This example appears in the 2nd page of InvestorsAlly’s FARJHO marketing flyer. https://www.box.com/s/1f2e57e6f0ac5b6738f0
Application Example of An Arbitrage Investment Opportunity Using the New FARJHO Home Ownership Structure
Do you want to put your idle home equity to work so that you could earn more appreciation potential? Would you be interested in helping other less affluent residents to partially co-own homes in California?
You could use your excess home equity to co-own homes with a tenant/partial home co-owner in a new home ownership structure called FARJHO – Flexible And Reversible Joint Home Ownership. Here is a short analysis for a home of an appraised value of $2,000,000. The amount of cash out re-finance is assumed to be $1,000,000 for illustration simplicity purpose as an example.
Current Home Fair Market Value
$ 2,000,000 $ 2,000,000
Re-Investments in Other FARJHO Transactions
__________ $ 1,000,000
Equivalent Home Equity for Potential Appreciation
$ 2,000,000 $ 3,000,000
What about the carry, i.e. netted monthly cash flows between expense and income under the FARJHO transaction?
* A financial arbitrage currently exists as the mortgage rates are still being artificially kept very low.
* Between the current long term fixed rate borrowing cost (e.g. 3% – 4% for a 15-year or 30-year fixed rate mortgage) and the current market rental yield (e.g. 7% – 12%) there exists a net positive carry of 1% – 5% annually after deducting all taxes, fees and insurance cost in favor of the arbitrageurs under a typical FARJHO transaction.
* The cost of the monthly mortgage payments will remain the same for the next 15 or 30 years but the income from monthly rental receipts will adjust every two or three years and would most likely to go even higher in the current trend.
* The arbitrageurs who take out the cash-out re-finance now could enjoy not only the potential long-term price appreciation from much expanded home equity, they will also receive a check as additional current income every month.
* The current low fixed mortgage rates may not last forever. A change will be coming and it would be wise to lock it in now.
The free enterprise capitalism based new home ownership structure FARJHOSM could let pure profit-driven real estate investors help other aspiring home owners partially co-own homes through the equity sharing concept without the imprudent use of any debt. FARJHOSM was created back in 2009 as a fair and equitable business method to address the free market needs of both joint property investors and aspiring home owners. Through FARJHOSM, foreclosure will no longer be a possibility going forward. It will help restore our national economic prosperity, foster the steady growth of our country’s housing industry as well as promote the on-going neighborhood stability and social harmony in local communities throughout our country!