Frequently Asked Questions - Page 2

25. How can I decide whether a University Gables home is a good investment for me?

Investment analysis for a home typically uses the "return on investment" for the buyer's sales proceeds as applied to the buyer's down-payment. (The interest carry on the home, net of tax benefits for the home-mortgage interest deduction, is treated as a shelter cost rather than an investment cost, as it is assumed that the person would have a "rent equivalent" cost if he/she did not buy a home.) Many University Gables homebuyers are putting a minimal 5% down. The example above shows how much a buyer might achieve in sales proceeds with certain historical and other assumptions (with the caveat that past performance is no guarantee of future performance). If that buyer put down 5% ($10,000), he/she would have made $4,900 (almost 50%) per year on the investment (not accounting for compounding). However, University Gables was designed to be a homeownership community affordable and available to CSUF employees both now and in the future. This condition could represent a significant restriction on University Gables' homeowners who might otherwise benefit from extraordinary short-term appreciation in price if they owned unrestricted property in the outside real estate market.

Because of the resale restrictions and price limitations, if a buyer's primary purpose is speculative investment gain, he/she should strongly consider buying in the outside market instead, as price-indexed affordable faculty-staff housing communities will typically not provide such a level of profit. On the other hand, as the homes in such affordable communities are priced below those in the outside market, homeowners in such communities typically do not experience the dramatic losses that homes in the outside market can suffer in housing / economic downturns, and many homes sell for the maximum resale price -- unless maintenance has been neglected, or the home has been "over-improved" ?but even home sellers in the outside market may not recapture 100% of the cost of many capital improvements (the incremental amount a buyer is willing to pay for a home with that improvement over a similar home without it) ?for example, the recovery in the general marketplace for a swimming pool averages less than half of the installation cost. Another caveat would be that if you plan to own the home for only a short period of time, your appreciation might not defray all of the transaction costs associated with buying and selling the home, resulting on a loss on sale.