Innovation Trio: SwapRent, FARJHO & TARELV

Shared Appreciation through Shared Cash Flows – the New Economic Owning, Renting and Own-Rent Switching Concepts as well as Business Methods for Managing Real Estate Properties – http://www.SwapRent.com

1001 2012 Obama’s HARP, Romney’s housing plan, Bernanke’s QEs or the new equity sharing FARJHO under JOBS Act? – with lyrics from Loca People

It is presidential election season again, so we have started to hear more about the candidates’ economic plans. Nothing attracts more attention from the public than the housing issues. Within the past weeks, we have Romney having revealed his housing plans, Obama having pushed again for his HARP, but  none of them has anything economically new to offer other than using it as another chance to repeat the partisan ideological preaching and the fight over whether government led programs vs. the presumed free market ways to let our country’s housing finance problem heal itself may work better than their political rival’s plan. It seems that they only care more about a simple old fashion plan that appears to work better than the other’s plan rather than supporting an innovative plan that will indeed work but that may incur political risks to introduce.

Disappointed, without getting a satisfactory answer in both of their plans, so I went to the Federal Reserve again. There I found out that Chairman Bernanke and his cohorts were still pumping out nothing but even more and more QEs. All day, all night … All day, all night … All day, all night … Nothing but more QEs to push for more loans, more leveraging and more easier credit, hoping not only to bring us back but to further turbo-charge us to where we had started this whole financial mess from to begin with over a decade ago … I can almost hear Bernanke dancing and chanting at the Fed, Viva la Hipoteca! Viva le Prestamo, Viva los QEs! What the Beep!

So I called up my friend Johnny. I said to him, “Johnny, La gente esta muy loca!”

Well, jokes aside, what we really like to do is to ask those politicians with a real workable housing plan please stand up. For the right, it is easy to just say let the free market heal itself. Free market solutions without the government leadership or competition without rules would indeed simply lead to either a crony capitalism or a ruthless predatory free-for-all anarchy. For the left, once they have replaced the crony capitalism and they’ll easily end up with even worse power hungry crony socialists.

What we need is perhaps not yet another round of old ideological political debate now, but rather some educated rational thinking and technically competent debates of what the new and economically innovative ways may be to own homes without piling up more debts as well as what the new technologically efficient and productivity enhancing ways are to deliver these new economic benefits to the consumers without being misguided and fleeced by unscrupulous financial middlemen yet again. These real stuffs to fix our faulty housing finance system may seem to be what the politicians need to focus on in order to bring the real tangible benefits to our country.

This is the 6th year since I have been researching, publishing and blogging on the various economic benefits of using property equity sharing or cash flow sharing concepts and methods to offer many new alternatives to our current faulty exclusively mortgaged home ownership centric housing finance system. Many of these new findings and creations are available to my personal academic research web site, http://swaprent.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. For the much simpler FARJHO solution, here again is the link to the FARJHO white paper, https://www.box.com/s/cc0de069ab5c3fd3007e.

Thanks to the democratic power of the Internet, SwapRent and FARJHO have conceptually and academically been gaining momentum and endorsement day by day with a world-wide audience. We are currently preparing to solidify these new innovative ideas and beta launch these new consumer services at the transaction oriented http://farjho.com and a broader social networking portal for home owners, http://wehomeowners.com as our free market based solutions to our country’s housing finance problems. The purpose is perhaps much more mission driven than financial. Since these new services could also be offered on a not-for-profit basis, i.e. through PeoplesAlly Foundation (http://peoplesally.org), we do need many supporters from the crowd to come on board to help us make these new consumer services a reality.

As explained in earlier blog posts, due to the recent breakthrough by a few visionary law makers with their innovative regulatory provisions of crowdfunding and the relaxed marketing rules of private placement funds contained in the JOBS Act, we may finally see the light at the end of the tunnel in bringing these new inventions to life as new free market based consumer services soon.

Viva la Innovation, Viva la JOBS Act, Viva la FARJHO!

(Quoted lyric above from “Loca People” by Sak Noel)

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Filed under: Cash Flow Sharing, Crowdfunding, Economic Viewpoints, Equity Sharing, FARJHO, Federal Government, InvestorsAlly, Mortgage, PeoplesAlly, SwapRent, , , , , , , , , , , , , , , ,

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, , , , , , , , , , , ,

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, , , , , , , , , , ,

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, , , , , , , , , ,

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, , , , , , ,

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, , , , , , , , , ,

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, , , , , , , , , , , , ,

1203 2011 The new innovative economic stimulus application using equity sharing methods, not debt and not tax credit, to prop up the housing market

Further to my 1126 2011 blog post and many other earlier posts on this issue, taking expedient economic stimulus measures to prop up the national economy as a concept is a bi-partisan issue and supported by all kinds of economists, even the most libertarian ones. The question is really on what methods to use to implement the economic stimulus activities so that the money provided could indeed stay in the local communities on Main Street long enough to create local jobs instead of immediately flowing to investment opportunities in foreign emerging markets for the Wall Street riches to further enrich themselves.

So economically

1. the need for economic stimulus activities to revive our national economy is agreed and accepted by all, although not agreeable on what methods.
2. the linkage between a robust local property market, i.e. increased home equity hence wealth for home owners, and local economic prosperity on Main Street is well recognized by academics and politicians.
3. using more debt to blow up more property, stock and bond market bubbles again will only be another temporary fix similar to kicking cans down the road to build up bigger problems down the road.
4. lowering interest rates further will not benefit the home owners and small businessmen on Main Street since the credit distribution channel has been impaired during most depressed time periods of the economy.
5. pumping more money and liquidity into the system will only benefit the rich further since only the rich has access to even more credit.
6. the rich top 1% in our society, their financial advisors, hedge funds, private equity firms and even US based multi-national corporations will use the excess dollar liquidity to invest in high GDP growth countries such as China, India, Brazil, Russia, Australia, … etc. to further enrich themselves.
7. the dollar liquidity created by current monetary policies conducted by Ben Bernanke and his cohorts at the Fed to date has created more jobs for foreigners than for us Americans on Main Street.

and politically

1. the bailout of big banks and Wall Street firms is both unpopular and unwise to the 99% of our population.
2. more Quantitative Easing (the various QEs) has proven to be toxic to everyone but the Wall Street professionals.
3. raising taxes could be detrimental or even fatal to the remaining careers in Washington DC for most politicians.
4. ramping up more budget deficits hoping to kick the can down the road to the next administration has become more obvious and unpopular to the public.
5. creating jobs for foreigners through pumping out more dollars while providing low cost of fund to and making the hedge fund and private equity investment gurus richer at our country’s expense has been understood by even the most economically illiterate citizens has discredited the Fed’s reputation day by day.
6. destroying American jobs and killing small businesses on Main Street through a lack of competence in the current economic policy makers has created extreme inequality and has been turning our country more and more towards the left and will further the causes of many variations of the Occupy Wall Street (OWS) movements.

Perhaps it is time for the economic policy makers and their technical staff members to learn something new and take a serious look at how our country could use the property equity sharing concepts and the various free market based business methods developed to date as a new set of economic stimulus tools?

It seems to be easier said than done. For one thing, why the economic policy alternatives using the new equity sharing concepts and made possible by FARJHO and SwapRent have not made an impact so far? Without pin-pointing where the problems are these repeated suggestions could just be further waste of efforts.

1. the equity sharing related subject matter may be deemed too technical by policy makers and their technical staff since it is new.
2. suspicion of any new innovations created by other people.
3. resistance to learn something new in order to change.
4. those people who have first spent the time to learn these new concepts and methods are still at a stage of thinking about equity sharing’s micro level application for foreclosure avoidance for distressed home owners only.
5. few people so far until this date have realized the importance of connecting these new property equity sharing concepts and methods with the macro level application to perform massive economic stimulus on either a national or a local level that would, on a free market basis without government’s monetary assistance, cover distressed home owners, big and small property speculators as well as any other free market based investors alike.

As a case in point, here is an example. Back in 2008, the respectable Founder and Chairman of the Peterson Institute Pete Peterson had forwarded the SwapRent solutions to the Republican presidential candidates and had been very supportive of the causes represented by FARJHO and SwapRent. However, David Walker, his staff and appointed CEO for the institute who was supposed to an expert on economic issues, advised him instead that

“Pete,
This proposal does not seem to differentiate between individuals who are deserving of help and those who aren’t. I don’t think that second homes, investment properties or individuals who entered into irresponsible primary residence mortgages should receive taxpayer assistance.
Dave

David’s failure to understand the basic principles of how free market capitalism could operate without having to rely on tax payer’s money is both surprising and lamentable.

That kind of attitude and lack of economic common sense is exactly what is stopping our government from seriously adopting property equity sharing concepts and methods as new innovative economic stimulus measures to create local jobs, revitalize local economies on Main Street in order to help save our country’s economic future.

The Obama Administration had similarly been informed with these proposals since before the election in 2008. Other than those primitive shared appreciation methods with unsuccessful results in the October 2008 Hope for Homeowners plan, there have not been other efforts in this regard. The H4H fiasco will be discussed in an upcoming article to be published this month and will be reviewed in the next blog post towards the end of the month.

Let’s hope the presidential candidates for 2012 would take a more serious consideration of using these new innovative economic policy applications of the equity sharing concepts and methods to solve our country’s economic problems in order to acquire a timely political advantage for themselves in the up-coming election.

Filed under: Economic Viewpoints, Equity Sharing, FARJHO, Federal Government, Housing, InvestorsAlly, Mortgage, Occupy Wall Street, PeoplesAlly, SwapRent, , , , , , , , , , , , , ,

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

Ben Bernanke and the Federal Reserve team please step aside, Silicon Valley please step up. We need to create some equity bubbles, not debt bubbles, to reflate our national economy in order to save our economic future. In particular, the national policy makers need to learn and use the equity bubble building techniques that the venture capitalists have been so skillfully creating wealth for themselves, their investors and the entrepreneurs in the past to apply to and to prop up the local property markets on Main Streets across the country.

Most economists, policy makers and concerned citizens probably have learned by now that it is the damaged credit distribution channels, not interest rate levels, that is blocking their desperate attempts to reflate the economic bubbles using debts alone. We all know that credit is a very funny thing. It is always plenty only to those people who do not need it. Therefore rich people have access to plenty and poor people can not get any. Excess money supply made possible by low interest rates have only been making the rich even richer and hence created more and more social tension on wealth distribution equality. Federal Reserve with its money pumping policies without the consideration of its negative effects of creating wealth inequality has hence been the henchman that has killed the middle class in America.

The only occasions when poor people could get credit is during the occasional irrational time of bubble building periods and when the credit process is being abused. When rationality returns, the supply of credit to the poor will come to a sudden halt as is what is happening now. On a further thought, this may not be a bad thing actually. Trying to re-energize the drug addicts with even more Cocaine in a desperate attempt is like kicking the can down the road to let other people solve the eventual real problems and could at most behave like a superficial temporary fix that may lead to much more expanded troubles down the road. A re-hab together with a new diet to create a new life would probably be a more prudent problem solving method.

Similarly, to re-energize our national economy, we will need to focus on alternative ways of financing, other than debt, to reflate our economy for both the short term and long term problem fixing purposes. As once students of finance, we all know that high risk ventures are usually financed by equities, not debts. For example, the entire industry of venture capital in Silicon Valley is focused on equity financing, shared equity financing in corporate ownership, to be precise. That same technique is exactly what we need now to reflate the home equity markets and hence our national economy.

FARJHO and SwapRent related new business methods that we provide only represent a few possible more superior business methods to implement this equity sharing or appreciation sharing economic concepts to attract more equity based fresh capital to resuscitate our national economy on a free market basis. In order to make it work, the national policy makers will need to learn and understand that the goal of rebuilding our national economy could be done through these equity sharing economic concepts. It does not matter whether they choose use the new FARJHO and/or SwapRent methods or not. They need to open the doors and encourage free market investors to participate in all kinds of equity sharing business methods that utilize the equity sharing concepts so that there would be enough free market capital to flow back into local communities across America to re-create property market led economic booms on Main Street.

Using debt to blow bubbles should not be the only trick up their sleeves. It did not and will not work anyway since the credit distribution channels will not function properly in bad economic times no matter how low they make the interest rate levels to be. That is simply the nature of how credit works. On the other hand, as long as these new bubbles are not blown up through Other People’s Money (OPM), i.e. debt again, it would most likely be Ok for now to get us out of the recession and unemployment for most of the 99% population.

As I mentioned in earlier blogs many times before, asset bubbles are usually blown up by OPM using debt. It is a dangerous bubble that could be popped because it was blown up by hot air. Equity induced asset growth could act more like a hardened molten lava. Once it is cooled and hardened, it does not have to pop or shrink back again. This is due to the simple fact that if the asset was purchased by equity without using debt, when price level declines, there would not be any involuntary selling as would be the case if the asset was purchased with debt.

So the way to make this policy strategy works, the government will need to recognize the need to extend all kinds of smart and stupid property equity sharing methods on a massive scale and on a pure free market basis that include property speculators, not just to use these equity sharing concepts and methods on a limited basis to distressed home owners as a foreclosure avoidance tool only. That concept is similar to the same textbook difference in managing macro-economics vs micro-economics. We will need to use these new property equity sharing concepts and methods as a new way of doing massive macro-economic stimulus for our country.

When free market based investors are aware that these proactive innovative economic stimulus policies have been understood and finally adopted by the relevant policy makers, being implemented on a massive scale and most importantly that they could also participate in, free market based fresh capital will start pouring in automatically to make America rich again. These investors would come in voluntarily simply based on their views that the government is willing to ramp up the prices and hence a timely profit making opportunity for themselves.

The strategy above is a repeat of what has been said many times before in a different way on how to use the equity sharing concept and methods to get our country out of the current economic dilemma ( http://wp.me/p1Cgsz-gI ). When the economy stabilizes, how the government could continue to use SwapRent and FARJHO related new business methods as a third way of new economic policy management tools to stimulate or to slow down a country’s economic growth through the real estate property values of a country was explained more in details in an article that I have published before back in 2009 ( http://www.box.net/shared/v24qtqip4hlgff5l1646 ).

Filed under: Cash Flow Sharing, Economic Viewpoints, Equity Sharing, FARJHO, Federal Government, Housing, InvestorsAlly, Mortgage, PeoplesAlly, SwapRent, , , , , , , , , , , , ,

1125 2011 A Thanksgiving holiday message to OWS folks – make yourselves rich by occupying jobs created by FARJHO and SwapRent on Main Street

Once I went to a seafood restaurant in the village while I was vacationing in the South Pacific island resort. I saw many buckets of live crabs laying around the floor. All of them had a lid on but one. I was curious to ask the owner of the restaurant why this particular bucket had no lid on. The owner said, “Oh, those are the socialist crabs. They don’t need a lid. As soon as any crab climbs up higher, other crabs in the bucket will pull them down for sure. So no crabs could ever climb up higher and get out.”

Hmmm …. I sort of got it right away why they were called socialist crabs. The socialists simply spend too much time worrying about how other people would make more money than they do rather than spending time to learn new skills to compete in the free market and make more money for themselves. They seem to enjoy more on how to pull other people down rather than working harder to learn how to climb up themselves to get out of poverty.

Why bother asking us to support their cause to indiscriminately tax all the rich people after some of the 1% may have made their money legitimately through their hard work and intelligence under a free market system? There should be no problems for them to protest to get the people power to mobilize the mass to put those crony politicians out of office and those crony capitalists in jail but blindly ask the country to tax the rich indiscriminately seem to be shooting blank and will not get anywhere. It also seems rather unfair. If those brave OWS folks have the guts, why don’t they simply stand up, shout out loud and name those cronies that have brought our country’s economy to its knees so that there could be a fair trial to bring them to justice?

Our country’s problems are the abusers, i.e. the crony capitalists and politicians that abused the capitalism system, not capitalism itself.

So if there are innovative ways (e.g. FARJHO and SwapRent) created by organizations like PeoplesAlly Foundation that common people on Main Street could finally get to bring the housing finance business and hence the money back to Main Street and let Wall Street cronies become the losers in a fair competition under the free market system, why wouldn’t that be a better choice? It did not happen before due to the intellectual power that Wall Street had long held for them to hold our nation hostage. Wall Street always seem to have the money power and political power to suck even more talents to feed on their own success. That is the situation that needs to be changed, through competition, not revolution!

Why can’t we try to bring the brainy power from Wall Street back to Main Street and have them work for common people on Main Street? If we could deploy these new equity sharing based housing finance innovations of FARJHO and SwapRent provided by PeoplesAlly Foundation through the credit union industry and the local community banks to compete directly with Wall Street with their dysfunctional mortgage securitizations system and their loan shark culture to beat the hell out of them, wouldn’t that be a more glorious battle to fight for?

If protesting could do anything for the OWS folks why don’t they focus on rallying the political power to make sure Main Street could have a level playing field to compete intelligently with Wall Street in their own games of finance in order to bring the housing finance business back into their own hands and manage it intelligently to create wealth for themselves on Main Street?

As I said before, the OWS folks may be able to occupy themselves with many more new jobs created by these new equity sharing FARJHO and SwapRent related business opportunities and in the process, they could also get themselves much more decent and comfortable shelters on Main Street through FARJHO and SwapRent than simply sleeping in cramp tents in Zuccotti Park or other city squares.

Filed under: Credit Union Industry, Economic Viewpoints, FARJHO, Federal Government, Housing, InvestorsAlly, Mortgage, Occupy Wall Street, PeoplesAlly, SwapRent, , , , , , , ,

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