Community Investment Fund for Low-Income Homebuyers

Using the community land trust model, KulshanCLT is working to create a local sustainable investment pool to fund home mortgages for first-time low-income homebuyers. In doing so we will provide socially-responsible investing opportunities for local investors, and more wealth-creation opportunities for low-income homeowners while helping to leverage our local, sustainable economy.  We recognize that the community land trust model and strategy generally, and KulshanCLT specifically, offers an innovative and entrepreneurial opportunity to connect social change with finance and empowerment of low-income people, and show that money can serve to fulfill the highest intentions of our human spirit.

 

 

Community Investment Fund Objectives and Overview

During the first year of this project KulshanCLT will create a local investment pool of $500,000 that will used by three low-income first-time homebuyers to purchase a KulshanCLT home. We intend to grow the program over time, but this year-one shares the strategies and objectives to plan, launch and implement the project.

Community investing in KulshanCLT has a precedent to build on. Amy McIlvaine, KulshanCLT donor and financial planner who has agreed to help us launch this project, began working with local banks in 2007 to establish a Certificate of Deposit program that would benefit KulshanCLT. As a result, Peoples Bank launched a Community Connections CD program to benefit KulshanCLT in 2008. For as little as $500 depositors can invest in KulshanCLT by taking out a special rate CD, and Peoples Bank makes a quarter percentage interest payment on the depositor’s behalf to KulshanCLT. Over 100 local investors have used the product, with collective deposits exceeding $3 million in 2009 alone.

 

Our conversations with prospective donors have helped us hone how the fund will perform and be secured. KulshanCLT intends to first establish a loan guarantee fund of $1 million that would guarantee the local investors’ deposits. This loan-loss fund would only be used if an investor to the pooled fund pulled out of that fund before the terms of the loan matured. The loan guarantee fund would be repaid as soon as a new investor joined the pooled fund.

The homes purchased would provide the security for the pool investor’s funds. All of KulshanCLT’s properties are secured by approximately one-third gap financing from federal, state and local sources – funds that are permanently imbedded in the properties to ensure their affordability. The balance secured by the homeowner’s downpayment and mortgage. Due to our successful track record of homeowners current on their mortgage payments, and only one wrongful foreclosure, investors have told us this is adequate security for them to feel confident investing in our homeowners and homes.

These investors are looking for a social investment that builds community and strengthens their relationship between people and the land they call home. We are suggesting investors consider initial deposits of $10,000 to $50,000 or more for five years or more, paying out an interest rate between 2% and 4% at the end of the term, with the option to renew. We would seek a cohort of investors so the initial pooled fund would be $500,000. We would then offer our homebuyers the opportunity to borrow that money to purchase their home at between 4% and 5%. Mortgages of most of our homebuyers are $150,000 or below ($167,000, including closing and other costs) and average monthly payments are $1,000.

Below is a chart of a typical home purchase, broken down into component sources, plus a cohort of 3 homebuyers to show how the $500,000 would be utilized:

Typical homepurchase:	One homebuyer	Cohort of 6 homebuyers
Homebuyer downpayment	$     5,000	$      15,000
Homebuyer 30-year mortgage and closing costs	$   167,000	$   500,000
Mortgage gap financing	$   55,000	$    165,000
Total purchase price	$ 227,000	$    680,000

We understand the investors and the mortgages they secure would need to be synchronized to realize the full benefit of the program. KulshanCLT staff would work diligently with prospective homebuyers so they are pre-approved and ready to purchase homes at the same time the investors are ready to pool their funds to initiate the fund.

 

Community Investment Fund Models for Consideration

Below is a sample of some of the models that other organizations have used to create community investment funds.  We are also looking into other possibilities, including how to designate IRA funds toward a community investment fund. New opportunities are emerging all the time, and we will strive to keep this site updated as we learn about them.

Cooperative

A cooperative is a member-owned and controlled business that operatives for the mutual benefit of its members. Among the advantages of the cooperative models is that because it is member owned, investors aren’t required to be accredited investors. The coop models allows for a wide range of loan amounts by individual investor. An investor would need to be a member of the cooperative to participate in the loan program. More than 29,000 cooperatives operate in every sector of the U.S. economy. Americans hold over 350 million co-op members.  The United Nations has designated 2012 the International Year of Cooperatives. An example of a cooperative making loans with community investment funds is La Montanita Fund, Santa Fe, NM.

Limited Liability Company

A limited liability company (LLC) is a flexible form of business that blends elements of partnership and corporate structures while providing limited liability to its owners. Partners, or members, are established at the LLC’s formation. LLCs offer protection of personal assets from a company’s debts under a simple business structure. A major advantage of an LLC is its simplicity. An LLC is formed under state statutes with little paperwork and few restrictions on ownership or purpose. Another advantage of an LLC is that it allows income and losses to be reported on its members' personal tax returns, avoiding a double tax imposed on corporate profits—one on the company and the other on personal shares of profit distributed as dividends. There is no distribution of profits or income to shareholders in a nonprofit organization, nor is any legal sense of ownership extended to individuals. An example of an LLC making loans with community investment funds is  Bringing it Home Chatham LLC, a project of SlowMoney-North Carolina, Chatham, NC

Partner with a Community Development Finance Institution (CDFI)

Nationwide, over 1000 CDFIs serve economically distressed communities by providing credit, capital and financial services that are often unavailable from mainstream financial institutions. CDFIs have loaned and invested billions to low-income homebuyers and business owners throughout the U.S., particularly in distressed communities. CDFI loans and investments have leveraged billions more dollars from the private sector for development activities in low wealth communities across the nation. Industrial Credit Union of Bellingham and Washington’s CRAFT3, formerly Enterprise Cascadia, are examples of CDFIs that KulshanCLT may be able to partner with its community investors.

 

Lending Circle

A lending circle is when people get together to form a group loan. Everyone in the group contributes money to the loan, and everyone gets a chance at taking the loan out. People across the world organize loans between friends or family without a financial institution all the time. This practice is known by many different names across the world: Susus throughout Africa, Paluwagan in the Philippines, Lun-hui in China, and Tandas in Mexico. This may be an option for community investors with smaller amounts to invest over shorter spans of time, perhaps for a specific home repair or upgrade. Learn more at Mission Asset Fund of San Francisco, CA.

Local Investing Networks

The Local Investing Opportunities Network (LION) of East Jefferson County, Washington, is a great example of group of citizens who are creating opportunities for local businesses, individuals, and local investors to network. Their mission is to build prosperous local businesses, keep investing money in our community, and help build a more resilient and sustainable economy in East Jefferson County. LION is not a loan or investment fund, and it does not make collective investment decisions. Our membership consists of local citizens who want to invest their money locally, thereby putting their investing money to work within our community.

Interested in learning more about community investing in KulshanCLT homes? Please participate in our community investing survey (anonymously or not!) or contact Jill Clark.