Diana Alaniz and her three children stand in front of their recently purchased home in Southwest Detroit. Courtesy Southwest Solutions
After living in her home for over two decades, Pamela Wright has seen her stretch of the Chadsey-Condon neighborhood in Southwest Detroit go from what she called â€œlord Jesus help usâ€ to what it is today: mostly peaceful blocks just west of thriving Corktown and a progressing development at Michigan Central Station.
â€œI love where Iâ€™m at,â€ Wright said. â€œItâ€™s close to everything, and Michigan Avenue is up-and-coming.â€
Itâ€™s good she likes her neighborhood, because the 60-year-old, lifelong Detroiter became a first-time homeowner this February after purchasing the residence she had been renting those last 20 years.
â€œIt feels good because itâ€™s mine,â€ Wright said. â€œYou can’t put me out. Iâ€™m responsible.â€
She was able to purchase her home as part of a unique model that tries to convert renters into owners. And it could be a potential pathway to homeownership for lower-income residents in a market where traditional mortgages are difficult to acquire.
In 2017, the nonprofit Southwest Solutions purchased the Newberry Homes, 60 detached single-family residences across eight blocks between 28th and 32nd streets just north of Michigan Avenue. The 1,200- to 1,400-square-foot homes were built in the early 2000s using federal low-income housing tax credits, which helped subsidize rent for tenants. But those tax credits expired right around the time the development was purchased by the affordable housing provider.Â
Instead of raising rates or simply continuing to subsidize rents for its low- to moderate-income renters, Southwest Solutions came up with another approach: sell the homes directly to tenants.
In a housing market that has never really fulfilled the promise of wealth building for minorities, the homebuying program was intriguing â€” all Newberry tenants are Black or Latino and make less than $45,000 annually for a four-member household.Â
But those income requirements are also what made it a challenge. â€œHow do we make it work so the residents really benefit from the opportunity?â€ said Dan Pederson, director of business development at Southwest Housing Solutions. â€œWe had to come up with a strategy for educating residents, informing them of the opportunity, then figuring out the funding.â€
There are some other models for transitioning rental houses to affordable homeownership, according to Southwest Solutions, but the organization had to craft its own program. Because traditional lenders in Detroit have offered few mortgages at the lower end of the housing market, Southwest Solutions had to come up with its own product. After a $2.5 million donation from the Sam L. and Judith Yaker Fund in 2018, which helped close the last financing gaps, the program became feasible.Â
The average payment, which includes taxes and insurance, comes to $540 a month. Of the 32 Newberry homes sold, the monthly payment for 29 of them is less than when they were rentals. Southwest Solutions encourages residents to shop around for mortgages, but itâ€™s no wonder that every home sold so far has used their in-house loan product. The nonprofit also includes some upgrades â€” like new furnace, hot water heater and driveway â€” in the purchase agreement.Â
And at the end of the process, the new owner will have equity in an appreciating asset. Pederson said subsequent appraisals have seen home values increase $10,000 or more in two years.
Southwest Solutions never kicks out a tenant to sell a home. If someone wants to buy, there has to be a vacancy and prospective buyers must still have incomes under $45,000.
Thatâ€™s how Diana Alaniz and her family bought a Newberry home. When they first moved to Detroit from Texas over two years ago, they were renting in â€œnot a great area,â€ Alaniz said. She found out about the project simply by driving around and seeing a contractor at work on a Newberry property. The Alanizes applied with Southwest Solutions, got approved for a mortgage, and closed on the house in a matter of weeks.Â
â€œWe have more peace of mind,â€ Alaniz said. â€œAnything can happen, but for now we have something.â€
The purchase has worked out well for the Alanizes. Their monthly payments are $60 less than what they paid for their prior rental. Dianaâ€™s husband is a contractor and has gotten extra work renovating some of the Newberry homes. And her eldest daughter has even bought the house next door.
â€œItâ€™s a quiet street with good neighbors,â€ Alaniz said. â€œMy son walks to school. We fit in here.â€
Both Pamela Wright and Diana Alaniz are first-time homebuyers â€” like nearly everyone whoâ€™s purchased a Newberry home.
â€œA lot of people have told us that this has been a dream of theirs but never thought it was possible,â€ Pederson said. â€œNow they have something to pass onto children, whether itâ€™s equity or the home itself.â€
It also could be a kind of a pilot for a larger program of converting low-income rentals to owner-occupied homes. Tax credits for an estimated 7,000 housing units in Detroit are set to expire by 2022, and the city is trying to raise $250 million to preserve and expand affordable housing.
Southwest Housing Solutions owns 1,300 units with expiring tax credits, which Pederson said are â€œripe for this type of opportunity.â€ He added that theyâ€™re looking at potentially replicating the Newberry program at three of their own existing projects totalling 150 units, and have also been approached by other housing providers to see if their low-income housing could also be converted into owner-occupied units.
â€œI think [the Newberry model] could absolutely be duplicated elsewhere,â€ Pederson said. â€œIf funders are interested.â€