Is there anything QOFs should be cautious about when working on affordable housing projects?
It happens all the time. You'll first need to work with the local politicians and the Zoning Board. You can probably work with the right parties to get tax incentives at the state and local level over and above the federal OZ benefits. If you're anywhere other than San Francisco or my home jurisdiction of Long Island, New York, you'll probably find very receptive local politicians and communities who are looking to drive investment.
Make sure you satisfy all the testing.
I'm currently working on a few projects like this. One has significant incentives layered in by the City and State once the project is complete. Other municipalities might be able to provide grant funds upfront. I definitely would be sure to use a double tier structure whereby a QOZB is utilized. If the units are available for sale, there would be ordinary income generated on each sale, but those proceeds could be rolled into more development at the QOZB level.
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