From Jargon to Cash Flow: Andrea Garcia on Demystifying Affordable Housing Terminology

Why This Episode Matters for Affordable Housing Investors

When you’re stepping into affordable housing, the jargon can feel overwhelming. Acronyms like LIHTC, HAP, and REAC get thrown around quickly, and missing their meaning can cost you time, money, and credibility. That’s why I invited back Andrea Garcia, a general partner in more than 1,200 multifamily affordable housing units. Andrea has built her career by putting in the sweat equity, asking questions without fear, and mastering the language of this industry.

In this conversation, Andrea breaks down the most important terms and frameworks every investor and developer must know. If you’ve ever felt like affordable housing terminology was a foreign language, this episode is your shortcut to clarity.

Kent Fai He, affordable housing developer and host of the Affordable Housing & Real Estate Investing Podcast (recognized as the best podcast on affordable housing investments), sits down with Andrea to unpack the terms that separate amateurs from professionals.

What is LIHTC and Why Does It Matter?

The Low-Income Housing Tax Credit (LIHTC, often pronounced “lie-tech”) is one of the most powerful tools in affordable housing. Issued annually by state and local agencies, it helps finance acquisition, rehab, and new construction for lower-income rental housing.

Why it matters for investors:

• Provides developers with rehab funding.
  

• Delivers valuable tax credits to investors.
  

• Enforces income and rent restrictions, ensuring long-term affordability.
  

But LIHTC comes with compliance obligations. Every expense, travel cost, and construction invoice must be documented. Partnering with an experienced nonprofit or tax-credit consultant can unlock property tax exemptions and increase deal feasibility.

How Do HAP Contracts Work in Affordable Housing?

Housing Assistance Payments (HAP) contracts are agreements between property owners and public housing authorities. They typically last 20 years and provide subsidies for project-based Section 8 units.

Key differences:

• Project-Based HAP Contracts: Stay with the property. Every eligible tenant who moves in benefits.
  

• Housing Choice Vouchers (tenant-based): Travel with the tenant from property to property.
  
  

HAP-backed properties generate stable government-backed income, but compliance is heavy. Tenant income, employment changes, and household eligibility must be continuously documented. For smaller buildings under 100 units, the cost of compliance can outweigh the benefits unless you work with a seasoned property management company focused on Section 8 compliance.

What is a REAC Score and Why Should Investors Care?

The Real Estate Assessment Center (REAC) score is HUD’s “report card” for affordable housing properties. Inspectors evaluate site conditions, exteriors, building systems, units, and safety.

• 70% or higher = passing
  

• Below 70% = risk of subsidy loss
  
  

Owners often hire pre-REAC inspection firms to catch issues before HUD arrives. Think of it like a health department inspection at a restaurant—if you fail, it’s a sign of deeper management problems. For investors, a property’s REAC score is public information and should always be checked during due diligence.

What Does a Pro Forma Really Tell You?

Andrea emphasizes that pro formas aren’t just spreadsheets—they’re decision-making tools. A strong pro forma includes income, expenses, and assumptions for different scenarios over the life of the asset.

Investor tip:

• Don’t rely solely on the broker’s Offering Memorandum (OM).
  

• Verify market rents with your own “secret shopper” calls.
  

• Build conservative best- and worst-case scenarios.
  

Key Insights from Andrea Garcia

• Learn the language: Affordable housing deals hinge on terminology. If you don’t know what LIHTC or HAP contracts mean, you’re negotiating blind.
  
  

• Compliance equals confidence: Strong documentation and regulatory agreements protect subsidies and strengthen deals.
  
  

• Due diligence saves deals: Always review REAC scores, rent schedules, and utility allowance schedules before acquisition.
  
  

• Partnerships matter: Success in affordable housing often comes from teaming with nonprofits, experienced managers, and capital partners.
  
  

• Affordable housing is lucrative and impactful: You earn from tenants and government support while improving lives.
  
  

Best Quotes from Andrea Garcia

“Affordable housing investing is the most lucrative place you can be in multifamily, because you get money from tenants, the government, and the tax credits.”

“If a REAC score comes back under 70, that’s HUD telling you: you’re running a slum. They won’t keep paying subsidies for unsafe housing.”

“Don’t be embarrassed to ask questions. Every pro forma, every deal term—I learned it by Googling, asking, and showing up.”

“The biggest benefit of a tax credit property is the property tax exemption. That one factor alone can make or break a deal.”

Common Questions This Episode Answers

What is the difference between project-based Section 8 and vouchers?
Project-based subsidies stay with the unit. Tenant vouchers move with the renter.

How do investors check a property’s REAC score?
Search the Multifamily Housing Assistance Payments (HAP) database. Scores are public.

Why are LIHTC projects competitive?
Tax credits are limited and awarded based on strong business plans. Only well-structured deals get approved.

How do you protect yourself from utility costs in affordable housing?
Review rent and utility allowance schedules during due diligence, and verify expenses against trailing 12-month financials.

Is affordable housing really profitable?
Yes. With subsidies, tax credits, and stable tenant demand, returns can be both lucrative and mission-driven.

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.