How can FARJHO help you?

Introducing FARJHO services at PeoplesAlly Foundation.

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Introduction to PeoplesAlly Foundation

PeoplesAlly Foundation is a 501(c)(3) non-profit organization (EIN 45-2772047) since June 24, 2011.

Contributions would be tax deductible. Please make a donation and join us as a member. The membership form could be downloaded here.

https://www.box.com/s/7iubyhe51q888xrba8kn. Thanks.

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PeoplesAlly Foundation Manifestos:

  • 1. Assisting low income working families on how to increase housing affordability under free market capitalism principles in order to help them obtain either full or partial home ownership through educational and counseling services.
  • 2. Increasing local neighborhood stability and social harmony through social innovations in new home ownership structures as well as new housing finance concepts and methods.
  • 3. Helping maintain free enterprise capitalism through advising working class people on how to avoid exploitation and obtain their unfettered fair share of the economic benefits of capitalism.
  • 4. Becoming the intellectual ally behind the people and making the capitalist’s ideas work for the working class as well.
  • 5. Marrying the free enterprise capitalist’s brains with the socialist’s hearts to take care of those who are less equipped to compete.

Introduction:

PeoplesAlly is a 501(c)(3) not-for-profit organization headquartered in Southern California that focuses on providing portable housing affordability to low income working families. Its goal is to provide neighborhood smart growth in local communities and municipalities across the country to enhance long term home ownership stability and social harmony.

The unique feature of PeoplesAlly’s services to assist the working class people is that the innovative economic solutions will all be conducted on a pure free enterprise capitalism basis with very little government’s or taxpayer’s involvements other than the government’s role as a game keeper and legal regulations enforcer.

PeoplesAlly attempts to accomplish these objectives through providing consumers with more free market based choices and alternatives. Many of its innovative services are based on the equity sharing and/or cash flow sharing concepts that do not rely on the use of debt. Borrowing should not be the only way to own homes!

PeoplesAlly provides free market based matching services to aspiring homeowners and prospective property investors for a new creative and innovative housing ownership structure called Flexible And Reversible Joint Home Ownership, or FARJHO (SM). In addition, it offers assistance in portable housing affordability for low income working families through a new form of alternative housing finance system based on the SwapRent (SM) related concepts.

The services offered by PeoplesAlly will be provided to qualified low income working families on either reduced fees/commissions or a pro bono basis in order to qualify for a non-profit organization status under State laws.

In the US, homeowners and property investors or a group of property investors hold joint equity ownership in the property of choice through a Limited Liability Company (LLC) legal structure. The homeowner in a FARJHO (SM) pays market level rent to the FARJHO LLC that he co-owns during the course of the joint ownership period. The rent income will then be proportionately distributed to each of the members of the LLC, including the partial homeowner/renter himself/herself.

Throughout the joint ownership period, as a free market choice, tenant/partial homeowners could flexibly and reversibly make SwapRent (SM) transactions with any of the property investors in order to gain further economic home ownership that provides future appreciation potential as well as the associated downside depreciation risks.

Property investors in a FARJHO (SM) could also optionally make SwapRent (SM) transactions, either acting as the “Economic Landlord” investor or “Economic Tenants” at REIDeX.com, which is the secondary marketplace for SwapRent (SM) transactions.

Development History of FARJHO and SwapRent from 2001 to 2011

Our Services:

PeoplesAlly helps both aspiring home owners find prospective property investors or groups of property investors based on a predetermined service fee for the matching services.

PeoplesAlly also acts as the syndicate manager to put together the joint equity ownership LLC that would carry the legal title of the interested property. Although not recommended, further prudent leveraging could be used for the LLC to acquire the interested properties at the discretion of the LLC members. This variation may let low income people to qualify for the conventional Shared Appreciation Mortgage or Shared Equity Mortgage applications. This should only be treated as a compromise and not encouraged as a service provided by PeoplesAlly.

PeoplesAlly’s commercial affiliate InvestorsAlly, Inc. acts as a secondary marketplace for the fractional interests in the joint FARJHO LLC ownership by the members whenever legally permitted and practicable under the state laws.

Property investors and the tenant/partial homeowners in a LLC could then have a way to individually liquidate earlier without the ultimate dissolution of the FARJHO LLC as a better alternative when permitted by the state laws.

Our inaugural matching services will officially launch in the State of California soon. Please sign in the guest book and leave your contact details in order to receive future email notifications.

A bi-weekly educational wine and cheese reception is held between 5 pm to 7 pm on every other Thursdays at the foundation’s Newport Beach headquarters.

A separate educational morning seminar on FARJHO (SM) and other alternative purchase options is also conducted every other Thursday mornings at the Newport Center, near Fashion Island Mall.

Please sign up for receiving an invitation to these events.

0819 2010 How and when to apply the new FARJHO (Flexible And Reversible Joint Home Ownership) structure?

The following information is on how to apply the new economic concept of the separation of shelter value (use value) and the investment value (economic value) of a conventional ownership of a real estate property. For more details please visit our commercial site at http://www.InvestorsAlly.com or our non-profit operations at http://www.PeoplesAlly.org to assist low income working families with increased housing affordability and enhanced neighborhood stability.

Example 1 – From aspiring home owner’s perspective:

A home seeking person who currently rents identifies a property in a geographical area of his/her choice. He/She has the 10% of the property in cash from his/her own savings and would like to seek to jointly own the property with other investors as the ideal home owning structure.

The reasons could be because that he/she may not have enough monthly income to qualify for a conventional mortgage, prefers to use the discretionary monthly income for other household expenses, does not think the property value may increase in the near term, for his/her particular religious belief that rejects the lending/borrowing concepts or simply any other personal preferences.

He/She commits to pay a pre-agreed rent to the FARJHO LLC that holds the title of the property for a specific period of time. The remaining 90% property ownership could be shared among up to nine other individual, corporate institutional or even governmental entities.

Example 2 – From joint property investor’s perspective:

A group of investors have identified and bought a particular single family house at bargain price through a syndicated LLC structure either through a short sale process or from a bank’s REO portfolio.

The syndicator of the FARJHO LLC tries to find a long term renter of this single family house in order to generate stable long term rental income. Many renters do not commit to the long term and do not usually care about the houses that they rent.

The syndicator/property manager makes an offer to a qualified renter who has the ability to pay for a small percentage of the property value and invites him/her to join the LLC as a minority stake holder/member himself/herself. Once the renter becomes the minority homeowner, he/she may intend to stay for the long term and would treasure the property and take good care of it as thought it were his/her own. In fact it is indeed his/her own, albeit partially. Although he/she does not have the economic income capability normally required to own the property entirely he/she gets to enjoy the high quality home in the neighborhood of his/her choice.

Through buy/sell agreements between LLC members, the homeowners could increase his/her equity ownership through buying existing member’s interests. Alternatively, he/she could use SwapRent contracts to do so when they become available at REIDeX in the near future. In the worst case scenario, he/she could also become a LLC member in another property in the same neighborhood whenever he/she has the increased economic ability to do so and would like to have more investment exposures.

Comparing with conventional commercial property investments, FARJHO offers property investors less worries about vacancy and expenses. The investor’s SGI (Scheduled Gross Income) equals to his/her GOI (Gross Operating Income) and also to his/her NOI (Net Operating Income) since both annual vacancy loss and expenses are most likely zero in a FARJHO structure.

Example 3 – Current application opportunities in the US:

A homeowner currently has a deeply underwater house. He/She contemplates a strategic default on his/her own house but does not like the idea of becoming an apartment renter. A buy-and-bail strategy sounds more appealing to him/her. He/She could use an all equity based FARJHO (SM) structure to become the minority owner/renter of an alternative property in his/her neighborhood before he/she begins discussions with his/her current mortgage lending bank to give up his/her existing homes in either a short sale or a flat out walkaway foreclosure.

The strategic defaulters usually could not secure another mortgage to buy another comparable home before or after he/she walks away from his/her existing home. To qualify for a new mortgage on a second home, he/she has to either have 30% net equity in his/her existing home or a very large fully documented monthly income to qualify for the mortgage payments of two homes. This is often not the case with most upside down homeowners.

An all equity based FARJHO co-ownership structure makes it convenient for a smoother transition to a long term comparable or even nicer and often more spacious home through a partial equity ownership without having to lose the homeowner status by becoming a conventional apartment or house renter. It may turn a somewhat embarrassing, face-losing event into a move-up in prestige as a partial owner of a much bigger and nicer house!

Example 4 – How to use borrowing (through Borrow-Pool-Buy, BPB method) to achieve leveraged higher investment returns under FARJHO:

In a FARJHO transaction, each individual member co-owner can decide whether to borrow for their portion or not. Cash rich investors do not have to borrow. No group decision or action to borrow together is necessary. If some of the co-owner members want to borrow individually for themselves, then the borrowing leverage (LTV) is up to each of the members individually and their individual lenders using the percentage ownership in the legal entity or the corporation as the collateral.

So let’s say a home which is worth $100,000 is being bought by a FARJHO LLC. Three members, A (20%), B (40%) and C (40%) pooled the capital to form the LLC to begin with so that the LLC had the money to buy the home. LLC did not and will not borrow any money or use the property as collateral to borrow any more money. Since neither the FARJHO LLC nor the home property itself owes any money, therefore there is no possibility of a foreclosure of the home property, ever!

Member A was supposed to be the home occupier (AHO), so he pays the LLC a market based rent every month for 3 years say in a 3-year lease as an example. It could be any lease maturity and will be determined by all the members in the LLC.

In terms of borrowing, Member A did not borrow to come up with the $20,000 since he would not want to pay a loan payment in addition to the rent payment very month. Member B does not like to be burdened by the debt service so he did not borrow to come up with the $40,000 cash either. Member C likes to punt and strongly believes in using leverage to achieve high returns. On the other hand, he does not have enough money for the required $40,000. Say he only has $10,000 in savings so he borrowed $30,000 from a lender using his 40% share or member interests in the LLC as the collateral for the lender. The leverage that Member C uses is 75% LTV of his partial member interest in the LLC and his down payment equals to 25% of the value of that partial member interest.

So in the example above, cash was used to purchase the property entirely and no borrowing using the property as the collateral was involved. Borrowing activity, if any, will be conducted only at the member level at each member’s discretion only. That is exactly the spirit of the new FARJHO concept and method to own homes, irrespective which country the homes or the home owners are located.

Example 5 – Section 8’ed FARJHO – AHOs who are Section 8 rent payment assistance recipients

A current Section 8 rental assistance payment recipient inherited $50,000 from his parents. She does not want to put it in the stock market or any mutual funds which she is not familiar with and she thinks those Wall Street stuff are too risky. She wanted to use it to buy a home but the amount is not big enough to buy in an all-cash deal. She can not use it as a down payment to borrow any mortgage because no lenders would be interested in talking to her due to her low income status. The lenders do not believe that she could generate enough monthly income to service a mortgage payment.

She heard about the new Section 8’ed FARJHO program from the local housing authority from her city. She found out that she could team up with a few free market based Joint Property Investors (JPIs) to form a FARJHO LLC to buy a home together and get the new home qualified as a Section 8 property. She could then simply apply the rent payment assistance from the existing Section 8 program as the rent payments to the FARJHO LLC. In this way she would not only just be a renter but also become a partial home owner under this FARJHO arrangement.

Since she is not restricted to renting from a multi-family apartment complex in the run-down districts only, she decides to buy a REO single family house from the Fannie Mae Homepath program in a decent neighborhood as her dream home. The cost of the house is $300,000 in a city in Southern California. In this FARJHO structure she would own 1/6 of the equity ownership of the FARJHO LLC.

The remaining balance of the house price was paid by five other free market based investors. Investor A and B who put in $30,000 each are individuals using their retirement money in their respective IRA accounts. Investor C who put in $100,000 is a local public employee pension fund. Investor D is a foreign individual and he put in $40,000. The remaining $50,000 was put in from an individual property speculator who prefers to use leverage to enhance the potential investment returns. He put down $10,000 cash and borrowed $40,000 so that he could deduct the interest expense for this investment.

The Section 8 recipient gets $1500 monthly rental assistance from HUD every month. She contributes an additional $200 so her total monthly rent paid to the FARJHO LLC is $1,700. This equates to an annual rental yield of 6.8% to all members of the investor group in the FARJHO LLC which the Section 8 recipient/renter herself is also a member of. That is her annual investment income for each year she stays in as a 1/6 interest member. In addition, she will also enjoy the financial value of 1/6 of the potential appreciation of the home property.

The free market based investors are interested in teaming up with the Section 8 recipient over other regular higher income AHOs because they might think, rightfully or wrongfully, the credit risk is much lower since the bulk of the income rent payments would come from the assistance of Uncle Sam!

0522 2013 FARJHO is the answer to Rep Loretta Sanchez’s question to Fed Chairman Bernanke today.

In Bernanke’s testimony today, Representative Loretta Sanchez asked about how middle class families who had lost their homes in the downturn have been unable to regain home ownership in the current housing price run-up made happen by the new hedge fund land lords.

Immediately following that, Senator Mike Lee asked Bernanke about the potential danger in repeating the previous credit bubble by the current loose monetary policy and easy credit again pop up the housing sector.

I am glad to see that the politicians will finally start realizing the problems with the Fed’s monetary policy and the Administration’s housing policies. I think they both may want to read my recent previous blog posts below to find the answers to their questions and assume a leader role to take the necessary actions with FARJHO to correct these serious middle class home ownership problems in a timely manner. It would be nice if only they could start watching the short introductory video about FARJHO to begin with. http://www.youtube.com/watch?v=UV0hUjAGUZg

Anybody who knows them, please feel free to forward this post to them. Thanks.

0403 2013 Let ex-middle class propertyless Americans co-prosper with the property investors through FARJHO

I watched David Stockman’s recently comments on TV about the phony money economy and the great recovery of the 1% created by the Fed’s money printing. I can’t agree with his thoughts more.

As I also said in many of my blog posts before, if the Bernanke-led Fed loves blowing bubbles so much, why did they (including Ben himself) even bother to rush to pop the previous bubbles back in 2004 to 2007 to create the financial crisis to begin with? It could have been managed in a soft landing without those bold moves to raise interest rates back then. Innovations in economic methods and tools could have made a major difference if only they were willing to learn a few new things.

Equity sharing concept has been around for quite some time. All that was needed is a better mousetrap in new business methods to implement that old simple concept. If they had applied themselves to conduct more innovative research and thinking they could have come to some solutions similar to the FARJHO structure invention themselves. Since that is not the case, it has made the FARJHO method much more difficult to be adopted since it was not invented there.

Now that they have created the havoc in 2008 that has made many parts of the Western world’s economy upside down ever since. The prescription they have given to our dilapidated Main Street economy was nothing more than to go back to blow yet more bubbles all over again on Wall Street, and with the might of a nuclear arsenal to re-inflate a phony economy in a way that would make Greenspan’s previous loose monetary policy looks like blowing a small bubble gum.

The net result of this whipsawing interest rates induced flip-flop instability of ours and the global economy they have created from popping and re-inflating the bubbles is the quantum shift of our nation’s property wealth from the 99% to the 1%. Ex-middle class Americans lost their homes when the Fed blindly popped the bubbles without any rescue plan for the aftermath. Now with the extreme low interest rates to re-inflate the economy that only the well-connected institutions and the wealthy individuals left from the aftermath could benefit from, properties were snapped up by these elite property investors left, right and center. Whatever happened to the government’s lofty goal when they setup the GSEs to help American citizens to realize their American dreams of a home ownership?

We plan to launch the FARJHO services under our non-profit organization PeoplesAlly Foundation as well so that low income working families could also enjoy the new benefits of FARJHO. Hopefully we could do our share to help restore the ex-middle class Americans back to be property owners again. Please help support our membership drive crowdfunding campaign at http://igg.me/at/PeoplesAlly/x/2666771 .

There would also be many opportunities for institutional investors to work with us in this mission. They could either partner with us to set up many co-branded series of FARJHO Funds in different geographical area as seed funds to show case to free market investors the enhanced economic benefits or they could simply set up their own funds to co-invest in the FARJHO programs that we help the low-income homeowners with. The Fund does not have to be non-profit itself. The Fund will simply selectively invest in the non-profit Foundation’s FARJHO projects on a pure free market basis.

It is indeed an opportunity to do well while doing good for these participating free market investors. In this way, it also helps us keep our efforts on a pure free market basis as well, which is central to our belief that capitalistic methods could be more efficiently and effectively used to achieve social goals.

0315 2013 PeoplesAlly Foundation’s crowdfunding project on Indiegogo

Please help support PeoplesAlly Foundation’s crowdfunding project on Indiegogo. Contributions are tax deductible.

http://igg.me/at/PeoplesAlly/x/2666771

PeoplesAlly Foundation is a 501(c)(3) not-for-profit organization headquartered in Southern California that focuses on providing portable housing affordability to low income working families and helping regular middle class home seeking Americans to own homes without the use of debt.

Its main service is an innovative creation of a new home co-ownership structure called FARJHO (Flexible And Reversible Joint Home Ownership). PeoplesAlly Foundation helps educate the public and promote the awareness of the availability of alternative free market choices for consumers to own homes without incurring debt.

Through its affiliation with the online home equity crowdfunding portal site http://farjho.com as well as the offline FARJHO Funds, it aims to ultimately conduct FARJHO matching services in conjunction with the efforts of the state and local housing agencies. A dedicated website http://wehomeowners.org will be set up to serve as the portal for the foundation’s members.

 

 

0304 2013 FARJHO offers a unique ability to curb wealth distribution inequality through home co-ownership

Although FARJHO was not created specifically with the egalitarian motive for helping the poor but rather a creative win-win free market based solution for both the aspiring home owners with less financial means and the well-to-do property investors to build wealth to co-prosper together, the equity sharing nature of FARJHO does offer a timely help to prevent further inequality in the wealth distribution among our country’s citizens under our current economic situation.

I refer back to the proposal we had submitted to FHFA back in September, 2011 in response to their public RFI, https://www.box.com/s/hpfqqajd1aremco716lr . The proposal was primarily for the GSEs to consider selling the single family homes in their foreclosure portfolios to both retail aspiring home owners and the Wall Street hedge funds or DC private equity firms together as fellow FARJHO LLC members for each single family home, one home at a time, rather than selling these single family homes in bulk, at heavily discounted prices, only to those well-connected hedge funds and private equity firms as profiteering middlemen.

Rather than treating the ex-middle class American families as the new serfdom renters to those new noble PE and hedge fund landlords via selling our national assets (these foreclosed homes are owned by the government sponsored Fannie and Freddie via our tax money), the GSEs could use FARJHO directly to sell equity stake in each single family home directly to both the PE firms, hedge funds or crowdfunding investors and aspiring homeowners who could not obtain a mortgage, at the same price, on the same terms and at the same time so that no rich fund operators need to become the new landlords and no property speculators who have access to easy credit need to buy at deep discount in bulk from the GSEs in order to flip the properties before these single family homes get to be rightfully sold to the home seeking end users.

Somehow the built-in democratic wealth distribution inequality correction features of FARJHO have not been properly understood and adequately communicated to the public over the years so far since its creation in 2009. As a result, hedge funds and private equity firms continue their feasts on buying up the single family homes left and right to become the new landlords in our economic society. The ex-middle class (and now homeless or propertyless) Americans continue to be told that the Fed’s low interest rate policy and the Administration’s housing policy have worked magic in bringing about a great economic recovery in American housing sector and they actually need a pat on their backs for the good jobs they have done for our country.

Meanwhile, the fleecing of the GSE’s foreclosed single family home portfolios continues. Isn’t it the greatest heist of the American wealth by the concentrated privileged few, while aided by the government’s misguided economic policies, right in front of our eyes? I think we do urgently need some politicians who could understand what FARJHO is and what the new FARJHO related home ownership solutions could provide in order to help curb these serious problems of furthering inequality in wealth distribution among our citizens caused by the current abusive government housing and interest rate policies in a timely manner.

For more introductory information on FARJHO and how it works please click on the following link to my draft paper on FARJHO, https://www.box.com/s/n4sg1odf8su6fmfhrv21 or visit http://InvestorsAlly.com and the home equity crowdfunding portal site http://FARJHO.com .

0202 2013 Two simple FARJHO application case scenarios

Here below are two case scenarios taken from the http://FARJHO.com site. It illustrates the value propositions of FARJHO fairly well I think.

1. Example Case for Aspiring Home Owners (AHO)

Jennifer is looking to purchase a house in Houston, Texas. She has identified a property in a nice neighborhood of her choice. The listing price of the property is $360,000.

Jennifer has $72,000 in cash as the 20% down payment for a conventional home mortgage. However, for whatever reasons, no lender is interested in lending to her at the moment. She does not want to lose the opportunity to purchase the house as a dream home and she no longer wants to continue to rent an apartment or even a single family house without benefiting from the potential rise of house prices since everyone on TV news seems to be talking about a housing market recovery these days.

She understands the new business method of FARJHO using the old property equity sharing concept could be something suitable for her situation. After doing her own research she realizes that by being a partial owner to own a home through equity sharing she would no longer be able to get the entire leveraged returns as she could have by using a conventional mortgage to own a home. She would only be able to get the percentage of the potential price appreciation of the percentage of ownership that she has in the home property.

On the other hand, she would also lose only the portion of the potential property value depreciation of her percentage ownership when prices do not turn out to go up as most people would expect. She thought that these basic shared equity financial arrangements was fair and she knows she could always buy more units of investment in home equity either in her own home property or in other people’s home equity in the future when she has accumulated more savings or gets an big bonus from her job. Whether she will actually do that will become a pure investment decision at that time.

Meanwhile, as a tenant and partial owner of the home property that she will occupy, she would enjoy much more security and stability under the FARJHO LLC that she would negotiate with the potential joint property investors on a pure free market basis. She does not need any charitable preferential treatments, guarantees or any handout assistance from the government.

Jennifer signs up at FARJHO.com and launches a FARJHO funding campaign project for one month. Since she already has the $72,000, She would only need to raise $288,000. She decides to raise the fund through a handful of crowd investors. Upon securing the investment commitments from the potential investors, she gets assistance from the company to form a FARJHO LLC to acquire the property that she had identified. After the purchase is complete, she starts to move in and pays rent to the FARJHO LLC that she partially owns with the other joint property investors.

2. Example Case for Existing Home Owners (EHO)

Robert, Amy and their children have lived in a beautiful house in a nice neighborhood in Souther California for the last 20 years. Their house is currently worth about $500,000 as determined in a BPO analysis conducted by a real estate agent’s office that they know well.

Robert and Amy have a mortgage on the house with an outstanding balance of $300,000. That means they have about $200,000 in home equity in their house which equates to 40% of the house value.

Robert and Amy’s oldest son David was going to attend college after the summer. They would need to prepare about $100,000 for him to attend college for the next four years. They decided to tap into the home equity of their house.

They looked into the possibility of obtaining a home equity line of credit. However, they do not have sufficient income to support a credit line of $100,000. Even if they do, Robert and Amy do not feel comfortable to add another monthly debt service commitment to their current monthly expense budget and bear the risk of a potential foreclosure in case Robert loses his job.

They do not want to sell the house in order to tap into the home equity that they have in the home property and they definitely would not want to move away from the family house which has a lot of sentimental value to them.

Robert and Amy went on-line and discovered the homeowners social networking portal WeHomeowners.com and its sister crowdfunding portal FARJHO.com which became operational in 2013. They opened a free member account and uploaded some nice photos of their home property to initiate a crowdfunding project to raise $400,000.

Of the total amount raised, $300,000 was meant to pay off the outstanding balance of their existing home mortgage. They did it through forming a FARJHO LLC structure where they would keep $100,000 as the 20% home equity in the house together with other joint property investors which contributed the remaining 80% of $400,000.

After the FARJHO LLC has acquired the title of the home property from Robert and Amy, they started to pay a pre-agreed market rent to the FARJHO LLC of which they are a 20% co-owner with the other investors who had contributed the $400,000.

After all the dust had settled, Robert and Amy were left with the cash of $100,000 that they needed to put aside for their son to start his comfortable and secure four-year college life.

Robert and Amy know that if they end up with more cash in their hands in the future from either daily savings, Robert’s year end bonus from his job or even Amy’s diligent weekly lottery tickets buying activities, they could always become investors themselves any time to flexibly and reversibly buy some more home equity units either in their own house again and in other people’s homes through FARJHO.com but that would really become purely another investment decision at that time.

After a few years, Robert and Amy indeed have accumulated more cash. However, they did not feel a need to buy into more home equity of their own house any more since they have already had the full 100% use of the home property. Why bother?

Nobody could kick them out as long as they continue to pay the monthly rent to the FARJHO LLC that they themselves partially own. They are not obligated to have this new cash get stuck back in the house again, although that could always remain an option to them.

Furthermore in the eyes of their family and friends, they still enjoy the prestige of being a homeowner. They can’t think of a reason why to put this new money back into their own house again. In fact, there could be many other alternatives for them to consider to put these money into a much better use.

They have finally started to understand what it really means that FARJHO could separate the shelter value away from the management of the investment value of owning a home.

After their son David graduated from college, Robert and Amy decided to use that cash to help David purchase a condo in New York City where David had obtained a job.

0126 2013 Differences between FARJHO, Shared Equity Mortgage and the LLC syndication for commercial properties

This is a very commonly asked question and has been addressed many times before in the blog. Here is a short recap. In short, the main difference is in the way to use leverage under the different structures.

Although both FARJHO as a new home ownership structure and the pooling of capital to make a commercial property investment both could employ the use of a simple LLC legal entity to accomplish their respective objectives, the outcomes could not be made more different due to their respective very different objectives!

In the conventional commercial real estate investment, the use of an LLC entity is to pool enough money so that the group of investors could borrow as much as possible in order to potentially achieve higher leveraged returns (or leveraged losses, it works both ways!). The objective of the use of an LLC is to shield the individual member investors in the LLC from the potential liability to the lender in the event of a default which may be caused by insufficient income cash flows from the property in the future. This conventional way to use borrowing to make real estate investments is described by a new term that I had created a while back called Pool-Borrow-Buy (PBB).

FARJHO, on the other hand, is employing a newly created alternative method under a new thinking called Borrow-Pool-Buy (BPB) to make investments in single family homes.

The advantage is that for investors who love to use leveraging for investments could still use borrowing, but only at an individual LLC member level under a FARJHO transaction, not at the group LLC or property level as how it was always done in a conventional mortgaged home ownership. As a result, FARJHO introduces a newly created social value by increasing the home occupancy stability for the renter/co-owner in a FARJHO LLC structure. This is simply because there is no mortgage, i.e. using the property as a collateral to borrow money, under a FARJHO structure and hence the home will never face the risk of a foreclosure by any lender.

Such a simple innovation in concept and practice could help us universally eliminate the foreclosure possibility in home ownership in our modern economic society, no matter where the home owners lives in the world.

As for the conventional shared equity mortgage, shared appreciation mortgage, and shared ownership mortgage, … etc. as most popularly practiced in the UK and to a small extent in Australia, although they do not use an LLC legal entity, the objective of the share equity component is still to pool enough money so that the shared owners could use that pooled money as a down payment to borrow a mortgage using the property as a collateral again to buy the home, i.e. another Pool-Borrow-Buy (PBB) method that will be subject to property repossession risks. This PBB practice in these old style shared equity mortgages is nothing different from how commercial property investors use an LLC structure to pool money, borrow and buy properties. The evil of the potential risk of foreclosure still exists. These old shared equity mortgages only introduce more lending and ownership disposal complexity without contributing much to housing affordability due to its limited acceptance by the lenders.

In FARJHO’s case, this lender’s dictatorship and the ownership complexity do not exist. Flexible and reversible shared home ownership under FARJHO could eventually be done as easily as buying and selling of a stock in a private or a publicly listed company on an exchange.

Lenders pretty soon would discover that they could easily develop a new profitable business by embracing this new “security-lending” business opportunity using LLC member interests as collateral at the member level instead to FARJHO LLC members.

For those old school mortgage lenders who would like to hang on to the old way of doing home mortgage business would also soon find out, to their pleasant surprise, the credit quality of their mortgage borrowers would be much better than before since the lesser credit borrowers may have all gone through the new equity sharing route and absorbed by using the new FARJHO structure. There seems to be no need for the lending banks to make more ill-conceived inventions such as a teaser rate or an Option-ARM to subprime borrowers any more.

It would indeed be a win-win situation for everybody.

1202 2012 Conference speech – FARJHO as a solution to the scaling problem for property investors

I spoke last week as a panel speaker on the scaling issues for investors at a conference for institutional investors to treat single family residences as a new asset class for institutional investment. The conference is dubbed “Single Family Aggregation : REO to Rental Forum – A Forum for Private Equity, REITs, Institutional Investors and Bank Rent-to-Own Programs” organized by IMN on November 29 to 30 at Scottsdale, AZ, http://www.imn.org/Conference/Single-Family-Aggregation-Strategies/Short_Agenda.html. The following link is a copy of my presentation slides “Introduction to FARJHO and SwapRent”,
https://www.box.com/s/wmyjnwhzm8yagrf9gjkx.

Until today, institutional investors such as corporate pension funds, insurance companies, university endowments and non-profit foundations have not been able to treat the single family homes as a separate investment asset class. What is the main reason?

Single family homes, unlike a multi-family residence apartment building, are usually spread out in many different sub division development projects in the suburbs. The management of the entire operations that include the maintaining each individual property with its own landscaping and the dealing with the tenants are usually much more demanding and difficult to handle. As a result, the annual yield derived from the rental income for institutional investors would be reduced for the increased cost to manage these diverse groups of properties spread out in a larger number of geographical locations.

In addition, the turn-over of the renters for single family homes would be much higher since over the past decades, with the easier credit and low interest rates, eager mortgage brokers have found tenants of single family homes as easy preys to sell a mortgage to. “Why rent when you could own at a cheaper cost?” Owners of single family homes hoping to rent would have suffered from much lower annual rental income yield due to the high renter turn-over and higher operational cost for the property maintenance. That by the way also seems to be one of the major reasons why our country has had the sub-prime mortgage induced economic problems at the moment.

The new FARJHO invention which basically turns renters to become co-owners with the property investors at the same time, seems to have solved these problems by killing the two birds in one single stone for property investors. Since the renter would have a vested interest as a co-owner with the other joint property investors in the FARJHO LLC that owns and holds the title of the home property – vacancy will most likely be near zero and the cost to hire a third party property manager is totally eliminated. The renter who is also a co-owner of the property could become the best property manger, care taker, house sitter, business partner for the rest of the joint property investors than a pure renter without an equity interest in the property would ever be. To understand this better, simply ask yourself when was the last time you ever washed a rental car? This seems simply to be another way that the invisible hand of Capitalism is at work again.

As result, both retail investors and institutional investment funds would no longer have to worry much about either potential vacancy or incurring the expense of hiring a third party property manager any more since renters would have a skin in the game with the other investors, and hence, much secured higher yields derived from rental income for all the property investors.

What we plan to do is to use our technology platform at http://FARJHO.com to act as a service provider to institutional funds, accredited investors and/or retail investors from the crowd, i.e. crowdfunding, to find like-minded aspiring and existing homeowners who are interested in the all cash based FARJHO transactions to co-own homes across the country without involving anything related to the conventional home loans or mortgages. The timing will be subject to the successful publication by SEC of the Crowdfunding Rules under the JOBS Act which has been scheduled at the beginning of January of 2013.

In parallel, a currently work-in-progress project of a homeowner’s social networking portal http://WeHomeowners.com or http://WeHomeowners.org will also be set up under our 501(c)(3) non-profit PeoplesAlly Foundation (http://PeoplesAlly.org) for existing homeowners who may consider switching to FARJHO home ownership structure some time in the future. This may even allow the Section-8 tenants to own a small piece of the home equity of a single family home anywhere of their own choice via a Section 8’ed FARJHO that I had blogged about before, instead of having to rent only in a multi-family apartment located at a run-down neighborhood.

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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