By guest blogger Shane Cook, ABR, CIPS, GRI, ePRO
Scottsdale REALTOR® Jonathan Miller and I finally connected in person a short while ago. Our almost one-hour breakfast conversation was filled with a dizzying array of topics including where we have come from in business, how we serve our community, and what are some of our passion projects. Here’s a taste.
Community Land Trust
A Community Land Trust (CLT) distributes “Home Funds” in an effort to create Permanent Affordability Units (PAU). These Home Funds are either Restricted or Non-Restricted funds. Non-Restricted Home Funds do not have a Community Housing Development Organization (CHDO) requirement.
A lack of affordable inventory is pushing some buyers outside of Scottsdale city limits. – Scottsdale Independent
Restricted Home Funds are distributed through a municipality or Participating Jurisdiction (PJ) and then to non-profit CHDOs. HUD defines a CHDO as “a private nonprofit, community based, service organization that has, or intends to obtain, staff with the capacity to develop affordable housing for the community it serves.” Generally, the PJ puts out some type of Request for Proposal (RFP) and qualifying CHDO’s submit proposals for review.
The monies for development or rehab then become available through the CHDO depending on the various restrictions of the RFP. In the development scenario we discussed, there would be about $700K available for 7 homes with a portion of those monies going toward Developer Fees. (Depending on the contract, the developer fee can be simple flat fee or it can be a percentage of development costs.)
Each of these eventually becomes a PAU — one of the measurements HUD uses in its evaluations of the programs.
Let’s say we can get the home for $225K, and after $25K in repairs/upgrades the home appraises for $260K+. The CHDO monies cover the repairs, a developer fee and a portion of the closing costs; leaving around $60K in CHDO.
The Purchase Price to the end user/beneficiary of the program is now $165K ($225K-$60K) on a home that appraised for $260K+; that’s almost $100K below market value at the time of purchase.
Often, additional Down Payment Assistance is available including, but not limited to a 3-to-1 Match for whatever the Buyer puts down up to $5,000. If the Buyer has $5,000, the match would be for $15,000 — giving the Buyer a total of $20,000! These match monies generally have a five-year forgiveness schedule, earning the buyer even more equity over the first five years.
Qualification for these programs depends on household size and income on a sliding scale. The larger your household is, the higher the income limit will be for the program. My understanding is that education and counseling are both part of the process for qualifying and using a CLT to purchase a home for your family.
There really isn’t a catch, but some people balk at the idea of using a CLT to purchase a lower-income family home for substantially less than it would sell for on the open market. These transactions then become Leasehold Properties or 99-year land leases, when the property was generally fee simple when identified.
So, now the non-profit owns the land and the buyer who qualified for the CHDO program owns the structure. This could affect the resale value of the property when the owner goes to sell the home and the non-profit gets first right of refusal to purchase the property. Outside of the initial equity created from the grant, the new seller of the property would get the benefit of 25 percent of the Buyer Appreciation to use on the purchase of their next home.
Who knows, maybe there will be a CLT project for Jonathan and me when we cross paths in the future.
Housing Affordability: ‘It’s at a Crisis Level’ – REALTOR® Magazine (Feb. 20, 2019)
Competition Heats Up As More Builders Shift to Affordable Homes in Valley – Phoenix Business Journal (Feb. 1, 2019) Subscription required; save up to $50 with SAAR member discount.
The State of Permanent Affordability – Shelterforce (May 7, 2018)
Making Affordable Housing Permanently Affordable – Huffington Post (Nov. 8, 2017)