-
How does buying a house
from a Community Land Trust work?
Very simply, you buy the
house (at a price below market-rate) but don’t buy the land. You
rent the land from Madison Area Community Land Trust under a
98-year (renewable) ground lease, which provides long-term
protection to the homeowner. This makes the home less expensive to
purchase, because you don't have to finance the cost of the land.
And in exchange for getting a good deal on your land trust home, we
ask that you pass along the deal to the next homeowner, so that the
home continues to be affordable for generations to come.
-
How do land trust homes
remain affordable over time?
A land trust home is a good
deal - not just for the first buyer but for each successive buyer
also. The buyer of a land trust home promises to “pass along the
good deal” to the next homeowner. They do this by sharing the
increase in the home’s value with the next buyer through something
called the Resale
Formula.
-
What is the Resale Formula
- and how does it work?
This is the formula that
describes the "good deal" that each land trust homeowner passes
along if they ever sell their home. The formula is set so that the
resale prices of our homes increase at the same rate as wages.
Therefore, when you sell your land trust home, you get (a) what you
paid for it, plus (b) 25% of the increase in the market value of
your home.
- EXAMPLE: You
buy a home from the land trust in 2001 for $100,000. At that time,
the house had an appraised value (i.e. market value) of $115,000.
In 2007, you want to sell the home -- and now it has an appraised
value of $215,000. Plugging these numbers into the resale formula,
this house could be resold in 2007 for (a) original purchase price
($100,000) plus (b) 25% of the increase in appraised value
($100,000 divided by 4 = $25,000) for a total resale price of
$125,000.
-
Who is eligible to buy a land
trust house?
We sell our homes to
first-time homebuyers with household incomes that do not exceed
certain limits set by the federal government. For example, a family
of 4 could have an income up to $58,000 and be eligible to purchase
a land trust house. For more information, go to our
Do I
Qualify page.
-
What are the costs of
renting the land?
In 2006, the total monthly
land charges (ground rent plus property taxes) were $110 for single
family homes and $73 for condos. Annual increases in land charges
are quite modest -- in fact, the increase from 2004 to 2005 was
less than 1%.
-
What are the advantages of
owning a land trust house verus renting?
You get all the tax
advantages of home ownership. All mortgage principal payments build
your equity in your house. You get 25% of the increase in appraised
value of your house. And no one can make you move -- it is your
home!
-
Should I still consider
conventional homeownership?
Land trust houses are for
people with modest incomes who simply cannot afford a house in the
high-priced Madison market. If you can afford to buy a house on the
conventional market – go for it! You would keep 100% of the
increase in the value of your house.
-
What is a ground lease - and
how does it work?
The ground lease is a very
long document that describes all the rights conveyed to the
homebuyer when they purchase a land trust home. It states that as a
land trust homeowner, you have full use of the land for 98 years,
which is renewable at the option of the homeowner for another 98
years -- which is a very long time! And it is a lengthy document
because it has to cover all the different things that can come up
over 200 years. And it also contains language to make sure that the
house remains affordable to future generations of homeowners.
The key element of the ground lease is that the purchaser buys the
house, but not the land under the house. The land is leased from
the Community Land Trust. If you ever sell your land trust home,
the sale price will be based on a resale formula designed to
maintain affordability for future owners. The resale formula is
pretty simple -- if you ever sell your land trust home, you will
get (a) what you paid for the house when you bought it, plus (b)
25% of the increase in market value of your home.
The Community Land Trust has a three page summary of the ground
lease available. The summary has some of the legalese translated
into plain English. In addition, the Community Land Trust requires
that you go over the ground lease with a lawyer of your own
choosing to make sure that the agreement is entered into with full
understanding.
Links
-
Why does the land trust
sell the house but not the land under it?
Retaining ownership of the
land accomplishes several goals. First, it means that the buyer
does not have to finance the cost of the land when purchasing the
home. Second, it ensures that the land trust will have the right to
repurchase the home whenever it comes up for sale, at the resale
formula price.
-
Why does the community land
trust require buyers to retain an attorney?
There are a lot of documents
to review when you buy a land trust house. There is the ground
lease. There is the offer to purchase. There loan documents. And
there are other forms that HUD requires as a condition of the
funding that helps make these homes so affordable. We therefore
require all land trust homebuyers to retain an attorney, to make
sure they understand all the terms and conditions of the purchase.
We can refer you to several attorneys who have been rated highly by
our homebuyers, who are well-versed on land trust transactions, and
who have agreed to represent land trust buyers on a reduced-fee
basis.