I was recently invited to submit a paper of my economic innovation research work by a government agency again. Here below are the gists of what I would like to present. It is a summary of only what FARJHO and SwapRent are about. The third leg of these related innovations, TARELV (http://www.tarelv.com) which is a new alternative currency pegging system based on real estate and land value, although much more interesting, still seems to be a bit ahead of its time and may remain an academic exercise for limited special interest groups at the moment.
So here below is a quick summary of what my current proposals are.
1.) The distinguishing features of FARJHO as a new business method for a new form of home ownership structure are three fold:
First, FARJHO allows home occupiers and property investors to own only one home at a time in order to maintain the sanctity and the freedom of the single family residence ownership. This is in sharp contrast to many community oriented equity sharing methods of Co-ops, Land Trusts, Kibbutz or Commune types of older equity sharing methods.
Second, as a brand new concept, FARJHO only allows individual member level debt financing to eliminate the foreclosure possibility which exists with conventional property level debt financing such as those in a SEM, a SAM or a Shared Ownership type of other existing equity sharing schemes. Home occupiers could still get foreclosed when they lose their monthly income capability under those older arrangements.
Third, FARJHO provides a natural built-in buffer to conventional renting to avoid potential eviction when the tenants temporarily lose their monthly income capability. The equity stake of the renter/co-owner of the FARJHO structure could act as an optional voluntary collateral against missed monthly rent payments and therefore provides property investors with enhanced investment security through less credit risks and at the same time provides the tenants/co-owners with more home occupying stability during the rainy days in their working lives.
All these new features were specifically designed to make the new home ownership structure of FARJHO more than simply an attractive financial investment vehicle for free market based property investors. Among its main goals is to also provide neighborhood stability and social harmony by eliminating the possibility of foreclosures and reducing the likelihood of eviction for home occupiers.
2.) The three features of SwapRent (http://www.swaprent.com) as a new non-debt financing alternatives for home owners and small businesses are:
It allows home owners or any property owners to share a part of the appreciation potential of their properties with other free market based investors through letting these investors share a part of the cash flow responsibilities in a real estate property ownership so that the current properties owners could obtain alternative temporary non-debt based either short term or long term financing that has never been made possible before.
These goals could be accomplished through the new economic owning, renting and own-rent switching concepts and business methods of SwapRent for managing real estate properties.
It allows home owners to separate the investment value from the shelter value of owning a real estate property, i.e. the issue of the management of the financial investment aspect of owning a home away from the issue of the stability of a suitable shelter or a place to live in.
FARJHO and SwapRent could indeed be used either together or separately.
I would like to emphasize the importance of understanding that both FARJHO and the SwapRent contracts could be perfectly used as new non-debt based financing alternatives for both home owners and small businesses to revitalize the national economy at the grassroots level. These new proposed financing alternatives seem to be exactly what our country and many other countries in Western Europe urgently need at the present time.
Just try to think, when home owners and small business property owners who could not get conventional bank loan financing have run out of all other means, including perhaps items to bring to the pawnshops, wouldn’t it be nice for them to have a new way to get paid by letting other people share a part of the equity of the homes or other real estate properties that they own in the form of either shared equity ownership or simply shared appreciation rights rather than a collateralized or mortgaged debt that would need a steady income stream to service the monthly payments and/or a burden to repay at maturity date.
The delivery of these new innovative services could be performed under the Internet based crowdfunding portal sites such as http://www.farjho.com for FARJHO and/or http://www.reidex.com for SwapRent to bypass the Wall Street middlemen and get the economic benefits of these new services delivered directly to mom and pop small business folks on Main Street. More consumer choices is always a good thing under free market capitalism.
While old school economists like Paul Krugman could continue to bang their heads against the wall to convince governments to tax citizens more, issue more debts and print more money to inflate away the debt problems of the US and many Western European countries, they seem to genuinely naively have a blind faith that there will always be a greater fool to continue to be willing to lend more money or to be taxed more no matter how much worse the situation may get. Why can’t these people simply calm down and think outside the box for once?
Outside of debt financing there are many many other ways to finance economic activities. The equity sharing method should not be confined only at the corporate level in the form of either private equity participation or a stock market IPO.
Countries, sovereign entities at higher levels (e.g. using TARELV) and home owners, small businesses at the lower levels (e.g. using FARJHO and SwapRent) should all be seriously educated on how to take advantage of the new equity sharing concepts and methods made possible by these innovations and their current commercial availability beyond being simply academic theories now.
This also brings back my favorite academic side topic. Try to imagine, if a new Greek TARELV Drachma is backed by the total aggregate real estate and land value of Greece, wouldn’t that be a more attractive currency for foreigners to invest in and hold on to? If the Greek government fails to deliver to let the TARELV Drachma exchange back into other currencies later, you’d end up getting to own a Greek Island?
Germans would most probably vote ja ja with their feet and each individually rushes to pump money into Greece for the rescue of their fellow Europeans! Isn’t that how a free market is supposed to work? There just has to be more innovative free market choices of financing alternatives made available to avoid having to keep on beating the dead horse to pile up more and more debts and taxes to solve economic problems. Again, more info on TARELV is available at http://www.tarelv.com.