HOW LAND TRUSTS WORK
For more information click on Community Land Trust 101, a class sponsored by the National Community Land Trust, and co-taught by Todd Mandel, the Director for CCLT.
How a Community Land Trust works
Community Land Trusts are a unique method of creating and delivering affordable housing. What makes a community land trust unique is that land trust housing is permanently affordable. This permanent affordability is accomplished through the sharing of the appreciation in the value of the land and housing and through the shared ownership of the land and the housing on that land. After you purchase a land trust house, you will have the very same experience and rights as every other homeowner, with the exception that you agree to share the future appreciation in value of the home with the land trust.
When you purchase a house through the Coulee Community Land Trust, you make a "leasehold" purchase. What this means is that you purchase the improvements (the house, garage, and outbuildings) on the land, but not the land itself. The ownership of the land remains with the Coulee Community Land Trust, and the land trust leases the land to you. By doing this the land trust can provide substantial assistance, but then protect that subsidy for future generations of homebuyers.
The ground lease is the document that ties you and the land trust together. You can download a copy of the ground lease by clicking here. The ground lease lays out the rights that the homeowner receives and the rights that the land trust keeps. The most significant of these are:
- The homeowner receives exclusive rights to use the land beneath their home. The land trust cannot access your land without your permission except for a few exceptions laid out in the ground lease.
- The homeowner agrees to share the appreciation in value of the property with the land trust. The homeowner receives 30% of the appreciation in value over time. The remaining 70% of the appreciation remains with the property to keep it affordable for the next homebuyer.
How "Shared Appreciation" Works
(Please Note: All figures are educational examples only and do not provide a promise or warranty of profit)
Here is an example of how the shared appreciation equation works:
|Initial purchase price = $100,000
||Initial appraised value of home and land = $150,000
After 10 years, the appraised value of the home and land is now $225,000. How much money would the homeowner come away with after sale?
Share of appreciation = $225,000 (sale appraisal) - $150,000 (initial appraisal) = $75,000 appreciation increase
$75,000 appreciation increase x 30% homeowner share = $22,500
Homeowner share of appreciation = $22,500
Homeowner initial down payment = $1,500
Homeowner earned equity = $16,315 (this is principle paid off through monthly mortgage payments over 10 years)
Total to homeowner at sale = $40,315
The homeowner now has $40,315 to use to purchase a market rate home. At a 10% down payment level, this would be enough down payment to purchase an $400,000 house!
So what happens with the remaining 70% of the appreciation?
The Coulee CLT keeps the 70% of the appreciation with the property to help keep it affordable for the next homebuyer. CCLT takes the $22,500 share of the appreciation that the homeowner took and adds it back on to the original price you paid. So now, the next homebuyer's price looks like this:
Initial sales price = $100,000
+ shared appreciation = $22,500
New sale price = $122,500
So now, a house that is appraising for $225,000 is sold for only $122,500! This process repeats itself sale after sale which makes the land trust model an incredibly powerful tool for ensuring that affordable housing remains affordable forever.