How to Find Deals in Multifamily Affordable Housing & Perform Due Diligence with Third Party Reports

Why This Episode Matters for Affordable Housing Investors

If you’ve ever wondered how to spot the right affordable housing deal, determine whether the rents have room to grow, or understand the maze of due diligence reports lenders require, this conversation with Andrea Garcia is your playbook. Andrea has been a general partner in over 1,700 units of affordable housing and tax credit properties. She joined Kent Fai He on the Affordable Housing & Real Estate Investing Podcast to walk through the exact steps investors and developers need to take to find opportunities and close with confidence.

What Is the Unit Mix and Why Does It Matter in Affordable Housing?

When analyzing a deal, Andrea’s first step is looking at the unit mix—the breakdown of rents per bedroom type.

For example, if a one-bedroom rents for $800 but HUD’s Small Area Fair Market Rent (SAFMR) in that zip code is $1,200, that $400 gap signals a huge opportunity to increase income. By multiplying the SAFMR by 1.5, you can often find the maximum achievable rent ceiling.

This simple check allows investors to quickly identify deals where the income potential far exceeds current rents, creating immediate upside in net operating income (NOI).

What Third Party Reports Do Lenders Require and Why?

Before closing on a multifamily property, lenders require a set of third party reports to protect both you and them. Andrea broke down the main ones:

• Appraisal – Determines as-is and as-improved values, especially important for Section 8 or LIHTC properties where rental limits apply.
  
  

• PCA (Property Condition Assessment) – Like a home inspection but for multifamily, it details roofs, HVAC, plumbing, and useful life estimates to update your CapEx budget.
  
  

• Phase I Environmental – Identifies potential hazards like underground storage tanks, radon, asbestos, or former gas station contamination.
  
  

• Seismic Reports (California properties) – Evaluates earthquake risks and insurance implications.
  
  

Each of these reports not only satisfies lender requirements but also arms investors with critical negotiating tools, especially if costly issues are uncovered.

How Can Affordable Housing Investors Increase Rents After Acquisition?

Rents in Section 8 and LIHTC properties don’t follow market rules. Andrea explained the four main tools investors use to raise rents and stabilize properties:

1. Rent Comparability Study (RCS) – Conducted every 5 years to adjust rents to market.
   

2. Operating Cost Adjustment Factor (OCAF) – Annual adjustment to account for expense increases.
   

3. Mark-Up-to-Market (MUTM) – Tied to renovations that justify higher rents.
   

4. Mark-to-Market (MTM) – Used when existing contract rents already exceed comparable levels.
   
   

Understanding these tools helps investors model long-term cash flow and communicate clearly with property managers and HUD representatives.

Key Insights from Andrea Garcia

• Unit mix analysis is the first filter to spot rent growth opportunities.
  

• Third party reports are not optional; they protect investors and reveal hidden risks.
  

• HUD rent rules differ from market rate investing, so mastering acronyms like RCS, OCAF, and MUTM is essential.
  

• Investor credibility comes from preparation—knowing the terms before talking to brokers or lenders gives you an edge.
  

• Location still drives everything—markets with stagnant SAFMRs can erode value instead of growing it.
  

Best Quotes from Andrea Garcia

“The rent comparability study is the most critical part. It determines whether we can do certain renovations and justify higher rents.”

“Whenever you’re looking to acquire property, you should look at the unit mix. That’s where the hidden opportunities for NOI growth really show up.”

“The Phase I Environmental isn’t just paperwork, it can make or break your deal if hazards are discovered.”

“You don’t get it immediately, but eventually the pieces of the puzzle come together like a spiderweb.”

Common Questions This Episode Answers

How do I know if a property has rent growth potential?
Check the unit mix against HUD’s Small Area Fair Market Rent. If the SAFMR times 1.5 exceeds current rents, you may have significant upside.

Which third party reports are required for affordable housing deals?
Expect at minimum an appraisal, PCA, Phase I Environmental, and sometimes seismic reports depending on location.

How often can Section 8 property rents be increased?
Annually through OCAF and every 5 years through a Rent Comparability Study. Major renovations allow for Mark-Up-to-Market adjustments.

What’s the difference between Mark-Up-to-Market and Mark-to-Market?
MUTM justifies higher rents with renovations. MTM applies when current rents already exceed market comps under FHA-insured loans.

Why is due diligence especially important in affordable housing?
Because HUD, tax credits, and Section 8 rules add layers of compliance that affect value, financing, and investor returns.

Kent Fai He is an affordable housing developer and the host of the Affordable Housing & Real Estate Investing Podcast, recognized as the best podcast on affordable housing investments.

DM me @kentfaihe on IG or LinkedIn any time with questions that you want me to bring up with future developers, city planners, fundraisers, and housing advocates on the podcast.