Monthly Archives: February 2010

02/20/2010 Creating and a tradable equity market for homeownership and making SFR investable asset class for institutional investors

In the current market, through FARJHO, property investors as InvestorsAlly’s customers could expect around 5 to 7% or even higher current dividend yield while waiting for the market recovery and further price appreciation of US residential properties without worrying about vacancy or excessive annual operating expenses. The total return could be quite significant due to the potential price appreciation from many distressed and foreclosed properties.

The more popular this type of non-debt, fractional interest equity investment to attract fresh capital injection from around the world to jointly own homes becomes, the more likely the property market will indeed be restored to its previous value with a “non-leveraged stable growth” sooner. Homeowners would get to enjoy the social stability at the same time.

Academically, one of the main economic benefits that both FARJHO and SwapRent contracts, each in their different ways, provide to investors is to make Single Family Residences (SFR) income producing assets (with a stable positive yield like that of owning a rental apartment) and hence made investable by professional institutional investors. It would be a great way for pension funds and insurance companies to diversify their portfolios by extending the investment choices into currently the world’s largest asset class through these new innovative investment vehicles.

The state, county (and city) public employees and teachers pension funds would be the best candidates to become the anchor local institutional property investors to help homeowners to co-own homes through the new FARJHO concept in order to foster local economic revivals and continuing prosperity. They could of course resell those FARJHO LLC member interests to other free market investors at any time in order to regenerate and scale up the scope of available capital. Attracting fresh capital from around the world this way to local communities could certainly help the state, county and city governments fix their current budget deficits under a free market mechanism.

Policy-wise, the simple new economic concept is that people would need to start thinking outside the box, borrowing money to own homes should not be the only way to own homes. Promoting homeownership for social good purposes could also be accomplished through partial equity sharing, just like how corporate ownership has evolved in the last few centuries with the development of a stock market in each country. It is about time that we should seriously treat equity financing and developing a tradable secondary market of home equities as a viable way to promote homeownership.

In addition, with the introduction of the separation of shelter value from the economic value (or usufruct value from the investment value) of owning a real estate property by the new SwapRent related methodologies and its secondary market REIDeX, boom and bust cycles created by the investment value of properties and exacerbated by the abuse of lending/borrowing could easily be avoided and homeowners could get to enjoy the social stability as long as they stick to the shelter value part of their homeownership.

The interesting concept to note is that the residential SwapRent and FARJHO applications on Single Family Residences basically make SFR similar to investable income-producing assets like multi-family apartment complexes and should hence be treated like any other commercial properties for institutional investments going forward.

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