Owner Occupied Housing Trusts: A Connecticut Solution

+++Owner Occupied Housing Trusts: A Connecticut Solution    By David Carr    

This February 2020, Governor Lamont proposed bonding $300,000,000 for affordable housing construction, (40% was already approved but never spent).  We have the 5th highest average homeowner expenses and 10th highest renting costs nationwide, according to the census.

+++My contribution to this problem is the creation of an original financial management. process I have named the Owner Occupied Housing Trust, a service delivered by nonprofit trustees on behalf of the owner-occupant. The owner-occupant will authorize all rent payments to be made to the trustee, who will disburse the funds according to the agreement, preventing the owner-occupant from undermining their home equity growth by assuring responsible use of available financial leverage.

+++After reading the Wednesday, April 24, 2019 article “Greater New Haven leaders to form regional affordable housing committee,” real estate professionals can work with other leaders to deliver the opportunity and reality of homeownership to all who desire, and are willing to maintain their homestead. REALTORS are called to this duty by the Code of Ethics Preamble which states 

+++ “Under all is the land. Upon its wise utilization and widely allocated ownership depend the survival and growth of free institutions and of our civilization. REALTORS® should recognize that the interests of the nation and its citizens requires the highest and best use of the land and the widest distribution of land ownership. They require the creation of adequate housing, the building of functioning cities, the development of productive industries and farms, and the preservation of a healthful environment.”

+++Connecticut needs more pathways to make home ownership attainable and sustainable for people who can’t afford market-rate housing.  New Haven had a April 2019 wait list exceeding 10,000 people for space in its 6,000 units, with about 400 families (1600 people) leaving each year. 58% of renters pay more than $1,000 a month while 2% pay $750 a month or less (*1). The median 2019 rent in New Haven is $1,090 while the HUD Free Market Rent for 2019 is $1,403 for a two-bedroom apt and $1,788 for a three bedroom (*2). Where are these 10,000 people on the wait list living now, and how are they currently paying their expenses? How is the housing choice program assisting very-low-income families maintain safe, secure homes, and how are specific neighborhoods improving or reducing their quality of life? 

+++On March 18, 2022 I have an opportunity to add about seven hundred 2 - 3 Bedroom  rental usits to our prospective New Haven owner occupants in collaboration with  philanthropic investors in our future

+++To make owner-occupied housing affordable there is a need for Owner Occupied Housing Trusts, to manage the income from rental parties on behalf of the owner-occupant.

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+++For owner-occupied rental housing to provide enduring value the owner needs to commit to aggressive financial management of their resources to build confidence for lenders considering the rental income as a means of loan repayment.

+++ For an owner-occupant to claim rental income there needs to be a consistent flow of income with reserves to pay for scheduled maintenance and improvements which may be tax credits.

+++The owner-occupant will need reserves for vacancy and unexpected expenses. . Ideally, the owner-occupant will have 6 months of principal interest tax and insurance payments in reserve.

+++The successful owner-occupant also needs to accept the premise of equity in the property as a wealth-building tool. To assure the security of  generational home ownership the owner-occupant must agree to achieve and maintain 80% free and clear equity. The cushion will prevent foreclosure in the event of sighted refinance cash out that leads to negative equity in a hypothetical  cash value adjustment.  The owner-occupant will pay a full market rent, investing all the income to accelerate mortgage repayment.

+++Owner Occupied Housing Trusts will provide a foundation of confidence for owner occupants and the state of Connecticut to guarantee mortgages Owner Occupied Housing Trusts can make housing affordable while providing opportunity and stabilization for a wide rage of neighborhoods in different communities in the face of upscale rental development.

+++Five variables that directly influence housing affordability are: 1 -economic opportunity, 2- personal ability or disability, 3- transportation, 4- food security, and 5-financial dexterity.  These systemic variables determine the annual expenses that must be managed to maintain housing security for any individual or family. To focus on one variable while ignoring others can create instability. 

+++The variables of transportation and food security compound the cost of housing. A person with access to more efficient transportation and cost-effective food can designate more housing dollars from the same income base.  A person that can walk, bike, rideshare or ride a bus to work or food shop will have a higher percentage of spendable income than a car owner who lives in a rural setting driving farther to work and shop. 

+++A person, family or group who can make food from raw ingredients will have more servings that are probably healthier than the fast food convenience store shopper. When residents can make bulk food purchases they can save (earn) even more money that can be leveraged by preparing high protein low fat entrees instead of carry out ready to eat choices. We make our own bead, so I can have 100 loaves for about $20 compared to $2-$4/ loaf in the store. I can make two large pizzas from 1 lb. of Mozzarella  ($4-), flour ($0.50), sauce and toppings ($2-$3) or buy two pizzas for $15-$30. This goes on and on.  If you choose to add SNAP or community farming the matrix shifts again. 

+++Lack of Economic Opportunity is the local inability of an individual to find employment that produces the income necessary to sustain one’s self and family. To remediate lack of income there must be more demand for the labor quality and skill sets available from New Haven residents seeking affordable housing. To suggest an existing business could simply pay more wages can trigger the economic reaction of relocation, or higher prices since many economies across the nation are thriving. Another part of my research can be types of income producing opportunity can be added to the job menu here. 

+++As we look around, we see all the once bustling factories turned into offices, apartments, stores, condos and small work share centers, with less hourly wage opportunity for shift workers and laborers.  A solution is job creation with wage allocation for housing costs. The CT- DOL recently funded two regional job-skill development initiatives northwestern and south-central Connecticut with $5 million, part of $50 million former Gov. Malloy apportioned to train 10,000 citizens to fill job shortages in manufacturing, health care and construction. If the jobs were here, could everybody afford to be an owner occupant? Housing costs as a whole number (Principle, Interest, Tax, Insurance) remain low in Connecticut cities compared to many national metros.

+++Personal ability or disability, directly affects vocational and housing security, which is why “affordable” housing is such a difficult problem. For people seeking subsidized housing, what is unique, critical or common must be determined about each individual in order to prioritize access. An assessment of need could be done every year, because getting on a list should not be the prime reason to get subsidized housing.  Many types of disability, which are not going to be explored here, can prevent a person from being willing and able while people with disabilities frequently obtain financial assistance.  One person may find a way to earn income with a disability, while another person may not want to work at all. 

+++Other personal ability factors are not limited to continuing education for skill set development, financial dexterity, resources, task tolerance and lifestyle choices. A person can buy a 7" 8GB WiFi Tablet for $77 that can access all kinds of educational resources today, or something else.  My position being that a community cannot look at a problem from the same place on the circle to see new solutions unless all the systemic precipitants of the problem are on the table.

+++Financial Dexterity is the unique personal skill set necessary to manage a specific level of income. We see very wealthy people go bankrupt while other people maintain their home with a constant supply of minimal food and domestic necessities. It’s not what you make that makes the difference, it’s what you do with whatever you have, and how much one can save for a rainy day. Teaching residential financial dexterity is a complex process involving expectations, entitlements and desires, all balanced in a competitive, credit based consumerist culture. For some people, life may be about style and trend chasing in search of a desired moment. Is identity an acquisition, a cultivated state of mind, or both? 

+++ People are faced with endless choices about what to buy, where to purchase, and what to expect in a consumerist culture. Making decisions about what we wear, drive or eat, how much climate control we want at home, or how much technological entertainment we need are all choices that require thoughtful consideration as people allocate sometimes scarce resources. Housing may never be compatible with a choice to overspend, engage in compulsive behavior or addictions, and is further complicated by the need for medical care.

+++A family needs about $21,000  Basic Annual Key Money to rent a $1300 two-bedroom apartment in Greater New Haven, CT. comprising $16,000 in rent payments, $2400 for electric, maybe $2200 for heat (750-gals heating oil @$3.00) and $200 for renter’s insurance. Then add food, transportation, health care furnishings and personal needs which I will refrain from estimating in detail other than a $200/week for ($11,000 per year) for food and a bus pass to total $32,000 for the household.

T+++he Housing task force has proposed the creation of accessory dwelling units(*3), construction of housing on abandoned lots that are now owned by the city, and that new buildings with 10 units or more provide 10- 20% of the units below 2018 Fair Market  (Low= $1258 /3BR)(High=$1630 /3BR) Rent (*4), but who will make that investment and how will it be returned? None of these solutions work if an individual does not have consistent means and ability to maintain financial solvency. 

+++People suggest 50 city-owned lots in residential areas that could support housing if the lot size were lowered when recently the city was demolishing abandoned property to create sliver lots shared between neighbors because it was determined less density increased quality of life and neighborhood value. 

+++If a person were to owner occupy a three unit building and apply a rental value of $800 x 3= $2400 x 12 month =$ 28,800/year  x .95 vacancy the GRI (gross rental income) would be $27,360.  Expenses include property tax of $8000, Water of $800, Sewer of $600, Electric of $2400 and Insurance $3000 which totals $14,400  the remainder of $12,000 divided by 12 leaves about $1000 per month net income for the owner occupant who has contributed $800. At 5% over 30 years each $100,000 borrowed costs $537.00 per month, so $998.82 pays a $186,000 mortgage. If the rent collected changes to $1000 per month x .95 = $34,200 minus $14,400 expenses there is $19,800 ( $1650/month) which is enough to pay a $360,000 mortgage ($1933 principle and interest).  These numbers are for discussion and will be different under unique conditions including tax treatment. That being said, I believe controlling variables in cash management remains the foundation to successfully maintaining a residence. 

+++As a local resident and licensed Professional Standards Certified Specialist since 1996, I have experienced a variety of multifamily properties causing me to become well acquainted with the process of investment, financing, and challenges faced by property owners and occupants who inhabit rental housing.  These conditions are unique to each property, the occupants, neighborhood and the owner who controls it

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+++The answer is more owner occupants, yet were are currently only fourteen (two family) buildings listed under $200,000 and ten (three family) buildings listed under $300,000 in my New Haven, Hamden, East Haven & West Haven  MLS inventory on Feb. 6, 2020, a total of only 64 units.  I have previously identified 91 residential units in various stages of foreclosure in New Haven on 5/6/19 of which 63 are titled to banks, LLCs and the City of New Haven, the remaining 28 in the names of individuals, yet I am not fully researching this now because the data set changes daily. As I commented in the New Haven Register on 4/24/19, “I help my clients (with good, slow or no credit) who earn consistent income to afford housing. If you are not using credit cards you are not building credit. Real Estate is the best leveraged path to financial independence.”

+++Housing and food security remain critical issues for our communities to resolve. The Connecticut Coalition to End Homelessness reports  1) 3,383 total individuals were counted as homeless in Connecticut as of January 2018, a 24% decrease from 2007, 2) The number of chronically homeless individuals (experiencing long-term homelessness and living with disabilities) decreased 69% since 2014 in Connecticut; down 15% since 2017. 3) 370 families were experiencing homelessness in Connecticut as of January 2018, a decrease of 6% from 2017. 4) 38 vets were found in emergency shelter: an increase of 11.6% since 2017; yet only 13 Veterans were unsheltered — a decrease of 7.1%  

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+++Other communities are considering 420-square-foot tiny homes that cost around $60,000 which take 90 days to complete, as well as prefabricated small houses. The construction standards of travel trailers have been established for decades.  Trailers can build out to a maximum of 400 square feet of floor space like a 240 square Foot 2019 Coleman 263BH for $18,000 or a 248 sqft 2017 Hartland M325 for $19,000. A travel trailer could be financed for one year’s rent of $1400 ($15,800) and installed in a location supported with water, sewer and electric. Mobile homes are the next step up, where one could buy a 659 sq foot unit for $49,000 today with no site work needed but water, sewer and electric, while Tacoma is building tent cities.

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+++In closing, I desire, and am available, to work with people who are committed to creating innovative, respectful solutions to make Greater New Haven a better place to live, work and build community by developing space, opportunity and ability. Controlling variables in cash management remains the foundation of successfully maintaining a residence. These ideas and the content of this letter are my original work as a licensed real estate professional and independent contractor. My original assessment and proposal are my own unless affirmed by others. My intent is to do well by doing good. Contact Me at my office (203) 877-2704 x 400826, follow me on Twitter @ctrealdavecarr  or make an appointment to stop by and visit me at  54 Broad Street, Milford, CT  ….   © David Carr 2020 All Rights Reserved