How LIHTC Equity Works: William Mejia Explains How to Structure Affordable Housing Deals

Why This Episode Matters

Affordable housing projects often fail before they start because the capital stack is misunderstood. How do you actually turn tax credits into millions of dollars in equity? In this episode of the Affordable Housing & Real Estate Investing Podcast, Kent Fai He sits down with William Mejia, a finance consultant with deep expertise in structuring deals using the Low-Income Housing Tax Credit (LIHTC) program.

William has worked with both nonprofit and for-profit developers, guiding projects from pre-development through disposition. He explains how pennies on the dollar in tax credit pricing, site eligibility, and creative financing strategies can make or break a $50 million development. If you’ve ever wondered how developers pull together the complex capital stacks behind affordable housing, this episode is essential.

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.

What is LIHTC and How Does It Create Equity?

The Low-Income Housing Tax Credit (LIHTC) program reduces federal tax liability dollar-for-dollar, making it one of the most powerful tools for raising equity in affordable housing.

William explained it with a simple example: take a $50 million eligible basis, apply the 4% credit, and that’s $2 million annually in federal tax credits. Over 10 years, that becomes $20 million in equity. Sell those credits at 90 cents on the dollar and you’ve raised roughly $18 million in equity

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Even small differences in pricing—say 87 cents versus 93 cents—can swing the deal by more than a million dollars. That’s why developer relationships with syndicators and investors are crucial.

What’s the Difference Between 4% and 9% LIHTC Projects?

One of the biggest points of confusion for new developers is the difference between 4% and 9% credits.

• 9% LIHTC: Competitive allocation. Covers 60–80% of total development costs. Typically requires a score of at least 180–185 in the Qualified Allocation Plan (QAP).
  
  

• 4% LIHTC: Non-competitive. Covers only 15–25% of costs, meaning more debt is required. Usually paired with tax-exempt bond financing
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As William noted, winning 9% credits is tough, but developers shouldn’t give up. Many pursue 4% deals if they miss out on 9% allocations.

What Costs Are Eligible or Ineligible Under LIHTC?

Not all expenses count toward the eligible basis. William clarified what cannot be included:

• Project reserves and contingency funds
  
  

• Tenant relocation costs
  
  

• Furniture, fixtures, and equipment (FF&E)
  
  

• Marketing and leasing costs
  
  

• Syndication and broker fees
  
  
  

Developers must carefully structure budgets to maximize eligible basis while understanding what won’t generate credits.

How Do You Score Higher on a LIHTC Application?

Scoring under the QAP determines whether a project wins 9% credits. William highlighted several point categories:

• Proximity to amenities like parks, schools, and grocery stores
  
  

• Supportive housing services (up to 30 points)
  
  

• Senior or family housing mix (up to 20 points)
  
  

• Smoke-free or energy-efficient design (up to 10 points)
  
  

• Extended use periods of affordability beyond 30 years (up to 20 points)
  
  

Creative structuring—like providing community Wi-Fi or partnering on revitalization plans—can also boost applications.

Exit Strategies: What Happens After Year 15?

LIHTC projects require a 15-year compliance period plus an extended use period. But what happens when tax credit investors want out?

William outlined common strategies:

• Qualified Contract: Property is listed for sale at a regulated price. If no buyer steps in, restrictions can be lifted.
  
  

• Resyndication: About 40–60% of LIHTC properties reapply for new credits, often through acquisition-rehab deals.
  
  

• Partnership Transfers: Existing partners sell their interests to nonprofits or new operators, while affordability restrictions remain
  
  

Key Insights from William Mejia

• Pennies on the dollar matter: pricing LIHTCs at 87 vs. 93 cents can swing a deal by $1M+.
  
  

• Location boosts equity: Qualified Census Tracts and Difficult Development Areas can add millions in basis boosts.
  
  

• Always self-score first: consultants help developers maximize QAP points before spending big on pre-development.
  
  

• Deferred developer fees and subordinate debt are critical tools for closing financing gaps.
  
  

• LIHTC is both financial engineering and mission-driven impact—it requires discipline to maintain compliance for decades.
  
  

Best Quotes from the Episode

“One cent does make a pretty big difference, especially right now, if you’re looking anywhere between 87 cents to 93 cents. That’s over a million-dollar difference.” – William Mejia

“That’s $5 million you didn’t have to borrow, and $5 million you didn’t have to raise from private investors.” – Kent Fai He

“You have a fiduciary duty to your investors, to your stakeholders really, to be able to perform.” – William Mejia

FAQ: Common LIHTC Questions Answered

What is the difference between 4% and 9% LIHTC?
The 9% credit is competitive and covers 60–80% of development costs. The 4% credit is non-competitive, covers less equity, and requires more debt.

Can developers include all project costs in the LIHTC basis?
No. Items like reserves, FF&E, marketing, and relocation costs are excluded. Only eligible costs generate credits.

Why do investors exit after year 15?
Because they’ve already received their 10 years of tax credits, and staying in adds compliance risk without added benefit.

How can developers improve their chances of winning 9% credits?
By maximizing QAP scoring—adding community amenities, supportive services, and longer affordability commitments.

What happens if a project doesn’t win 9% credits?
Many developers pivot to 4% credits paired with bond financing to still move projects forward.

Final Thoughts

William Mejia reminded us that affordable housing isn’t just about numbers—it’s about execution, compliance, and impact. Developers who understand how to structure their capital stacks with LIHTC have the chance to unlock millions in equity while serving families who need housing most.

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 @kentfaiheon 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.