Category Archives: SwapRent Introduction

02/20/2011 The advantages of Cash Flow Sharing vs. Equity Sharing in stimulating our national economy

There have recently been growing number of people who suddenly realized that the simple “equity sharing”, “shared appreciation” or “shared ownership” concept of owning a real estate property could be a viable solution to our country’s mortgage lending or housing finance mess.

Few have had the “Eureka moments” yet about the fact that these simple economic concepts could be modified to create a new economic stimulus program to revive the economic prosperity of our country.

The learning process has been kind of long and the progress has been slow. We need much more people who have the media power or the access to op-eds at leading newspapers to endorse these simple ideas.

The disconnection of moving these shared appreciation related concepts from rescuing the housing finance crisis to further using them as economic policy management tools is due to the lack of the awareness of new innovations already available of some newer concepts and more importantly, newer improved “methodologies” to make implementing these “Shared Appreciation” goals feasible and practical.

That is where the newly invented “Cash Flow Sharing” concept and method come in and that was also exactly one of the key rationales behind the creation of the SwapRent(SM) contract back in 2006.

For more details about the SwapRent(SM) transactions, please visit the SwapRent.com home page again to have a more systematic way to the understanding of these new concepts and methods.

I would like to emphasize only one point here. As compared to the “Shared Equity” method where cash recipients could simply squander way to the new found up-front cash, “Shared Cash Flows” would allow Adam Smith’s “Invisible Hand”, not the capital providers, to have a better control on how the SwapRent(SM) cash flow recipients would utilize these new cash flows to invest more in local small businesses and to create more local jobs under free market based principles.

This is exactly what our country needs right now and it should always be the goal of any economic stimulus programs conducted by the governments.

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02/20/2011 It is not Keynesian. It is not Monetarist. Perhaps we could call it SwapRentism? Any better suggestions?

I would like to revisit the topic of “SwapRent as A New Alternative Economic Policy Management Tool for Governments” that was published at Larry Dolye’s blog, Sense on Cents – Navigating the Economic Landscape, on August 24, 2010.

The proposed concepts and methods in that article were first mentioned in my previously published article in the quarterly journal Housing Finance International of IUHF back in December of 2009. The essential points are that through the newly invented “Cash Flow Sharing” method of a SwapRent(SM) contract, Government could act as a conduit to channel private sector’s capital into local neighborhood communities as a new way of stimulating our national economy aimed directly at homeowners and small businessmen at the grassroots level.

It could bypass banks, Wall Street fat cats or any other types of financial intermediaries to avoid money being hi-jacked by them again. It could also be done totally without further leveraging with more debts. Free market based investors from around the world would get to enjoy the future partial “Shared Appreciation” of the properties in those neighborhoods that they have chosen to invest in, like a conventional equity investor on any other assets would.

This free market based economic stimulus solution is based on the true meaning of capitalism to solve the current economic ills of the Western economies by using a creative and innovative method based on the simple “Shared Equity” or more precisely, a new variation of a “Shared Cash Flow” economic concept.

No taxpayer’s money would be involved for economic stimulus so it would not increase any more budget deficits and hence, non-Keynesian.

No debt capital would be involved to inadvertently blow up further other asset bubbles either (like those unwise and fateful QEs would) and hence, non-Monetarist.

There is a need to create a new name for this kind of new economic concept and new business method to conduct economic stimulus activities to manage a country’s economy. The convenient name I came up with is simply “SwapRentism” at the moment. I would welcome any other suggestions for our consideration.

It is an unconventional and innovative method of plain equity capital based economic stimulus program for various levels (federal, state and municipal) of governments to adopt. It could also be used in conjunction of any other conventional economic stimulus programs to avoid political or personal ideological resistance.

The old time economists and behind closed door economic policy makers may have to swallow their pride, come out of their cocoons, open up their minds and learn something new, for the benefits of our human societies.

11/06/2010 Equity Sharing vs. Cash Flow Sharing and FARJHO vs. SwapRent

This blog entry first appeared in InvestorsAlly.com blog on November 5th, 2010.

There seems to be still a lot of confusion on FARJHO and SwapRent among people who are new to the “equity sharing”, “fractional interest”, “partial ownership”, “shared equity”, “shared appreciation” and/or “shared ownership” concepts.

As mentioned before that both FARJHO and SwapRent represent the latest inventions of business methods with practical applications in the long evolutionary process of these “shared ownership” related economic concepts as applied to real estate properties and home ownership. Improved business methods, not economic concepts, are patentable under the US and many other developed countries.

http://www.InvestorsAlly.com was created to become the primary and secondary market for FARJHO/LLC member interests. InvestorsAlly provides a peer-to-peer matching service through a new improved business method based on the conventional simple “equity sharing” concept to own homes.

Among many other features, the key difference between FARJHO and all other previous methods employed by other companies are that FARJHO is an all equity based home sharing, while all previous other efforts before FARJHO were focused on a “equity down payment assistance” kind of concept to help potential home buyers to borrow mortgage to own homes. Under those primitive equity sharing schemes, homes could still be foreclosed when the the joint equity owners can not keep up with the monthly debt service and therefore the social stability factor was not introduced in all those earlier shared equity offerings that were available both here is the US and abroad before the introduction of FARJHO.

Since FARJHO/LLC structure discourage borrowing once the FARJHO/LLC is formed to purchase the homes. It would be an all cash deal for the newly created FARJHO/LLC to buy homes. There would not be any foreclosure possibility and hence the social stability could be achieved for the benefits of the tenant/partial home owners.

Individual members to the FARJHO/LLC structure could of course borrow before (and sometimes after) a FARJHO/LLC is formed in order to enhance the leverage of their own individual investments if they wish to. When they lose the monthly income capability they could simply drop off the FARJHO/LLC and be replaced by another new member without endangering the home occupancy status of the tenant/partial home owner.

http://www.REIDeX.com was intended to be the secondary market for a simplified consumer version of property derivatives or an innovation of a new breed of property “cash flow sharing” products, i.e. the SwapRent contract. We have been trying to work with the federal, state, county and city governments as well as some industry groups in this effort since 2007.

Unlike the conventional way of using a “shared equity” or “equity sharing” method to accomplish the shared appreciation objective, a SwapRent (SM) contract was invented to use a ground breaking innovative business method of mathematically quantifiable “shared cash flows” or “cash flow sharing” technique to accomplish the appreciation sharing objective of owning a real estate property. This has created tremendous flexibility in its implementation and commercialization.

For a review of the academic research background and theoretical foundations on SwapRent please visit the home site http://www.SwapRent.com again.

10/01/2010 The Shared Equity, Shared Appreciation and Shared Ownership Concepts vs. SwapRent (Shared Cash Flow) and FARJHO (Shared Equity)

It is quite encouraging to learn from recent news that there seems to be more and more people who have come to the realization of the power of the simple economic concepts of shared equity and shared appreciation to own homes. It may be time to revisit some introductory explanations again on what SwapRent and FARJHO mean relative to these shared equity and shared appreciation concepts. It may be helpful to let people understand where SwapRent and FARJHO stand and how they could effectively help implement these shared equity or shared appreciation related economic concepts.

Most people who are new to these concepts can not distinguish whether it is the new “concept” or the new “method” that they are learning. It could be very difficult for them to distinguish the two if both are new to them. At the moment most people are simply amazed at what the new concepts could do to help us build a new alternative housing finance system and to help restore our national economy.

Usually, only after they have had a chance to learn the “concepts” well from reading about the potential applications of SwapRent and FARJHO then it would be easier for them to start asking questions and learning what business methods may be best to make these concepts a practical reality. That is when they could really start appreciating the quantitative, technical and systematic details of SwapRent and FARJHO that I have put in more than 10 years of research work to develop. An economic concept is not patentable but business methods are.

To use an analogy again, a generic concept of “mechanic transportation” could be new to people who used to ride horses only in the old days. They would not be able to tell the economic utility of an electricity battery motorized SUV from that of a bicycle as both are mechanical, both have wheels on them and both fall into the “mechanical transportation” category that move people from one place to the other.

Due to the fact that the whole concept is new to them they would not be able to know that the end products are actually results of very different “business methods” to implement the same simple generic concept at very different evolutionary stages. To put even more bluntly, if a person who does not speak French, he or she may not be able to tell a baby gibberish from a poetic recital in French simply because both sound new and foreign to them.

Shared equity and/or shared appreciation related generic concepts are not new and they have mostly been practiced in the UK for over 30 years. Most recently in the US and Australia we had also seen some commercial ventures back in 2007 trying to introduce those same old methods before the mortgage crisis started. These concepts have not caught on simply because those primitive business methods engaged in the UK and more recently in Australia and the US to provide the economic benefits to consumers were not good enough. There existed plenty of room for new innovations on new business methods in this field back then, similar to the opportunity of how Steve Job’s iPhone had potentially replaced Gordon Gekko’s Motorola platform shoe sized cell phone. Social sciences evolve just like technologies would.

That was exactly the reason why the deliberate research efforts of the SwapRent method, its subsequent simplified version of FARJHO and their related various new mortgage instruments and markets were originally embarked on and were subsequently invented back in 2006. These events were chronicled in the original patent applications back in 2006 and many subsequent academic publications or in many leading trade journals listed on the SwapRent.com web site. In short, SwapRent and FARJHO represent the more mature and the latest developments of “actual business methods” in the evolution spectrum of the “shared equity or shared appreciation concept” to own homes.

In fact, unlike the conventional way of using a “shared equity” method to accomplish the shared appreciation objective, a SwapRent (SM) contract has created a new class on its own to use an innovative business method of quantifiable “shared cash flow” to accomplish the shared appreciation objective of owning a real estate property.

Without the crisis in 2008 few would pay attention to and appreciate the timely new economic utilities of these new inventions of real business methods to make the simple shared equity concept practical and possible but these new inventions were not created in 2006 only to simply anticipate and cater to some particular needs of solving the crisis, such as rescuing the underwater houses. These new inventions together would provide an alternative housing finance system with many potential application opportunities that have very broad implications to our capitalism society.

Regarding the investor’s sentiments, the currently proposed economic implementation strategy to our country’s decision makers to help boost free market based investor’s confidence is to make it a self-fulfilling prophecy without using debt. The more free market participation the more likely the property prices will indeed rise, hence the more likely the economic prosperity will be brought back up, hence the more likely the investors will make money through SwapRent contracts and hence the more likely investors will flock to offer to provide the SwapRent cash flows to property owners who are willing to do this exchange of cash flows for appreciation potential. “Wealth begat wealth” is what self-fulfilling means in this new twist of an innovative implementation of the basic capitalistic mechanism.

The only caveat emptor is that when it is done with excessive debts, i.e. borrowed money, hell may break loose. As we have seen now and many times in our history in the past. So although this new economic policy management tool of SwapRent may be similar to how the Fed uses monetary policy to lower the interest rates to “stimulate the economy” or to “corner the property market up” in the past but there is no debt or any borrowing concepts involved this time around with this new SwapRent program.

Now that many people have understood the powerless state of the conventional monetary policy to channel credit down to the small businessmen and property owners in the local communities across America in order to restore our economic prosperity, perhaps it may be time to consider using some new innovative equity based home financing methods such as SwapRent to “stimulate the economy” or to “corner the market up”. These concepts and specific detailed methods on what the government or central banks could do were again described in the HFI-IUHF paper that I have published in December 2009.

The beauty of all these inventions is that these new economic benefits would be made available to everyone on a pure free market basis. Nobody would force anybody to accept and give up anything unwillingly. Consumers make their own choices for their own good and pay for what they want at a fair market value in an uninhibited marketplace.

If some folks do not like some particular aspects of these potential applications for ideological, religious, opinionated, individual preferences and tastes or any other reasons, they could simply skip those applications and move on with those that would make more sense to them in their particular situations. These are exactly the kinds of free market spirits that the marketplaces for the innovative shared cash flow product SwapRent and the latest shared equity product FARJHO, i.e. REIDeX.com and InvestorsAlly.com were originally based on and will continue to operate on.

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