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.

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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%.