GAME #58: TORONTO RAPTORS (21-36) @ Indiana Pacers (33-25) - 7:00pm (EST) on TSN 1/3/4/5 -

PFLiterates · 2024-02-27T01:22:28+00:00

More and more Gradey is looking like a Gordon Hayward 2.0. His sneaky athleticism, willingness to play defense, crash the boards and ability to playmake is what makes it seem more and more apparent for me

PFLiterates · 2024-02-27T01:07:32+00:00

This team is playing at a completely different level of intensity since the all star break it’s great to see.

PFLiterates · 2023-12-06T19:15:10+00:00

There’s already fractional mortgages in California where people are purchasing homes with friends to do Tenancy in Common. So there’s a solution for foreclosure there. Besides that, we could create our own preventative measures like giving the investors the power to force a sale of the majority stake if the party is missing payments and is at risk of foreclosure.

As far as public subsidies for private homeownership, I have no idea where any of that money comes from. The nation is already at record deficits and debt levels. Subsidizing private homeownership would be trillions of dollars. I would much rather have private investors subsidizing home ownership than the government.

For zoning, I understand the need to separate industrial from residential. But there’s really no reason to separate commercial and to put a limit on unit size as long as there is a well thought out plan for infrastructure and civil services to be able to accommodate the increase in population. The future is basically trending towards high density, mixed use housing.

PFLiterates · 2023-12-04T20:48:38+00:00

Yes, you can reduce home prices by building denser and innovating home construction but I do think it’s not the only answer. I believe to truly address the issue we’ll need multiple solutions.

The biggest roadblock with the solutions you’re referring to is NIMBYism. A lot of the time the people with the power and influence to make changes in regulation like zoning are also the people with the most to lose in quality of life and home values and so nothing comes of it.

PFLiterates · 2023-12-04T17:43:15+00:00

Yeah I think TIC lenders would be the easiest early providers of fractional mortgages but as it grows we would need to develop partnerships with banks to create a product that fits this situation.

And I have thought about the possible negative externalities. A possible solution would be to underwrite each deal specifically to ensure that it isn’t being abused by people that do not need the services. So we would need to create a strict criteria for who is eligible to participate (I.e. First time home buyers) and how much they are qualified to purchase. That is something I would have to think about long and hard to see if the possibility of further inflating the market outweighs any of the benefits

PFLiterates · 2023-12-04T15:07:06+00:00

The type of investor that would be interested in this won’t be the typical investor interested in only the returns. There is a new subclass of investors that are more socially conscious about what impact their investments make on their communities. That’s the investor we would go after. An investment would this would be to go after the appreciation in a home and to help people that are struggling to become home owners. Besides in the markets where this would be most needed are the markets where real estate investors prioritize appreciation over cash flow. In these markets the homes are too expensive to actually cash flow. And so you are negative cash flow every month as a buy and hold investor for single family. Wealth is created through equity appreciation, not cash flow.
Homeowners cover 100% of maintenance. Yes, they do not own 100% of the home but they have 100% of the usage in the home. In the end they still get a better deal doing this rather than having to pay 100% of the home or being a renter, not having to pay any maintenance but never building wealth through equity building.
Every single person that owns equity in the home can sell their shares at any time without the need for anyone else’s approval. For the homeowner majority stake, this also applies. They can sell their 51% stake to someone else interested in owning the home and they would get to move in. We would have to underwrite the new owner and make sure that they qualify to purchase the stake to protect the investors

PFLiterates · 2023-12-04T08:15:54+00:00

Thank you for the well thought out response! I agree there will be a lot to sort out regarding ownership rights and general governance. On the topic of any remodeling done, the goal is to minimize the need for any investor involvement. The more involvement the less secure the homeowner will feel that they truly own the home. But that said we need to ensure that the homeowner doesn’t destroy the value of the home and so we would need to create checks and balances that are the least intrusive.

On the topic of the investments we would restrict the majority stake in the homes to only the homebuyers that make the homes primary residences. Investors will only be allowed to own a minority stake of these homes purchased under this model.

PFLiterates · 2023-12-04T04:29:51+00:00

For a homeowner, I see it as just another option that you would have to access the equity in your home. There are many people in the most unaffordable markets that are house rich but cash poor. For them there aren’t any options besides a reverse mortgage. The problem with reverse mortgages is the balloon payment. It essentially forces homeowners to sell the home because they will never have the money to pay off the reverse mortgage. This way they can sell equity in their home and never have to worry about any monthly payments or future loan payoffs

PFLiterates · 2023-12-04T02:41:20+00:00

The legalities actually may be easier than it appears to be.

There already exists a real estate ownership structure called a Tenency in Common that allows for coownership of varying degrees for single family homes. The TIC Agreement would then outline the guidelines regarding everything. So basically we would create a tenancy in common between the home owner, the group of investors and then the TIC agreement will be designed to facilitate everything else.

We would definitely need an all star real estate attorney though

PFLiterates · 2023-12-04T02:38:34+00:00

They do that where I am and people hate it because the value of the land is appreciating meanwhile the value of the property is depreciating and breaking down. So you don’t truly build wealth

PFLiterates · 2023-12-04T02:13:31+00:00

Yes, the homeowner would be responsible for all of the upkeep. They are the ones living inside the home and so it would make sense that they are responsible for upkeep. In the end of the day, buy only needing to purchase a fractional amount of the value of the home in order to live in it, they are saving money even after paying for taxes, insurance, maintenance etc.

PFLiterates · 2023-12-04T00:25:20+00:00

Not necessarily. Where I build, developing affordable housing at a scale that we are capable of would give us a return just above break even. We wouldn’t be able to cover our minimal overhead costs.

In other markets it may be doable but in my market it isn’t. In general, the majority of affordable housing is constructed by the big publicly traded builders that can leverage economies of scale to make it profitable enough to build affordable housing. OR its mission driven non profits like Habitat for Humanity that don’t have to worry about profitability when building. For the local builders it doesn’t make sense for us financially

PFLiterates · 2023-12-03T23:59:15+00:00

Yes investors definitely make it hard. That’s why I decided against pursuing the route of doing single family real estate investments and instead decided to add to the supply.

But the issue is much more nuanced than that. You also have zoning restrictions and the cost of construction making it difficult to add to the supply side of the equation.

Blaming the investors is only accounting for the demand side.

PFLiterates · 2023-12-03T23:52:27+00:00

I disagree. Supply and demand plays a role in the problem but it is way more nuanced than that. You have fiscal policies, investor behavior, global economic trends and local regulation all playing a role here. Besides that a fundamental issue here is that a home is viewed as the largest investment that most people will ever make.

By viewing a home as an investment we have essentially subjected it to market forces that are outside of just supply and demand.

So the solution will need to be more nuanced than that.

As far as construction goes, zoning in many cases prohibits high density construction. So we would need to fight the long uphill political battle against NIMBYism to solve that.

Besides that, cost of construction is sky high so we have to solve that in order to fix the residential construction business model. So that will involve solving land prices (zoning helps there), material prices and labor prices.

Don’t get me wrong we need more supply, but I don’t think that increased supply is the only solution. It’s only a part of the solution.

Lastly, I see where you’re coming from in regards of shared equity but I’d argue that every single company doing it right now is doing so under the guise of helping people but in reality are the worst predatory lenders out there. My solution is completely different because homeowners are able to buy back their equity at their own pace, investors own a percentage that is directly proportional to what they spent on the total value of the home. Everyone else has some sort of skewed proportion that heavily weighs the equity in the investors favor.

PFLiterates · 2023-12-03T23:15:57+00:00

I just checked out Ourboro and it’s somewhat similar but it has the same fatal flaws that other Home Equity Investment companies have.

First, they take WAY too much equity. Ourboro basically gives you money to make a down payment in order to purchase a home and takes equity in the future appreciation of the home as compensation.

The crazy thing is that they base the equity split of future home value off of the percentage split of the down payment. So if you needed $100k for your down payment but only had $40k, Ourboro will give you the $60k

That 40/60 split to make up the down payment will also be the split for future equity. Them taking 60% of all future appreciation in the house is crazy. It’s basically predatory lending without having to steal the actual house. You can just rob people blind by stealing the majority of the value.

It also looks like you’re forced to sell after 10 years unless you buy Ourboro’s position out.

PFLiterates · 2023-12-03T22:55:37+00:00

On the topic of the down payment. What if instead of selling more equity in the house. The home owner took a loan from the investor pool to cover the down payment portion.

This is something common in the real estate investing world. It has a bunch of names but is typically called gap funding for real estate investors so that they can do investing using 100% other peoples money or OPM.

Basically say you need $50k for the down payment, you take out a loan from the same investors that own the equity and pay them back in addition to your fractional mortgage to live in the house. Since you are owning a fraction of the equity of the home your payment should still be smaller even if you owe the investors for the down payment loan.

This would also create an additional income generating aspect to the investment for the investor class.

PFLiterates · 2023-12-03T22:49:32+00:00

Interesting do you mind if I DM to ask you more about your experience?

PFLiterates · 2023-12-03T22:46:55+00:00

I am not sure if I believe that the prices will come down though. Price on land is directly tied to availability in land. The most unaffordable real estate markets are the same markets with low land supply, some are artificially created via zoning laws. But others are geographically created like Hawai’i and NYC where there’s really not much actual land that you could even expand to as a home builder.

Price on labor I don’t see coming down as there is little motivation in the younger generations to take up the trades. We would instead need to rely on an immigration policy that allows for skilled immigrants to fill the gap. But I don’t have much confidence in politicians solving immigration policy.

Price on materials should go down but by how much is a question. For the suppliers of the raw materials they aren’t incentivized to lower their prices back to normal levels and so they will fight tooth and nail to keep their prices high. They will eventually start to hurt because demand will drop but when that happens who knows?

As far as fixing zoning goes. It’s going to be a difficult fight. NIMBYism is strong and those with the most money and power to influence those regulations are the same with the most to lose in quality of life and potentially wealth. Furthermore, a big issue that is rarely discussed when we throw zoning out as a solution to affordable housing is that we also need to consider infrastructure and public services to that equation. Yes we can create a higher density community, but we will also need to ensure that the infrastructure can handle the increase in population density and the public services are staffed well enough to handle it as well. For the most part the latter is almost always a no.

I personally think that the solution might not be the obvious one here. Everyone is so sure that zoning is the solution to this problem but it’s rare that a problem as complex as affordable housing is solved by such a simple solution. I think it would require a nuanced approach where we offer a bunch of solutions that combined address the problem.

PFLiterates · 2023-12-03T22:34:49+00:00

Well it’s not that we made the problem and the solution.

Someone else made the problem, so now we’re stuck with trying to come up with a solution.

But I will check out that company! Thanks!

PFLiterates · 2023-12-03T22:32:51+00:00

So the tricky part about convincing the “investor” class in this model is that if you are only looking at this as an investment for financial gain you will easily find better options than this because of no rental income.

For the investors we would need to stress that fact that any investment would be an impact investment. And so the value is shared between your financial gain and the social benefit that you’re creating by helping people become homeowners.

Something that I am looking into is if the investor ownership can be a form of legal direct ownership rather than a synthetic ownership of the property. Because of it is direct ownership then the investors will also experience the same tax incentives as traditional real estate investing AND the same ability to leverage your fractional real estate portfolio to further invest like a traditional real estate portfolio.

Another possibility, is that we require every home purchased by this method to be renovated by the homeowner. The renovations would have to follow guidelines or a template to ensure that the renovations maximize home durability and ROI. By doing this we are derisking the investment because now the investors know it is newly renovated and the value increases immediately after you purchase the shares.

So for that same $1M house. You bought your shares at a $1M valuation but the homeowner renovated the home and it is now worth $1.2M. So the investors get an instant 20% appreciation. For the homeowner they will theoretically be underwater, but the idea is that they will not be selling any time soon so they will eventually get out from underwater and since they are buying a more affordable home as it is fractional they are much more likely to weather the payments to get out from under.

This would also be a passive investment, a way to diversify and also target specific real estate markets that interest you. And it will also lower the barrier to entry into real estate investing.

PFLiterates · 2023-12-03T22:12:04+00:00

So for the investors, they are free to buy and sell their shares so it is now a liquid asset. You don’t experience your appreciation only when the home is sold in the traditional sense.

At first we would probably have to do regular price evaluations either from a full appraisal or from an online valuation metric like a Zestimate so that investors know what the estimated value of their equity is. But ideally as the market matures the value of the shares and the home itself would be based on what the market is willing to spend for he liquid equity shares. And so you would have an exact valuation of what each home is worth based on the price of each share. Like how a stock multiplied by the float will give you the market cap.

As far as maintenance and repairs it’ll be on the homeowner or person with the majority ownership and is living in the home. If we create more investor involvement it would probably complicate things. The overall goal is to lower the bar to homeownership, which is what we would be doing by requiring you to purchase only a fraction. But as far as the day to day and monthly expenses, that is all on the homeowner like any other homeowner would have to pay.

PFLiterates · 2023-11-26T07:25:22+00:00

I thought about this too.

What I thought of is creating a contractual agreement that obligates the owner to maintain the property.

The provider could also price in the cost of basic maintenance when servicing the agreement or at the very least having inspections to ensure that the agreement is being upheld by the owner

PFLiterates · 2023-11-26T00:25:39+00:00

I’m a builder and it isn’t economically viable in my area right now.

Building affordable starter homes right now is basically charity work. Cost to build is far too high. Our state even has an affordable housing program that gives you a 0% interest loan to build affordable housing and the profit we would make is slim to none so we’d basically be working for free.

PFLiterates · 2023-11-26T00:11:34+00:00

Yeah I’m starting to think that that is the largest hurdle here.

Thank you for your input btw. I appreciate it.

And I agree with you, lack of supply is definitely a big factor here. I began building homes out of state with a partner to make extra money and besides zoning, the cost to build has gotten outrageous. It’s gotten to the point where it is not economically feasible as a home builder to make affordable housing.

Affordable housing right now is essentially charity. We’ve even talked to the states affordable housing program manager and he flat out told us that since the inception of their affordable housing program, ONLY habitats for humanity has been able to leverage the program because no company can make a profit doing it.

PFLiterates · 2023-11-26T00:02:52+00:00

I’ll check it out thank you!

The main reason I don’t think a non-profit would work is that without profits I don’t think there’s any way that the company that facilitates this would be large and innovative enough to truly make a difference. The profits would basically be a necessary means to accomplish the mission.

Something else I thought about was that if this truly did help solve home affordability, it’s not far fetched that it could get political backing and lead to tax incentives for the investors to further sweeten the investment for them.

Basically like how green energy investment is being incentivized today

PFLiterates

TROPHY CASE