One of our most important reasons for creating a housing land trust is to make sure that people of modest means can afford to live in our neighborhood in the future. Perpetual affordability can be achieved by limiting the resale price of a land trust home—the land trust limits the price for which you can sell your land trust home, and thereby limits the price that the next homebuyer pays to become a homeowner. The Land Stewardship Program asks that land trust homeowners share the benefit of the land subsidy that you receive from the land trust with the next family that wants to buy your home.
Our resale formula is designed to be simple and fair to implement. It is based upon the appraised value of the home at the time you purchase it and the appraised value of the home at the time you decide to sell it. The formula gives you a portion of the appreciation in value, based upon what your paid for the house, but does not permit you to sell the house for “full market value.” It allows you to build equity and to share in market appreciation, but also ensures affordability—low and moderate income families will be able to purchase your house ten and twenty years from now. The formula also encourages home improvements and encourages long-term residence in the home and in the community.
Our resale formula allocates to you a portion of the increase in market value, based upon two factors:
- Your purchase price for the house relative to the appraised value of the entire property (house plus land). This is called your Investment Ratio— your purchase price for the home divided by the appraised value of the property.
- How many years you live in the house. This is your Percentage. The longer you live in the home, the greater your Percentage.
In addition, if you make substantial additions to the living space of your home, such as adding a bedroom or building a garage, the Value Added by the capital improvement will be added to the resale price.
The Maximum Resale Price that you could ask for your house is:
Your Purchase Price + A Percentage of (Your Investment Ratio x the Increase in
Market Value of the Property) + the Value Added by Your Capital Improvements.
When you sell your home, you have also built equity by paying off your mortgage. Initially, your mortgage payments are mostly interest and very little of the principal, but over time, you will pay off the principal of your bank loan. The following example will show both the monthly mortgage you will enjoy as a land trust home owner and the equity you will get when you decide to sell your home.
If you have any questions please don’t hesitate to call 829-8414.