Affordable housing and "sweat equity"

Affordable housing, Silver Spring, Maryland, circa 2000.

In discussions about affordable housing here in Charlestown, the phrase "sweat equity" has been coming up pretty frequently. Instead of building new homes, people ask, why can't we rehab distressed properties? The short answer is, of course we can—not, I hasten to add, that those are anywhere near the only two options. Most people who need affordable housing are not in a position to buy a home regardless of price and need affordable rentals. But there seems to be a bias against (year-round) rental properties (though summer rentals are hunky-dory). I have to wonder if the antirental attitude has anything to do with Jim Mageau, seeing as how he doesn't currently own property here in town. Maybe people think if there are no more rentals, he'll move away?

But when it comes to homeownership, even if we rehabbed every single distressed property in town, it wouldn't get us anywhere near meeting our affordable housing mandate. And it doesn't solve the immediate problem of giving people someplace to live now, while they're rehabbing.

By Linda Felaco

Don't get me wrong; I'm all for sweat equity. Heck, I've profited from it myself. In 2000, my husband and I had tired of apartment living and wanted our own house with four walls and a yard, but with housing prices in the D.C. metro area, the most we could afford was a condo or maybe a townhouse if we were lucky, and only if we were willing to endure a longer commute. But we refused to give up on our dream and started searching for foreclosures through HUD. And then one day a house was listed that was a short walk from where we were living at the time.

Problem: The list price was $10,000 higher than what we'd been preapproved for on the mortgage. And we couldn't just bid the list price and take a chance on being outbid. Under HUD rules, when a property is first listed, only first-time buyers can bid on it; if for any reason the sale is not completed and the property gets relisted, only then is the bidding open to everyone. So we knew at least we would not be bidding against speculators and might have a reasonable shot at winning. We bid $5000 over list and won by the skin of our teeth.

Then we had to find a mortgage. And the HUD contract required that we close on the house within 60 days. So the clock was ticking. Ultimately, we had to give up on getting an FHA loan and take a conventional loan at higher interest rather than risk losing the contract on the house. The delay in getting our mortgage approved also meant we had less time to fix up the place prior to moving in since we had to be out of our apartment by the end of the month. In fact, when we moved in, we didn't even have heat (and this was in October) because when the house had been winterized while it was vacant, the radiators hadn't been completely drained and water had frozen in two of them and they'd burst.

Luckily for us, the house had a fireplace, so for the first couple of weeks, we camped out in the living room and used the fireplace till we could get the heating system operational. But of course if we'd had kids, we never could have done that.

We also got lucky because interest rates began falling the following year and we soon refinanced to a lower rate. Then in 2003, mortgage interest rates plunged to historic lows. Every day our mailbox was stuffed full of offers to lower our rate and cash out equity, and our phone kept ringing with refinancing offers. But we didn't want to cash out equity, we just wanted lower payments. So we kept perusing the fine print and getting lower and lower offers and wondering, how low can we go?

And then we got an offer for 4 and 7/8ths percent interest on a 15-year fixed mortgage. We hadn't even been considering a shorter term, but the mortgage broker had run the numbers for us anyway, just to let us compare. I heard that 4 and I couldn't let it go. It meant that our payments would go up rather than down—but it was going to save us a quarter of a million dollars in interest over the life of the loan.

So we signed.

Charlestown affordable housing under the Platner-Gentz plan.

And because we did, it meant that six years later when we decided to sell the house, we were past the point that we were paying more on the principal than in interest and we cleared enough on the sale to buy a place here outright. Of course we also benefited from the overall rise in the housing market during those boom years and the improvements we'd made that increased the value of the house, such as turning a half-bath into a full bath and putting in a patio in the back yard.

We wanted to get the most we could with the money we had, so we considered all our options. After 9 years of living on a postage-stamp lot in the city, we wanted the most land we could get, even if it meant a smaller house. And we wanted to be close to the beaches. But we were also hoping not to have to spend the full amount we had available, to give ourselves a bit of a cushion.

So we looked at the HUD listings once again, but ironically, there were far fewer properties available than in 2000, because HUD acquires properties when FHA loans are defaulted on, and in the current foreclosure crisis, it was the subprime mortgages being defaulted on. We looked at a number of distressed properties, and also considered buying an unimproved lot and building a house, figuring we could live in a trailer in the meantime.

Except come to find out, town ordinances don't allow you to live in a trailer on your own property. So much for the "sweat equity" idea.

So there we were, with our Maryland house under contract, looking for places here, and all the ones in our price range were turning out to be unsuitable for one reason or another. Like the one on Ministerial Road in South Kingstown where the back part of the property—which was a swamp—had been used as a landfill, apparently for decades, and which had, strangely enough, not one but two can openers nailed to the outside of the house and dozens of rusted cans of franks and beans, cream of corn, and SpaghettiO's that looked to be vintage 1950 in the kitchen cabinets. Or the one in Coventry that I dubbed the "Blair Witch House"; there was a hole in the floor next to the fireplace, and one of our dogs managed to fall down into the crawl space underneath the house while we were viewing the property.

And then a house came back on the market that we'd previously ruled out because it was outside our price range. A little 900-plus-square-foot house on just over 3 acres here in Charlestown. It was still a little bit outside our price range, but we made an offer. And now we call it home sweet home. Ruth Platner and Tom Gentz want to call it "affordable housing."

So the moral of the story is, sweat equity can be an option for people who are in a position to be able to do it. But it's not going to get us housing for everyone who needs it.