What happens when I sell my CLT home?
When you sell your CLT home, you will walk away with:
Your cash equity (your down payment)
+
Your earned equity (equal to the amount of loan principal you have paid off by making monthly mortgage payments)
+
Your home’s increase in value (based on the allowable increase as defined by the resale formula in your Ground Lease)
Examples of your home’s increase in value:
Fixed Rate Formula
Initial purchase price = $250,000
Resale formula = Fixed Rate (2%)
Suppose you wanted to sell your home after 10 years. Over that period, your home has been gaining 2% per year for a total growth of 20% over 10 years.
Given an initial purchase price of $250,000, the home has gained $50,000 in value over the intervening years. That increase in value would go to you!
The resale price of the home would be the initial purchase price added to the increase in value which equals $300,000.
AMI Based Formula
Initial purchase price = $250,000
Resale formula = Area Median Income (AMI)
Suppose that you wanted to sell your home after 10 years. In that time, the AMI has risen from $130,000 to $150,000. That is roughly a 15% increase in AMI. So, 15% of $250,000 equals approximately $38,500.
Therefore, the increase in value based on the resale formula was $38,500. That increase in value would go to you!
The resale price of the home would be the initial purchase price added to the increase in value which equals roughly $288,500.
Appraisal Based Formula
Initial purchase price = $250,000
Resale formula = Appraisal (25% OR 35%)
Suppose you wanted to sell your home after 10 years. When your home was appraised at the initial sale, it was valued at $350,000. At resale, 10 years later, the home was appraised at a value of $475,000. So, the appraisal of your home raised in value by $125,000.
Depending on the resale formula, you would receive either 25% or 35% of that increase in appraisal value. If your Ground Lease used the 25% formula, the increase in value would be $31,250. If your Ground Lease used the 35% formula, the increase in value would be $43,750. Either way, that increase in value would go to you!
The resale price of the home would be the initial purchase price added to the increase in value which would equal $281,250 or $293,750 depending on the resale formula.