On Section 8’ed FARJHO to let Section 8 recipients have a partial ownership of the property that they rent:
Ralph this sounds like a great idea, and many belong to some kind of neighborhood beautification program as well.
Yes, let free market capitalism to create the motivation for the renters to beautify the properties and neighborhoods on their own, at their own cost, by simply turning them into partial owners of the properties. Let them share a little bit potential financial value appreciation helps but injecting pride and self prestige of being one of the owners would really be the main driving force.
On PeoplesAlly’s role to educate the working class families to let them join their fair share of the benefits of capitalism:
Interesting conflict. The point of the PeoplesAlly is to support the working class. I am not sure the description above or on the blog comes close to being understandable by anyone without a serious financial background.
Right on target, a mission no one else has tried or been willing to do before. That is why Wall Street has been holding intellectual hostage of Main Street, getting the better part of capitalism. I hope you can see why we have created our foundation slogan as – The Intellectual Ally behind the People and the Capitalist for the Working Class!
PeoplesAlly’s main tools are education of and counseling to both aspiring home owners and joint property investors for putting together fair and equitable FARJHO structures based on free market principles to own homes and hence increasing housing affordability and social stability.
So far we have had long line of applications from aspiring home owners and not enough joint property investors. It appears that we need to beef up our efforts on the more intelligent investors, rather than the working class home owners at this stage. Thanks.
On technical details and examples of the new Borrow-Pool-Buy (BPB) of FARJHO vs. the old Pool-Borrow-Buy (PBB) practiced by other property equity sharing schemes:
That is still different from the proposed new FARJHO method to co-own homes. 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 decisions or actions to borrow together. 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.
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 money. Since neither the FARJHO LLC nor the home property owes 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.
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 member interest in the LLC and his down payment is 25%.
So in the example above, cash was used to purchase the property and no borrowing using the property as the collateral. 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 newly created FARJHO concept and method to own homes, irrespective which country the homes or the home owners are located.
Oh no. What you described is still the old conventional way. The newly created concept is for people to pool money and use a legal entity to buy one property only as a home using cash. One of the co-investors will rent it from the legal entity. After that there is no more borrowing using the property as collateral. Therefore, no banks or any lender will ever get to foreclose this property.
The borrowing, if any, will only be done by each individual member of the legal entity before they come to the table to form the legal entity to buy the property using the pooled cash. The liability is for each individual only. They can each use their fractional interests in the legal entity as the collateral. Nobody use the entire legal entity or the property per se as the collateral.
All co-investors and lenders, if any, are done based on a pure free market basis. No society, self-help and any other charity groups or concepts will be involved in this unique new free market solution to home ownership.
In the US we have decided to use the convenient LLC structure as the legal entity since real estate investors are already familiar and comfortable with it.