0901 2012 New non-debt financing alternatives for homeowners and small businesses as an economic stimulus tool – the crowdfunding of a FARJHO homeownership structure or a SwapRent contract

This is a topic that I have published and blogged about (see historical blogs on these issues at http://swaprent.com/blog) many times before within the past 6 years since the creation of SwapRent in 2006 and FARJHO in 2009. The more I blogged about it each time through the years, the more it seems that it has carried on much more new meaning as our country’s economic situation evolves. With the recent fast paced development of the crowdfunding movement, the potential crowdsourcing availability of the funding for the new FARJHO homeownership structure and the SwapRent home financing method have become more and more relevant.

Let me start out by repeating the urgent need of developing a few new non-debt based financing alternatives, not only just to reform our country’s housing finance system for the sake of increasing affordable home ownership, but also to help create economic stimulus and create jobs for middle class Americans on Main Street.

Debt should not be the only way to finance home ownership but unfortunately mortgaged homeownership seems to have been the only consumer choice made available to the American people for centuries until today. We will need to educate the public, the academic, the government agencies and the lawmakers alike to help create the conducive regulatory structure, make available and foster the growth of the free market, non-debt based financing alternatives for both homeowners and property owning small business proprietors.

Without going into technical details, both the SwapRent and FARJHO business methods were simply created to realize the common economic concept of property equity sharing or property appreciation sharing. SwapRent took one step further by not only being just a new method to implement an old concept, but also introducing a new economic concept altogether. Instead of sharing up-front equity to realize sharing appreciation profit potential and the associated downside risks, SwapRent uses a cash flow sharing concept and method to let investors share potential upside appreciation in property value and the downside risks of losses with the property owners directly via a online portal marketplace REIDeX.com.

More detailed info on the SwapRent original creation process in 2006 is available at https://www.box.com/s/437c60e4d8931365b9e4 and on SwapRent application in the 2009 JHFI (Journal of Housing Finance International) by IUHF (International Union of Housing Finance) paper at https://www.box.com/s/feae725ede7042c53412 .

Within the past few years, the current administration has repeatedly called for the creation of green jobs to help revitalize the national economy while the opposition party plans to create the same old black jobs by trying to do more fracking of we homeowners’ backyards. Irrespective of the debate outcomes on what kind of green, black, pink or blue jobs to create, the 64 thousand dollar question is still on how to come up with additional money to fund new jobs creation via creating new economic stimulus. It is really the greenback, not the green jobs, that is going to get us out of the current economic dilemmas.

While the Monetarists at our Federal Reserve Board propose we continue to print more greenback, Keynesian economists believe we could continue to shanghai the Chinese to cough up more money to finance our national debt in order for the policy makers to conduct more conventional government led fiscal stimulus projects, Solyndra included.

Perhaps, it is time for these policy makers to think outside the box now. What if, just what if, we could create a new free market based business method that could provide fresh new capital into our economy by encouraging free market investors to voluntarily pump their own money into the system, not for charity, but for the potential possibility of making financial profits from the long run recovery of the US economy, materialized through the increased property value of homes and real estate properties throughout the country that they got to “partially” own when they voluntarily agreed to pump their money into our economic system.

Since neither the new alternative housing finance system of SwapRent or the new home ownership structure of FARJHO are based on a lending concept but rather a tradable co-ownership equity financing concept to help our nation de-leverage, it does not have to rely on a low interest rate environment to be effective to create jobs and to stimulate our nation’s economic growth. It is in fact neutral to the interest rate levels and it has its own dimension in influencing the macro-economic activities so to speak.

Therefore, once a SwapRent or a FARJHO market has been established, the Fed or central banks in other countries could raise interest rates at any time, as they see fit, in order to prevent growing further asset bubbles, to fight potential inflation or to save the value of the national currency from potential devaluation without having to worry about its potential impact on hurting the chances of an economic recovery.

The relevance of SwapRent or FARJHO to job creations is based on how entrepreneurs and local small businessmen could create new monthly income cash flows by willingly giving up partial future property value appreciation of their own homes or other properties that they own. This potential appreciation may or may not even be realized by the horizon date (e.g. 2, 3, 5, 8 or 10 years from now) given the current economic situation. Through property equity sharing or appreciation sharing to attract fresh capital injection into the local economy, the potential appreciation in property value could actually be artificially created via a self-fulfilling prophecy as more money could chase up the property prices.

The local entrepreneurs could then pool these new monthly cash flows obtained directly from these new programs to say open a new local restaurant together and hire more people to create jobs or to make any other new investments directly right at the grassroots level on Main Street. They would not have to worry about getting this new found fresh capital injection into the local community to be fleeced on Wall Street first or being diverted by some smart bankers to invest in and stimulate other foreign country’s economies altogether simply for personal gains.

These additional monthly income cash flows would become the local home owners discretionary disposable income that would make them the ideal consumers with a new found consumption power to purchase the goods and services from the small business owners in the local communities.

For the existing home or property owners, a 100% ownership of a future zero appreciation scenario by horizon date is still zero, a partial shared 50% ownership of a future 20% or 30% appreciation scenario of their own properties driven by the new fresh capital injection into local communities induced by the SwapRent program or the FARJHO new homeownership structure will translate into a 10% or 15% (one half of the 20% or 30% total appreciation) gain for themselves.

It would seem a much better deal to co-prosper rather than being left poor alone. Meanwhile with the new swapped current monthly income streams they could enjoy perhaps an additional flat screen TVs purchased at local malls for their family, leasing another new electric hybrid car from local car dealers or eating out more at the local restaurants that the local entrepreneurs had just opened by using the new cash flows obtained through these same SwapRent programs. Wouldn’t this be the American way as usual on a pure free market basis without having to pile up any more debts or to raise citizen’s taxes?

In terms of helping reduce the current foreclosure rate, the homeowners who see the signs of an imminent swift recovery of the local property market will think twice about their earlier plans to walk away from their distressed homes. The only way for homeowners to feel that they should not purposely make a strategic default and walk away from their properties seems to be to somehow make them feel that they might be missing out on a swift recovery if they do walk away, another free market decision making process.

The key new economic concept for these proposed programs to work well is for the policy makers to change from a socialist oriented ideological focus on preferential rescue treatments for distressed homeowners that may most likely cause moral hazards, to “a free market based reversible exchange transaction of a part of future appreciation potential of the properties that they own for a perhaps very generous current monthly income cash flow now” offer which is open to all property owners and may be expediently targeted at a few specific high concentration foreclosure-infected neighborhoods that the banks may have exposures to for the best initial pilot project demonstration effect.

In a sense, the more participation by local property owners and free market investors to the SwapRent program or the FARJHO method the more additional fresh new capital would be injected into the local community through the new third party economic landlord investors. That is exactly the reason why these new innovative programs will have to be open to all property owners to participate without discrimination for the long haul, not just for the distressed homeowners on a short term rescuing mentality. Open up more innovative ways to let the free market forces rein and the economic prosperity will happen at its own swift pace.

If the government wants to take a token leadership, all the government policy and lawmakers need to do is to create law and order to become a good game keeper of these new proposed housing finance system and business methods, no tax payer’s money would ever need to be involved.

Based on pure free market principles, the more people there are in the “targeted neighborhoods” to sign on to this new program the more likely the local property markets and the local economic prosperity will indeed recover and the more likely free market based investors will step on each other’s shoulder to rush to inject fresh new fund into the local communities directly through this new free market mechanism. As a result the more the SwapRent contracts or FARJHO co-ownership member interests will indeed appreciate in value due to the property market recovery that will hence reward the initial SwapRent monthly cash flows or FARJHO up-front equity providers. This new economic concept of a farming approach to wealth creation is indeed a self-fulfilling prophecy in the true spirit of capitalism. The more you sow, the more you might reap.

Wealth creation by enhancing property value in this equity based manner is by no way creating malignant asset bubbles again. Low interest rates will. Malignant asset bubbles are formed when buying interests were created from using borrowed money (or OPM, other people’s money) where owners have an on-going obligation to service debts. The SwapRent or FARJHO approach by nature is based on a tradable economic version of the shared equity financing concept. Equity financing means that owners do not have to service any interest burden of debts. Therefore the benign asset wealth value created this way is not like leveraging created malignant asset bubbles made up of hot air that are usually doomed to burst. The analogy could be more like igneous rocks cooled from molten lava for equity based asset bubbles. This is simply the inherent more stable nature of equity financing vs. debt financing.

When these new alternative tradable equity based home financing objectives have been met, residential real estate properties or homes ownership will soon join corporations to become the dual engines of economic growth of our capitalism society, one for small business and the other for big business. Home financing through debt alone can not make that dream happen, as has been clearly illustrated by the current housing led financial crisis.

Without the stabilization factor of equity, debt financing only creates boom and bust cycles. Therefore instead of a policy of continuing to push banks for more loose credit at this very moment to repeat what had brought us here to begin with, it may make better sense for our government to consider helping the private sector entrepreneurial entities look for new ways to increase the shared equity-based home financing by creating more conducive legal and regulatory framework to let free market forces help our economy prosper.

Filed under: Cash Flow Sharing, Crowdfunding, Economic Viewpoints, Equity Sharing, FARJHO, Federal Government, Housing, InvestorsAlly, Mortgage, PeoplesAlly, SwapRent, Crowdfunding, Crowdfunding of home equity, Equity Sharing, FARJHO, Fiscal policy, Housing finance, InvestorsAlly, Monetary policy, REIDeX, shared appreciation, shared equity, SwapRent

Crowdfunding of Home Equity at FARJHO.com – How crowdfunding could help solve our country’s housing finance problems

This blog post first appeared in Huffington Post on 8/7/2012. http://www.huffingtonpost.com/ralph-liu/how-crowdfunding-could-he_b_1752633.html

Ever since the JOBS Act was signed into laws by President Obama on April 5th this year, the enthusiasm on crowdfunding has mushroomed in just about every corner of America. Many people with some technical Internet knowledge would rush in to start a crowdfunding portal to help American create more jobs through helping entrepreneurs raise equity financing. Many more are anxiously waiting to utilize the new found channel to raise money for their own business start-ups from regular investors over the Internet.

At InvestorsAlly’s FARJHO.com, we have coincidentally also been trying to provide the matching services between aspiring home owners and prospective joint property investors to co-own homes through a new innovation home ownership structure called FARJHO (Flexible And Reversible Joint Home Ownership) over the Internet within the past few years.

The concept of connecting consumers directly via Internet used be to called a Peer-to-Peer (P2P) method of matching individual consumers with similar desire to consummate a transaction of a common interest, be it a dating service or a financial transaction. Going back a little bit further to the 90’s, this matching of retail consumers directly through the power of the Internet used be more popularly categorized simply as the Consumer-to-Consumer (C2C) e-commerce. So crowdfunding appears to be nothing more than another jargon as the latest variation in the evolution spectrum of the Consumer Internet service, although technically speaking it is more a Business-to-Consumer (B2C) e-commerce since the relationship seems to migrate from a one-to-one to a one-to-many relationship. The new break-through to suddenly let out the pent-up interests in crowdfunding is really on the regulatory side. Kudos to those visionary law-makers!

As for the coincidental parallel innovation on the housing finance side, FARJHO is a new way to implement the old property equity sharing concept that has been around for more than 30 years, although primarily more popular in the UK. Those older equity sharing methods did have many growing pains and never made it to the mass consumer market. Inventions in social sciences would provide new economic values just as technology inventions do. The distinguishing features of FARJHO as a new business method to implement the equity sharing concept are three-fold:

First, FARJHO allows renter/home occupier and joint property investors to own only one home at a time in order to maintain the sanctity and the freedom of the single family residence ownership. This is in sharp contrast to many community oriented equity sharing methods of Co-ops, Land Trusts, Kibbutz or hippy-ish Commune types of older equity sharing methods.

Second, as a brand new concept, FARJHO introduces and allows only member level debt financing to eliminate the foreclosure possibility which exists with the conventional property level debt financing that are commonly used by a Shared Equity Mortgage (SEM), a Shared Appreciation Mortgage (SAM), a Shared Ownership Mortgage (SOM) or any other existing equity sharing schemes to date. In all those older business methods, the home occupiers could still get foreclosed whenever they lose their monthly income capability. The concept of FARJHO is to move people from a Pool-Borrow-Buy (PBB) method to a Borrow-Pool-Buy (BPB) method in joint home ownership.

Third, FARJHO provides a natural built-in buffer to conventional renting to avoid potential eviction when the tenants temporarily lose their monthly income capability. The equity stake of the renter/co-owner of the FARJHO structure could act as an optional voluntary collateral against missed monthly rent payments and therefore provides property investors with enhanced investment security through less credit risks and at the same time provides the tenants/co-owners with more home occupying stability during the rainy days in their working lives.

Although we at InvestorsAlly have received overwhelming positive response and a very strong market demand from home owners under our various educational test marketing programs conducted in Southern California within the past two years, due to the prior securities laws related regulatory concerns, we have not been able to officially market the FARJHO service freely in a massive scale. Now with the new crowdfunding provisions of the recently passed and signed JOBS Act to be enacted by the SEC by the end of the year, we have accordingly been preparing to position and may finally be able to launch our FARJHO.com as a dedicated crowdfunding portal site as the authoritative marketplace for crowdfunding of home equity, one home at a time, through the new home ownership structure of FARJHO. This will be a giant step towards realizing a stock market for home equities.

The reason why this new regulatory crowdfunding business opportunity development could be made possible to be applied to housing finance is that the proprietary new home ownership structure of FARJHO that we have coincidentally been working on for the past few years basically corporatizes each home in America one home at a time. Since each home will be treated as a business venture via a simple LLC legal structure under FARJHO, the new crowdfunding regulatory provisions could therefore be conveniently applied to housing finance for the first time. The reason why we have adopted the LLC legal structure is that using LLC to hold real estate properties is a tried and true method in commercial properties for many decades already, even though they have been used with an opposite purpose to FARJHO as far as leveraging is concerned.

The portal site will provide free membership to homeowners around the world similar to how Facebook does for individuals with all the social networking capabilities but our homeowner members will have a specific hope of selling their homes, buying another new home in whole or in part, investing a small part of a few other member’s home equities as an investment portfolio or simply obtaining occasional short term financing through selling fractional shared equity of their own homes through the new FARJHO home ownership structure.

There could be many more other free market based new consumer choices made available to solve our country’s current housing finance problems by this new FARJHO service to free people up from the current dominant mortgaged home ownership that often results in foreclosures and hence has created many financial problems and social instability to our economic societies. Furthermore, it may lay the proper free market foundation for further future benefits to grow upon with even more innovations that we could not even foresee at this moment.

For example, the use of property equity sharing as a temporary non-debt based financing alternative for small businesses to obtain funding to created jobs, the use of property equity sharing or cash flow sharing concepts and methods for the governments as a new third alternative economic policy management tool (vs the existing fiscal and monetary policies) to provide stimulus or to slow down an overheated economy, … etc. (more detailed policy tool examples are available in Chapter 6 of the SwapRent application paper at https://www.box.com/s/feae725ede7042c53412 )

FARJHO.com aspires to become the first entrepreneurial venture to bring new housing related economic benefits via crowdfunding to the American consumers under strictly free market principles by harnessing the power of social innovations, Internet technology advancements and the timely regulatory foresights.

A copy of the original FARJHO creation white paper could be downloaded through this following link. https://www.box.com/s/cc0de069ab5c3fd3007e

Filed under: Cash Flow Sharing, Crowdfunding, Economic Viewpoints, Equity Sharing, FARJHO, Housing, InvestorsAlly, Mortgage, PeoplesAlly, SwapRent, Cash Flow Sharing, Crowdfunding, Crowdfunding of home equity, Equity Sharing, FARJHO, FARJHO.com, Housing finance, InvestorsAlly, PeoplesAlly, shared appreciation, shared equity

0701 2012 Shared appreciation methods could be used as a macro economic stimulus tool, not just narrowly be used to let distressed home owners hang on their homes only

While this very same topic has been repeated many times before, I still feel this is where the economic policy makers of our country need to understand most but have failed to do so thus far. Housing, housing finance professionals and mortgage experts may need to work together with the macro-economic policy makers for these new economic concepts’ potential implementation. Shared appreciation or equity sharing techniques and methods, when implemented in an isolated way to distressed home owners only, would not achieve the desired results because they may lack the normal free market incentives and motivations for free market investors’ participations.

This relevant past blog post http://peoplesally.wordpress.com/2011/11/26/1126-2011-we-need-to-blow-up-a-home-equity-bubble-using-equity-sharing-methods-not-debt-like-how-silicon-valley-blew-up-tech-company-stock-market-bubbles/ may illustrate these big picture economic concepts well. For more detailed execution methodology by the policy makers and central banks, please refer to Chapter 6 of the my earlier SwapRent paper (http://www.box.net/shared/v24qtqip4hlgff5l1646 ) published in the December 2009 issue of the Journal of Housing Finance International (HFI) by the Brussels-based International Union of Housing Finance (IUHF).

I would like to emphasize again that equity sharing or shared appreciation methods could not only be used to assist home owners to hang on to their homes in a narrow way, they should better be utilized to facilitate economic stimulus to the masses at the grassroots level to create jobs and revitalize our country’s economy.

The key concept is that only when these new equity sharing and cash flow sharing services such as FARJHO and SwapRent or any other methods and concepts provided by other economists are made available and offered to the public in general, not restricted simply to distressed home owners only, so that the market will indeed have a chance to recover due to these new methods that could foster positive market investment sentiments and expectations.

Free market investors would then more likely participate voluntarily to provide capital in a stampede. If executed correctly, no arms twisting of these free market investors would be necessary for them to throw money voluntarily into the housing market, as long as they themselves see the profit making potential. The way for our country’s economic policy makers could get involved in these new equity sharing based economic policy management tools, would not be that much different in the Fed’s current role of jawboning to create investors’ expectation in the interest rate markets.

Let’s hope the economic team hired by the next Presidential Administration would get to see the light soon.

Filed under: Cash Flow Sharing, Crowdfunding, Economic Viewpoints, Equity Sharing, FARJHO, Federal Government, Housing, InvestorsAlly, Mortgage, PeoplesAlly, REIDeX, SwapRent, Alternative financing, Crowdfunding, Economic innovation, Economic policy making, Equity Sharing, FARJHO, Housing finance, Jawboning, Macro-economic policy, Non-debt based financing, SwapRent

0603 2012 New non-debt financing alternatives for home owners and small businesses as stimulus to create economic activities at grassroots level

I was recently invited to submit a paper of my economic innovation research work by a government agency again. Here below are the gists of what I would like to present. It is a summary of only what FARJHO and SwapRent are about. The third leg of these related innovations, TARELV (http://www.tarelv.com) which is a new alternative currency pegging system based on real estate and land value, although much more interesting, still seems to be a bit ahead of its time and may remain an academic exercise for limited special interest groups at the moment.

So here below is a quick summary of what my current proposals are.

1.) The distinguishing features of FARJHO as a new business method for a new form of home ownership structure are three fold:

First, FARJHO allows home occupiers and property investors to own only one home at a time in order to maintain the sanctity and the freedom of the single family residence ownership. This is in sharp contrast to many community oriented equity sharing methods of Co-ops, Land Trusts, Kibbutz or Commune types of older equity sharing methods.

Second, as a brand new concept, FARJHO only allows individual member level debt financing to eliminate the foreclosure possibility which exists with conventional property level debt financing such as those in a SEM, a SAM or a Shared Ownership type of other existing equity sharing schemes. Home occupiers could still get foreclosed when they lose their monthly income capability under those older arrangements.

Third, FARJHO provides a natural built-in buffer to conventional renting to avoid potential eviction when the tenants temporarily lose their monthly income capability. The equity stake of the renter/co-owner of the FARJHO structure could act as an optional voluntary collateral against missed monthly rent payments and therefore provides property investors with enhanced investment security through less credit risks and at the same time provides the tenants/co-owners with more home occupying stability during the rainy days in their working lives.

All these new features were specifically designed to make the new home ownership structure of FARJHO more than simply an attractive financial investment vehicle for free market based property investors. Among its main goals is to also provide neighborhood stability and social harmony by eliminating the possibility of foreclosures and reducing the likelihood of eviction for home occupiers.

2.) The three features of SwapRent (http://www.swaprent.com) as a new non-debt financing alternatives for home owners and small businesses are:

It allows home owners or any property owners to share a part of the appreciation potential of their properties with other free market based investors through letting these investors share a part of the cash flow responsibilities in a real estate property ownership so that the current properties owners could obtain alternative temporary non-debt based either short term or long term financing that has never been made possible before.

These goals could be accomplished through the new economic owning, renting and own-rent switching concepts and business methods of SwapRent for managing real estate properties.

It allows home owners to separate the investment value from the shelter value of owning a real estate property, i.e. the issue of the management of the financial investment aspect of owning a home away from the issue of the stability of a suitable shelter or a place to live in.

FARJHO and SwapRent could indeed be used either together or separately.

I would like to emphasize the importance of understanding that both FARJHO and the SwapRent contracts could be perfectly used as new non-debt based financing alternatives for both home owners and small businesses to revitalize the national economy at the grassroots level. These new proposed financing alternatives seem to be exactly what our country and many other countries in Western Europe urgently need at the present time.

Just try to think, when home owners and small business property owners who could not get conventional bank loan financing have run out of all other means, including perhaps items to bring to the pawnshops, wouldn’t it be nice for them to have a new way to get paid by letting other people share a part of the equity of the homes or other real estate properties that they own in the form of either shared equity ownership or simply shared appreciation rights rather than a collateralized or mortgaged debt that would need a steady income stream to service the monthly payments and/or a burden to repay at maturity date.

The delivery of these new innovative services could be performed under the Internet based crowdfunding portal sites such as http://www.farjho.com for FARJHO and/or http://www.reidex.com for SwapRent to bypass the Wall Street middlemen and get the economic benefits of these new services delivered directly to mom and pop small business folks on Main Street. More consumer choices is always a good thing under free market capitalism.

While old school economists like Paul Krugman could continue to bang their heads against the wall to convince governments to tax citizens more, issue more debts and print more money to inflate away the debt problems of the US and many Western European countries, they seem to genuinely naively have a blind faith that there will always be a greater fool to continue to be willing to lend more money or to be taxed more no matter how much worse the situation may get. Why can’t these people simply calm down and think outside the box for once?

Outside of debt financing there are many many other ways to finance economic activities. The equity sharing method should not be confined only at the corporate level in the form of either private equity participation or a stock market IPO.

Countries, sovereign entities at higher levels (e.g. using TARELV) and home owners, small businesses at the lower levels (e.g. using FARJHO and SwapRent) should all be seriously educated on how to take advantage of the new equity sharing concepts and methods made possible by these innovations and their current commercial availability beyond being simply academic theories now.

This also brings back my favorite academic side topic. Try to imagine, if a new Greek TARELV Drachma is backed by the total aggregate real estate and land value of Greece, wouldn’t that be a more attractive currency for foreigners to invest in and hold on to? If the Greek government fails to deliver to let the TARELV Drachma exchange back into other currencies later, you’d end up getting to own a Greek Island?

Germans would most probably vote ja ja with their feet and each individually rushes to pump money into Greece for the rescue of their fellow Europeans! Isn’t that how a free market is supposed to work? There just has to be more innovative free market choices of financing alternatives made available to avoid having to keep on beating the dead horse to pile up more and more debts and taxes to solve economic problems. Again, more info on TARELV is available at http://www.tarelv.com.

Filed under: Cash Flow Sharing, Crowdfunders Choice, Crowdfunding, Currencies, Economic Viewpoints, Equity Sharing, FARJHO, Federal Government, Housing, InvestorsAlly, Mortgage, PeoplesAlly, REIDeX, SwapRent, TARELV, Alternative financing, Crowdfunding, Economic innovation, Equity Sharing, FARJHO, Housing finance, Non-debt based financing, Paul Krugman, SwapRent, TARELV

0503 2012 Application Example of An Arbitrage Investment Opportunity Using the New FARJHO Home Ownership Structure

This example appears in the 2nd page of InvestorsAlly’s FARJHO marketing flyer. https://www.box.com/s/1f2e57e6f0ac5b6738f0

Application Example of An Arbitrage Investment Opportunity Using the New FARJHO Home Ownership Structure

Do you want to put your idle home equity to work so that you could earn more appreciation potential? Would you be interested in helping other less affluent residents to partially co-own homes in California?

You could use your excess home equity to co-own homes with a tenant/partial home co-owner in a new home ownership structure called FARJHO – Flexible And Reversible Joint Home Ownership. Here is a short analysis for a home of an appraised value of $2,000,000. The amount of cash out re-finance is assumed to be $1,000,000 for illustration simplicity purpose as an example.
Before                       After

Current Home Fair Market Value

$ 2,000,000           $ 2,000,000
Re-Investments in Other FARJHO Transactions

__________        $ 1,000,000
Equivalent Home Equity for Potential Appreciation

$ 2,000,000           $ 3,000,000

What about the carry, i.e. netted monthly cash flows between expense and income under the FARJHO transaction?

*         A financial arbitrage currently exists as the mortgage rates are still being artificially kept very low.
*         Between the current long term fixed rate borrowing cost (e.g. 3% – 4% for a 15-year or 30-year fixed rate mortgage) and the current market rental yield (e.g. 7% – 12%) there exists a net positive carry of 1% – 5% annually after deducting all taxes, fees and insurance cost in favor of the arbitrageurs under a typical FARJHO transaction.
*         The cost of the monthly mortgage payments will remain the same for the next 15 or 30 years but the income from monthly rental receipts will adjust every two or three years and would most likely to go even higher in the current trend.
*         The arbitrageurs who take out the cash-out re-finance now could enjoy not only the potential long-term price appreciation from much expanded home equity, they will also receive a check as additional current income every month.
*         The current low fixed mortgage rates may not last forever. A change will be coming and it would be wise to lock it in now.

The free enterprise capitalism based new home ownership structure FARJHOSM could let pure profit-driven real estate investors help other aspiring home owners partially co-own homes through the equity sharing concept without the imprudent use of any debt. FARJHOSM was created back in 2009 as a fair and equitable business method to address the free market needs of both joint property investors and aspiring home owners. Through FARJHOSM, foreclosure will no longer be a possibility going forward. It will help restore our national economic prosperity, foster the steady growth of our country’s housing industry as well as promote the on-going neighborhood stability and social harmony in local communities throughout our country!

Filed under: Equity Sharing, FARJHO, Housing, InvestorsAlly, Mortgage, Arbitrage, Equity Sharing, FARJHO, Housing finance, SAM, SEM, shared appreciation mortgage, shared equity mortgage, Shared ownership mortgage, SOM

0402 2012 The distinguishing features of FARJHO as a new business method to implement the equity sharing concept are three-fold

This text appears on the 1st page of InvestorsAlly’s FARJHO marketing flyer. https://www.box.com/s/1f2e57e6f0ac5b6738f0

Do you have trouble in obtaining a conventional mortgage to buy a home or any trouble in selling your existing home when potential buyers could not qualify for a mortgage to buy your home?

InvestorsAlly could help you buy a home using the new equity sharing method and/or help you sell your house much quicker because InvestorsAlly could help other potential buyers obtain both conventional mortgages at low mortgage rates when they have good credit, and if not, help them try the new alternative equity sharing method of FARJHO.

The distinguishing features of FARJHO as a new business method to implement the equity sharing concept are three-fold:

First, FARJHO allows renter/home occupier and joint property investors to own only one home at a time in order to maintain the sanctity and the freedom of the single family residence ownership. This is in sharp contrast to many community oriented equity sharing methods of Co-ops, Land Trusts, Kibbutz or Commune types of older equity sharing methods.

Second, as a brand new concept, FARJHO only allows member level debt financing, to eliminate the foreclosure possibility which exists with conventional property level debt financing as commonly used by a Shared Equity Mortgage (SEM), a Shared Appreciation Mortgage (SAM), a Shared Ownership Mortgage (SOM) or any other existing equity sharing schemes to date. In all those older business methods, the home occupiers could still get foreclosed whenever they lose their monthly income capability under those old property level financing arrangements.

Third, FARJHO provides a natural built-in buffer to conventional renting to avoid potential eviction when the tenants temporarily lose their monthly income capability. The equity stake of the renter/co-owner of the FARJHO structure could act as an optional voluntary collateral against missed monthly rent payments and therefore provides property investors with enhanced investment security through less credit risks and at the same time provides the tenants/co-owners with more home occupying stability during the rainy days in their working lives.

Filed under: Economic Viewpoints, FARJHO, Housing, InvestorsAlly, Mortgage, Arbitrage, Equity Sharing, FARJHO, Housing finance, SAM, SEM, shared appreciation mortgage, shared equity mortgage, Shared ownership mortgage, SOM

0303 2012 What is the difference between the cash flow sharing SwapRent solution and a Shared Appreciation Mortgage? – SwapRent is similar to a separate flexible employment contract substitute to hold on to the house

When I said before SwapRent was a bit ahead of its time since its birth in 2006, I meant that most people were unfamiliar with what economic value it could bring. After the financial crisis, most economic policy makers were still learning what property equity sharing concept is and what methods are out there that could be used to solve our current housing led economic crisis. Sadly after more than 5 years, it still appears that the law makers, financial regulators, economic policy makers of the federal governments are only starting to realize the value of the concept and making recommendations for the private sector banks as well as the GSEs, housing agencies to learn how to apply these concepts through the only term in this equity sharing field that they know of, i.e. shared appreciation mortgage.

 
As one of the most superior and advanced methods to deliver the economic benefits of property equity sharing, ownership sharing or appreciation sharing, the SwapRent related methodologies have been made available to private sector banks, housing finance agencies of the federal, state and local governments through various direct communications and educational campaigns since 2007. It seems that all those efforts were in vain. Now that these supposedly wise men at the government are being called upon by the politicians to study the application of shared appreciation mortgage again to solve the housing finance led economic problems of our country. So let’s take another try to see whether they could comprehend it now or are willing to think outside the box to learn something new.

 
The new creation of a SwapRent transaction is to allow a free market exchange, between an arms length investor and a property owner, a series of cash flow payment responsibility for a period of time vs. a portion of the upside appreciation right and the downside depreciation risk obligation of the property in question at the maturity date of that cash flow paying commitment time period.

 
This new SwapRent contract could be flexibly offered separately, super-imposed on and be artificially attached to a conventional mortgage, be combined as a package and/or be detached at any time so that the SwapRent contract could be traded by itself independently, like a free market based derivative financial contract, in an open exchange to allow price discovery and capital regeneration. It is therefore much more flexible, effective, efficient and useful than the old, obsolete, flaw-ridden and rigid shared appreciation mortgage, the shared equity mortgage that have been around for more than 30 years as well as their most recent reincarnation of shared ownership mortgage.

 
The unfortunate thing is that these academics and economic policy makers whose task is to study, research and come up with a better mouse trap than the old shared appreciation mortgage simply went straight back into those old, obsolete, flaw-ridden and rigid shared appreciation mortgage concepts and methods again. They do not seem to be able to jump out of that old mortgage box to start thinking outside the box. The longer these incompetent policy makers continue to squat on their jobs the more our country’s economy will continue to hemorrhage. It appears a competency issue that only history will prove on hindsight.

 
Anyway, since the information of the SwapRent based solutions have been made widely available in many written articles at this blog, at SwapRent home page, in many published newspapers and academic journals already, there may not be a need to repeat all those info here again. Let’s take a quick look at what SwapRent concept can do on more than helping cure distressed non-performing mortgages and assisting home owners to hang on to their homes instead.

 
The way to think of this swap between receiving a series of monthly cash flows vs. giving up a part of the future upside potential could be interpreted and applied to many other events in our daily economic lives.

 
For example, use you yourself, the body and mind owner, as a case in point. You, like all of us, have a need to receive a series of monthly cash flows to buy groceries to feed your family and pay rent or mortgage payments for your home as a shelter. After you have applied for a job and been hired by your employer, you have effectively entered into a SwapRent transaction. Your boss has simply agreed to provide you with a series of monthly cash flows (your salary) for a period of time (your employment contract period) in exchange for your upside productive potential. Whatever you could produce for the company during the contract period will simply become the company’s material or intellectual properties and become exclusively the company’s financial rewards. Even if you have a great money making idea and developed a patent on it, that would become the company’s property and the company will make all the upside financial rewards out of that patent and all your other future economic productivity to make the patent financially valuable.

 

On the other hand, if you are an entrepreneur or a small business owner, you receive no fixed monthly cash flows from anybody else since you have no boss but you get to control your own destiny and get to enjoy the entire upside potential rewards of your own talents.

 
Similarly, what the SwapRent related concepts and methods were originally designed to do for you, the real estate property owner, as a comparison case in point, is quite similar. You may have a need to receive a series of monthly cash flows to pay for a part, or in whole, your monthly mortgage payments which may become delinquent when you have lost your job, either completely or got a lesser paying job instead. So you could, out of free will, decide to give up a part, or in whole, the future financial price appreciation potential of your home property in exchange for receiving the series of monthly cash flows that you need now to continue to keep the legal ownership of your house. If you do not receive any cash flows from any body else, you would of course get to enjoy the entire potential upside appreciation, i.e. assuming you have some other non-free market based magical way that you would not get foreclosed.

 

 

In this example above, the new concept and method of the cash flow sharing SwapRent contract simply provides another way for you to obtain a series of monthly cash flows to meet your daily responsibilities in your economic life. Taking a job was the only choice in our capitalism society before. Now with the invention of SwapRent, you the consumer, have been given another free market based choice, if you happen to own a real estate property already.

 
From an employer’s or an investor’s perspective, the way for them to derive more upside financial returns and grow economic potential for their capital and resources, they could either hire a person by giving him/her a series of monthly cash flows to enjoy the whole upside of his/her talents through a job or an employment contract, or they could simply provide a series of cash flows to a property owner in exchange of either a part, or in whole, of the upside financial appreciation potential of his/her property for a period of time.

 
I hope the analogy provides a better way to understand what the new SwapRent transaction is about and what kind of power it could provide as an additional consumer choice alternative to our daily economic lives on a pure free market basis.

Filed under: Cash Flow Sharing, Economic Viewpoints, Federal Government, Housing, Mortgage, REIDeX, SwapRent, Equity Sharing, Principal reduction, shared appreciation, shared appreciation mortgage, shared equity mortgage, Shared ownership mortgage, SwapRent

0301 2012 Crowdfunding – Capitalism for the 99%

We have recently started a new venture as an idea spin-off from our past venture www.reidex.com at REIDeX, Inc. and the current www.farjho.com at InvestorsAlly, Inc. The way both reidex.com and farjho.com have been trying to deliver the economic benefits of SwapRent and FARJHO to consumers are based on the power of Internet by eliminating the financial service middlemen and offer a service that is better, faster and cheaper than the conventional brick and mortar financial services businesses. This concept used to be called simply C2C e-commerce or later, peer-to-peer Internet matching service. Now, it is called crowdfunding.

 
Therefore it appears that we have been trying to provide the Internet-based crowdfunding services for real estate through both SwapRent and FARJHO as early as 2006 before the term of crowdfunding even emerged in the cyberspace. The reason why that InvestorsAlly has been offering crowdfunding service for home equity sharing is that FARJHO simply corporatizes single family homes and hence make it feasible to use this peer-to-peer matching concept for home owners to raise non-debt but equity based financing.

 
The use of C2C and peer-to-peer concepts could even be traced way back to the REIFO Exchange venture ( http://www.box.com/s/mnm7xhel0uhp9hkehad7 ) started in 2002 as chronicled in the Los Angeles Times article in 2003 ( http://www.box.com/s/qh42krrm2biiv55rkloj ). The ideas of the REIFO Exchange venture were later taken by CME (Chicago Mercantile Exchange) to let consumers trade futures and options contracts on a different real estate index. Details of this would not be released until 2014 when the 10-year NDA we had with CME expires.

 
The later over 10 year’s journey of transforming these sophisticated concepts to simpler new consumer-oriented products and services while keeping the similar economic benefits has not been an easy one. The new cash flow sharing concept and method of the SwapRent service through REIDeX seemed to be a bit complicated to the average consumers and the commercialization effort of SwapRent was perhaps a bit ahead of its time, no matter how powerful and useful the service could become to consumers and for our national economy.

 
To use an analogy again, it was almost like trying to convince people for a test drive by handing over the key of a new Hybrid SUV to people who are only used to riding horses. The shock and resistance to the new way of transportation were severe. Some people say that there is no traffic rules and if you launch it would create a lot of liability. Other people say that it is way too difficult for consumers ever to learn how to use it. Although the consumer acceptance may eventually take place but we could not wait that long to make a business venture commercially viable. So in 2010 we have pulled back the SUV and created a much simpler bicycle to offer to consumers through a new company InvestorsAlly, Inc. The bicycle analogy is the new FARJHO service. The FARJHO matching service is neither a derivative contract nor does it have anything to do with mortgages like what a SwapRent transaction would be, but rather a very simple new home ownership structure.

 
Through our marketing and educational effort the FARJHO idea seemed to have taken off and become viral in the Realtor community in Southern California since early 2010. Home owners and Realtors have begun to beat a path to our door for helping aspiring home owners with this new equity sharing FARJHO service to own homes since then but there is only one problem left – there have not been enough joint property investors in the current market to satisfy the demand from the aspiring home owners for the FARJHO transactions. Much more effort would be necessary to conduct more educational training under the current regulatory environment for potential investors. In the regard, I am glad to report that we have recently launched our first $20 million FARJHO Reg D private placement fund. More info is available upon request for qualified accredited investors in the US.

 
Nonetheless, we have yet again temporarily put aside the bicycle for more sophisticated users only and created another much simpler tricycle for the vast consumers for an even easier commercialization. Hence the Crowdfunders Choice (CFC) was born in January, 2012.

 
CFC simply focuses on introducing the peer-to-peer technology platform to help entrepreneurs raise equity financing. It is not a proprietary concept that we will need to sell again, which has always made launching new businesses much more difficult. It therefore seemed to be much easier to introduce these crowdfunding concept and method as there have already been many tried-and-true web sites offering similar platforms to conduct peer-to-peer micro-lending or to raise donations for creative projects or for political purposes.

 
The reason it is a much simpler tricycle vs. the bicycle of the equity crowdfunding business model of FARJHO is that the real estate component has been removed from the crowdfunding business model and therefore the new peer-to-peer matching services offered through CFC could be offered to a much broader audience, i.e. people would not have to have prior knowledge or experience with the real estate industry. In addition, people who would like to use the service no longer have to learn some new economic innovative concepts or methodologies any more. Sales calls would not turn into another economic lesson or a heated debate anymore!

 
As explained in the introduction at its web site ( http://www.CrowdfundersChoice.com ), our goal at CFC is to become the Crowdfunder’s Choice for helping entrepreneurs raise start-up equity financing with a special twist – we would like to make this new venture, crowd-sourced, crowd-funded and crowd-owned whenever permissible under securities regulation in order to act as a living proof that this new crowdsourcing business model would work under an unfettered free market capitalism.

 
Our target is to get the 99% of our population to have access to entrepreneurial start-up financing on Main Street in order to keep our free enterprise capitalism alive through promoting and maintaining a more democratic version of capitalism vs. the crony capitalism being practiced and abused by the privileged economic elites on Wall Street. The political image also seems to be a perfect match to the values of PeoplesAlly Foundation.

 
Hopefully through our new alternative funding services some of these entrepreneurs may get to rise up to become a member of the 1% one day. If not, even the top 10% or even top 30% will do, in the true spirit of capitalism. That indeed is our intention – wealth creation for the 99%. It is quite all right to take risk and work hard to become a member of the 1%, as long as they do not transform into a 1%’er or a member of the 10%’ers at the expense of the rest of the 99% or the 90%.

 

 

Filed under: Cash Flow Sharing, Crowdfunders Choice, Crowdfunding, Economic Viewpoints, Equity Sharing, FARJHO, InvestorsAlly, REIDeX, SwapRent, 99%, Capitalism., CFC, Corporatizing homes, Crowdfunders Choice, Crowdfunding, Crowdfunding for real estate, FARJHO, Peer-to-peer, SwapRent

0201 2012 Let’s give the Fed a third mandate – Avoiding income/wealth distribution inequality

A kid came home with his report card. It shows 4 F’s and 1 D. So his father in his stern face asked him “What happened?” The kid with tearful eyes fearfully murmured, “I know where I did wrong Dad, I spent too much of my time on only one subject …”

If you blame Ben Bernanke about what a mess the Fed has made to this country in terms of income/wealth distribution inequality within the last decade, he would most likely give you an answer of defense in his typical lip’s movements beneath the mustache only that it is not his job to give it a damn. It is the Congress’ fault that they only gave him and the Fed two mandates of fighting inflation and stimulating the economy/job creation only.

So forget about downgrading and removing one of the mandates and let the Fed focus on maintaining price stability only. We should ask them to upgrade and start focusing on three mandates, fighting future inflation, lowering unemployment and avoiding income/wealth distribution inequality.

Even when that happens, I am afraid that little school boy Ben would most likely come home with a report card with 2 F’s on fighting future inflation and avoiding income/wealth distribution inequality and a D in lowering unemployment/job creation so far. He most likely would have spent too much of his time on only one subject.

Let’s hope by adding this new dimension of avoiding income/wealth distribution inequality would make the Fed’s taxpayers sponsored jobs a bit more deserving than simply doing nothing but the two dimensional game of thumbs up or thumbs down on interest rates during their Federal Open Market Committee (FOMC) meetings.

P.S. Perhaps Ben deserves an A for the extra-curricular activity and self-created mandate of helping bail out the cronies?

Filed under: Economic Viewpoints, Federal Government, Uncategorized, Bailing out cronies, Ben Bernanke, Fed's mandates, Federal Reserve, Fighting inflation, Income/wealth distribution inequality, Job creation, Lowering unemployment, Maintaining price stability, Stimulating economy

0114 2012 Will a new US President make any difference in helping create a housing recovery and revitalize our economy?

Here below is an excerpt of my upcoming FARJHO article to be published in March.

Governments who set up policies using those ill-advised primitive methods (e.g. the original HOPE for Homeowners proposal in 2008) have only destroyed people’s confidence in the equity sharing concept to solve the problems and let the mortgage foreclosure problems deteriorate further day by day. The Hope for Homeowners (H4H) Program is a loan program that was a part of the Housing and Economic Recovery Act of 2008. The guidelines for the product were released by FHA on October 1st, 2008.

In the original HOPE for Homeowners (H4H) offering, the Federal Reserve together with the HUD Team proposed a non-free market based arbitrary equity sharing scheme for debt principal reduction as (Ref 3)

100% if the property is sold after 1 year

80% if the property is sold after 2 year

70% if the property is sold after 3 year

60% if the property is sold after 4 year

50% if the property is sold after 5 year

There were few takers. Any further consideration by other national policy makers and economists of using equity sharing related concepts to solve our country’s severe housing-led economic problems on a large scale also quickly died with it too for now. The incompetence of these policy makers is indeed very unfortunate and lamentable.

The worrisome part is that even when the top level politicians change posts later on these same technical middle level managers may still be the ones that will continue to squat on the same positions at the Fed and at the HUD since these subject matters may be deemed too technical for the top level politicians or top level policy makers to mess around with.

Will a new President make any difference?

Filed under: Cash Flow Sharing, Economic Viewpoints, Equity Sharing, FARJHO, Federal Government, Housing, InvestorsAlly, Mortgage, PeoplesAlly, SwapRent, Affordable housing, economic stimulus, Equity sharing methods, FARJHO, H4H, Home equity, Hope for Homeowners, Housing recovery, Presidential candidates 2012, shared appreciation, shared equity, Shared Ownership, SwapRent