How to Increase Rents in Affordable Housing Multifamily Without Losing Mission

Affordable housing investors face a unique challenge: how do you increase rents, remain profitable, and still protect the families who rely on your properties? That balance is exactly what Andrea Garcia, a seasoned affordable housing general partner with over 1,200 units under management, breaks down on the Affordable Housing & Real Estate Investing Podcast with Kent Fai He.

Andrea has been through the trenches — from learning the jargon of LIHTC (Low Income Housing Tax Credits) to navigating HAP (Housing Assistance Payments) contracts and compliance inspections. In this episode, she delivers a masterclass on raising rents the right way in affordable multifamily while safeguarding tenant stability and long-term deal value.

What is LIHTC and why does it matter for raising rents?

LIHTC, or Low Income Housing Tax Credits, is the backbone of affordable multifamily. Every year, about $9 billion in tax credits are allocated by state and local agencies to finance the acquisition, rehab, or construction of rental housing for lower-income households.

For investors, LIHTC does more than lower financing costs: it allows you to increase NOI strategically. By converting or re-syndicating a Section 8 property into a LIHTC deal, you can often access capital for renovations while maintaining stable government-backed rents.

Why it matters: Raising rents in affordable housing isn’t about pushing tenants beyond their means. With LIHTC, rents are capped at 30% of household income, but government subsidies and tax credits help you capture higher effective rent without displacing families.

How do HAP contracts affect rent growth potential?

HAP contracts (Housing Assistance Payments) are long-term agreements between HUD and property owners that subsidize rents for project-based Section 8 units. They typically last 20 years and dictate compliance obligations.

Andrea explains the distinction clearly:

• Project-based vouchers stay with the unit. Rent increases must follow compliance rules, but the subsidy is guaranteed.
  
  

• Tenant-based vouchers travel with the renter. Landlords must re-qualify tenants as incomes and job situations change.
  
  

If you’re buying a building with a HAP contract, you can raise rents annually through HUD’s Operating Cost Adjustment Factor (OCAF), but you need a property manager experienced in compliance to avoid missed subsidies.

What role do PILOT programs play in boosting NOI?

Payment in Lieu of Taxes (PILOT) agreements are one of the most overlooked tools in affordable housing. Instead of paying property taxes based on assessed value, owners make a negotiated annual payment — often tied to income — that is lower than traditional taxes.

For investors, this is dollar-for-dollar savings on the expense line, which directly increases net operating income. Higher NOI means higher property value without squeezing tenants.

What documents should investors focus on during due diligence?

Andrea stresses that raising rents responsibly starts during acquisition. The most important documents to request from brokers include:

• T-12 (Trailing 12-month financials): A P&L snapshot of income and expenses.
  
  

• Rent Roll: Detailed data on every unit, including effective rent and security deposits.
  
  

• Offering Memorandum (OM): Broker’s pro forma — useful for comps, but often overly optimistic.
  
  

Her advice: don’t blindly trust the OM. Secret shop competing properties, verify market rents directly, and create conservative scenarios in your own pro forma.

How can investors protect rent increases through compliance?

Raising rents in affordable multifamily is tied to compliance health. Two scores dominate:

• REAC (Real Estate Assessment Center) score: HUD’s inspection grade on safety and building condition. Below 70% puts subsidies at risk.
  
  

• MOR (Management Occupancy Review) score: Evaluates files, admissions policies, and prior REAC results.
  
  

Failing either risks delayed subsidies. Andrea notes that many owners pay for pre-REAC inspections to identify issues early, much like hiring a home inspector before selling a house.

Key Insights from Andrea Garcia

• Affordable housing is the most lucrative corner of multifamily. You earn from tenants, government subsidies, and tax credits simultaneously.
  
  

• Compliance drives profitability. Without strong property management, rent increases won’t stick.
  
  

• Documentation is your roadmap. Land Use Restriction Agreements (LURAs), HAP contracts, and rent schedules define your rent ceiling and cash flow potential.
  
  

• PILOT programs can make or break a deal. Always ask if they’re available before acquisition.
  
  

• Secret shopping beats broker pro formas. Verify market rents yourself before underwriting.
  
  

Best Quotes from Andrea Garcia

“Affordable housing investing in multifamily is the most lucrative place you can be because you not only get money from the tenants, you get money from the government, and you get the tax credits.”

“If a REAC score is under 70, that’s no bueno. It’s HUD’s way of saying you’re running a slum.”

“You don’t have to be scared of LIHTC. Yes, it’s competitive, but the tax exemptions and rehab funding can turn a C-class property into a Class A experience for tenants.”

“Secret shop every deal. Brokers will always give you the pretty version in the OM. Run your own comps.”

Common Questions About Raising Rents in Affordable Housing

1. How often can rents increase in LIHTC properties?
Typically once a year, based on area median income updates and compliance rules. Increases must align with income limits, but government support ensures stability.

2. Can you raise rents in a HAP contract property?
Yes, but only through HUD’s OCAF adjustments. Compliance documentation is critical to receive approvals and continued subsidies.

3. What happens if you fail a REAC inspection?
HUD may withhold subsidies until deficiencies are corrected. Failing repeatedly risks contract renewal.

4. Why do some affordable housing investors avoid small properties under 100 units?
Compliance costs (paperwork, inspections, full-time managers) are harder to spread across fewer units, making smaller deals less efficient.

5. What’s the difference between project-based and tenant-based vouchers?
Project-based vouchers stay with the unit. Tenant-based vouchers move with the renter when they leave.

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.