s crucial to define expectations and responsibilities early—well before the application goes in.

Do you have Memoranda of Understanding (MOUs), joint venture terms, or predevelopment agreements drafted and formally in place? Have these been reviewed by both qualified legal counsel and your board of directors? These documents are more than formality; they establish the foundation for decision-making, allocate responsibilities, and clarify how risks and rewards will be shared throughout the life of the project.

Without this clarity, partnerships can quickly unravel. Poorly defined agreements often open the door to mistrust, blurred lines of authority, scope creep, or even protracted development fee disputes that stall development at critical junctures. By addressing expectations early, documenting them in writing, and gaining full board approval, your organization reduces the likelihood of conflict and sets the stage for a smoother LIHTC application and execution process.

Practical Example: A midsize nonprofit entered a co-development arrangement with a larger partner but neglected to finalize and board-approve their joint venture agreement before submitting the LIHTC application. When questions about fee allocations and long-term ownership emerged during underwriting, both organizations were forced into last-minute negotiations. This delayed closing by more than six months and nearly cost the nonprofit its allocation. In contrast, nonprofits that secure well-documented agreements upfront not only avoid such pitfalls but also signal competence and credibility to investors, funders, and state housing agencies.

It’s crucial to define expectations and responsibilities early — well before the application goes in.

4. A Path to the Full Capital Stack

LIHTC alone doesn’t cover 100% of project costs. In fact, it typically provides only about 60% of total equity, leaving nonprofits to secure the rest through grants, state programs, foundation support, or other mechanisms.  Most states require that you have committed sources before applying for LIHTCs to cover any gap that is above the amount of credits.  

Have you identified potential gap funding sources? Do you know what documentation they require—and how their timelines match up with your LIHTC application? Most state allocation processes require that the recipient have all other funds committed before LIHTC can be awarded. Planning for the entire stack—not just the credits—helps avoid dead ends once credit awards are announced.

5. Stakeholder Mapping and Outreach Strategy

A single LIHTC project may involve over 40 stakeholders: city officials, neighborhood organizations, zoning boards, state housing agencies, and investors, to name just a few.

Have you mapped out your stakeholders and built a timeline for outreach and approvals? Who will take the lead in each area?

As noted by Terner Center, stakeholder misalignment is a leading cause of timeline delays. Proactive coordination now will pay off later.

6. Realistic Timing and Governance Expectations

Even the smoothest LIHTC projects take years from concept to completion. Market studies can take two months. City approvals might stretch to three or more. Final closings can require specialized accountants, legal closers, and underwriting processes beyond the reach of internal teams.  All of the above items and many more not listed must be paid for so you must also have sufficient pre-development funds to cover these costs until you close with the lender and tax credit investor.

Do your board and leadership team understand the three to five year development horizon? Is your governance structure equipped to support decisions over that timeline?

Prepare for a marathon—not a sprint. That means ensuring continuity of leadership, documenting decisions, and staying engaged through long periods without visible progress.

Prepare for a marathon—not a sprint.

Conclusion

The LIHTC program offers nonprofits a proven path to creating lasting, mission-driven housing solutions—but only for organizations that prepare thoroughly. Success requires more than submitting an application; it demands alignment between your project concept, your organizational capacity, and your financial and governance readiness. Entering the process without these elements in place exposes your organization to unnecessary risk and missed opportunities.

By treating readiness as a deliberate stage—not a box-checking exercise—you position your nonprofit to move with confidence through the inevitable complexity of LIHTC development. This preparation not only improves your chances of securing tax credits, but also safeguards your mission, protects community trust, and ensures that your project will stand the test of time. In short, readiness is not just about winning credits—it’s about building housing that truly delivers on your promise to the community.

Key Takeaways:

  • Mission fit is essential. A project that doesn’t clearly serve low-income residents and align with organizational goals is unlikely to succeed under LIHTC.
  • Capacity must be planned. Internal champions and external experts should be identified early to cover finance, compliance, legal, and development needs.
  • Partnerships require structure. Legal agreements, joint ventures, and predevelopment contracts should be clarified and approved before applying.
  • The capital stack is bigger than credits. LIHTC equity rarely covers more than 60% of costs; gap funding strategies must be mapped in advance.
  • Governance and patience drive outcomes. With timelines stretching 3–5 years, boards and leadership must be prepared for long-term commitments and steady oversight.

References:

HUD. (2022). Low-Income Housing Tax Credit (LIHTC). U.S. Department of Housing and Urban Development. https://www.huduser.gov/portal/datasets/lihtc.html

Joint Center for Housing Studies of Harvard University. (2023). America’s rental housing 2023. Harvard University. https://www.jchs.harvard.edu/americas-rental-housing-2023

Terner Center for Housing Innovation. (2020). The complexities of developing and operating LIHTC properties. University of California, Berkeley. https://ternercenter.berkeley.edu/research-and-policy/

Cummings, J. L., & DiPasquale, D. (1999). The Low-Income Housing Tax Credit: An analysis of the first ten years. Housing Policy Debate, 10(2), 251–307. https://doi.org/10.1080/10511482.1999.9521332

U.S. Government Accountability Office. (2022). Low-Income Housing Tax Credit: Improved data and oversight could better ensure program effectiveness (GAO-22-104592). https://www.gao.gov/products/gao-22-104592

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