Removing Land Use Restriction Agreements (LURA)

Removing Land Use Restriction Agreements (LURA)
You may come across a multi-tenant property that is under a government program called a Land Use Restriction Agreement (LURA). It is a program that in Texas is administered by the Texas Department of Housing & Community Affairs (TDHCA). In this blog, I will address the facet of the LURA that allows you to remove it from the property after 15 years (generally the half way point through the life of the contract). The benefit of removing it is that you can remove the property from the obligations required with the LURA (IE only renting to tenants that qualify at a percentage of the median income for the county). Additionally, I will use as an example a 90 unit apartment complex in Waco, Texas that is managed under the LURA. Finally, I will summarize the pros and cons to moving forward with trying to remove the LURA from the property.

The LURA has an procedure built in (Section 5b2 of my contract) that may provide for you to remove the LURA from the property at the halfway point. Essentially, this clause allows you to give notice to the managing authority (TDHCA in Texas) halfway through the term of the contract that you would like for them to find you a qualified buyer. They have one year to find a qualified buyer (as defined by IRS code). If they find a buyer for your property then you can either accept it or decide not to sell. If you decide to NOT sell then you cannot petition them under this clause ever again. It is a one time event in the life of the contract. If you accept the contract then you sell the property and move on to the next deal in your real estate investment life. If they cannot find a qualified buyer for your property, then the LURA is terminated and your property is free of the remainder of the LURA's terms.

In my case, I purchased a 90 unit apartment complex in Waco, TX that is bound by a 30 year LURA. The LURA began in November of 1993 and I am able to petition them on the 15 year anniversary date (November 2008) to find a buyer. They will have one year to find a buyer for the property.

Pros / Cons: There are several benefits that you gain by removing the LURA from the property. First, you do not have to pay the annual fee to the managing authority (In my case this saves approx $1400 annually). Second, your business is less expensive to run because you do not have to deal with the added paperwork and monitoring that is required under the LURA. Third, it improves the resale value of the property to have the LURA removed. Finally, you expand your pool of potential renters by removing the income requirements from new tenants. This allows you to rent to anyone and that helps your occupancy rate stay at the highest possible levels. The downside of going this course is that the process to get the LURA removed is cumbersome and it is a one time event.

In the end the decision to attempt the removal of the LURA will be based upon a ton of variables that are unique to each property and investor. In my case, the benefits of getting the LURA removed far outweigh any downside associated with the time / expense of working through the process.