And we end up nearly where we started?
WARNING: Talking about equity models is boring. If you don’t want to hear alot of wonk talk about equity models, just stop reading now. But trust me, this new solution makes it very simple.
After 6 meetings of the mayor’s IZ workgroup, we finally got to the point where we have two options for equity models.
The one favored the most, but just barely, would work as follows:
When the home is sold to the buyer, the difference between the Market Value price of the home and the IZ price of the home is x% or the city’s share of the investment in the home. The buyer at that point is investing the remaining percent of the home value or 100% – x%. When the homeowner sells the home, they take 5% of the new market value of the home for any improvements made to the home. Then, the city gets the x% of the market value based on the initial calculations – 5% for improvement. The seller gets the remaining portion.
The math works out this way . . . (there is no magic to why I used these numbers, except ease of math.)
Original Sale
Market value = $200,000
IZ value = $180,000
(city % is 10%, the buyer % is 90%)
Sale by homeowner
Market value = $400,000
subtract 5% ($20,000) for the improvements to the home = $380,000
City gets 10% of the remaining portion or $38,000 to invest back into the home to keep it affordable for the next buyer, the seller gets $342,000 (90% of [market value – 5%]) + $20,000 (5% of market value) or $362,000.
Simple. No receipts to prove the amount of the improvements, no digging through assessors records, no fluxuating % of city vs. owner equity, no assessment area calculations, no complicated spreadsheets, etc. etc. etc.
Next up . . . incentives!
