Due to property or cash donations from IHT donors, IHT can sell a house that might be valued at $375,000 to qualified buyers for between $165,000 and $195,000. In order to ensure that the significant investment made by IHT’s donors remains available to future purchasers of the properties, IHT holds affordability covenants which run with the deeds on the houses. Within the affordability covenants is the “Resale Price” worksheet. The worksheet contains two formulas which determine the resale price of a house. The lower of the two numbers is the price at which the owner can sell the house.

The Maximum Resale Price (MRP)

The MRP calculations are then measured against the Maximum Affordable Cost (MAC) of the house at the time of resale. The MAC multiplies the prevailing annual median household income (AMI) for a family of four or fewer at a predetermined percentage of AMI by 2.5. The houses (continued on reverse side)at Ripples Hill are intended for individuals and families at 120% AMI, so IHT uses 120% in the Ripples Hill MAC formula. Houses affordable to people above 120% AMI, such as the houses at Sabah Woods, use higher percentages in their formulas. The percentage of AMI in each formula is the income level appropriate to people who can afford that particular home. The 2.5 stems from the opinions of many financial experts who believe households should not spend more than 2.5 times their household income to purchase a residential property. Thus, if a family’s income was $70,000, then that family could afford 2.5 X $70,000, or $175,000, on a house if they made (100%) median income. The median income levels in IHT’s formula range from 120%-180% and match the income levels of MDI’s workforce who can secure bank financing to purchase a house, but still cannot afford a market rate house on the island.

Protecting the Initial Investment and the Future Buyer

A number of folks have suggested that the limited equity approach is not for them because they want no strings attached when they go to sell their house. We understand that desire but also know that if it were possible for moderate income families to buy affordable land or houses on MDI, Island Housing Trust wouldn’t need to exist! We also know that the many seasonal and year-round residents who have invested in IHT’s work would not continue to do that if we provided housing opportunities to year-round workers who could “flip” the properties for a substantial windfall within months or years of purchasing them rather than have them remain the permanent stock of affordable year-round housing. Thus, the need for affordability covenants.