Saturday I showed houses to a couple I’ve been out with a few times already. The first 6 houses featured the following:
1. A shattered sliding glass door
2. Ungrouted tile floors
3. Miniscule master baths
4. An unfinished garage
5. Popcorn ceilings
6. Melty blinds
8. Unidentifiable odors
9. Carpet you wouldn’t want to touch with a bare hand
Among other things.
So when we got to house number seven and discovered:
1. Brand new interior and exterior paint
2. New flooring
3. Remodeled kitchen with gorgeous cherry cabinets
4. Fantastic, comfortable layout
5. Brand new kitchen appliances, including a beautiful, new fridge
6. New, high-tech looking water heater
7. New AC unit
8. New front-loading washer and dryer
We got a little excited. Or like pretty excited. Or possibly really excited. I mean just the lack of offensive smells was kind of fantastic. But then I took a closer look at the listing and realized it had been on the market 22 days and I started to get that little itch I can’t reach in the very middle of my back that tells me a house might be too good to be true. Then I read something in the Realtor Remarks about ‘exclusions’ and a ‘Land Trust Program’ and I knew there was something hinky going on.
It turns out this Perfect Unicorn House is part of something called the Newtown Community Development Corporations Community Land Trust Program (you can probably call it NCDCCLTP, if you want. Or maybe just Newtown), and is a ‘land-lease’.
If you’ve always lived in AZ, you maybe aren’t familiar with the term ‘land-lease’ because it’s not that common here. What it comes down to, is when you purchase the house, you are only buying the structure and the things in it. Regarding the land, you’re entering into a long-term rental agreement. For this particular property, the rent on the land was $35 a month.
I know what you’re thinking: Uh, dude, $35 is less than even the cheapest HOA. What’s the big deal?
And true. This house didn’t even have an HOA, so whatevs. But chew on this a minute: When you buy a house, the structure and the things in it aren’t actually appreciating. They are getting old, out-of-date and used. It’s the land under the house that’s gaining in value. So if you’re only purchasing the stuff and renting the land, how is that a reasonable investment at all?
You: OK, I see your point. But the land is inextricably tied to the house. If you want to sell the house, part of the draw of the purchase for someone else will be where it sits geographically. So why does it really matter?
Me: I think a case could be made for that being true, especially when the land-lease amount is as low as this one is (I’ve seen them in Scottsdale where the landlease amount was almost as much as the probable mortgage). But listen to this; the Newtown people have put together a whole bunch of weirdo restrictions on this land they own that you’ll have to live by. For instance, you cannot build a pool. The Q&A doc I read claims ‘pools are expensive to build and maintain and work against the goal of creating long-term affordability’.
You: What does that mean?
Me: I think it’s government-speak for ‘we know best and that ain’t it’.
You: Hrm. I don’t know that I want a pool but I feel weird it’s ‘not allowed’.
Me: Yeah. And you must live in the house while you own it.
You: Well I’m planning on it anyway.
Me: That’s valid. But what if in two years you meet the man of your dreams, fall in love and he wants you to move in with him and help him raise alpacas? And what if the market has tanked again (GOD FORBID) and you can’t sell it for what you owe on it? But you also can’t rent it out. It just shrinks your options pretty significantly.
You: Yeah. Although I think alpacas are gross.
Me: You might change your mind for the perfect man. You never know. Anyway, I haven’t even told you the kicker yet.
You: … kinda getting bored with this story.
Me: Stay with me. This Newtown group places specific restrictions on how much you can sell your house for when you do eventually go to sell it. The documentation indicates they want you to ‘pass on the savings’ to the next buyer, but what it comes down to is you won’t be relying on the ‘market value’ to determine what you can get for your house because you’ll be limited to a formula based on the appraisal. You will only be allowed to sell the house for what you paid for it plus a maximum of 25% of the increase in appraisal value.
You: What??? Like for reals? That seems pretty effed up.
Me: I know, right? I get that it’s a government subsidized program meant to keep houses affordable and help people with lower income purchase homes, but I honestly don’t see how this is any better than renting to those people. And it seems like just a terrible deal to pretty much everyone else.
You: Yeah. I’m out. Let’s go back to looking at stinky houses. At least I can air those out.
So I guess it all goes back to the old adage: If you find a penny, pick it up, all day long you’ll have good luck. (Or the other one about seeming too good to be true. One of those.)