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3. The Benefits of SwapRentSM Transactions for Homeowners and Property Investors.

The new ability of SwapRentSM to separate the economic ownership from legal ownership has many advantages. For example, the moral hazard and the home improvement issues of the conventional renting could be alleviated through the economic renting concept of a SwapRentSM transaction. To put into an investment professional lingo, having the legal ownership will give you the alpha of holding an asset, switching to economically renting will let you hedge away the beta (the market risks) of owning a specific property.

Therefore a public housing project with SwapRentSM based economic renting would become a much better neighborhood than the one with a conventional renting only because people will invest in home improvements freely since they will be the legal owners of the apartment that they live in but by being an “economic renter”, they will be insulated from the potential fluctuation of the financial value of the real estate markets in general. They will be shielded from the neighborhood appreciation/depreciation potential represented by a neighborhood or city property price index in exchange for receiving the monthly subsidy that represents the own-rent cost saving by being an “economic renter”.

Whatever home improvement investment they have already made to the properties they will be able to get to recoup those investments when they actually sell the properties on legal terms later on. The development of this new economic concept will have great implications for urban planning and public housing policy for city and county local governments in the future.

As a perhaps a bit of an extreme example, domestic servants for the first time may even live in the same building or neighboring buildings located in the same tony neighborhood as their wealthy employers do due to this newly created “portable housing affordability”.

The upscale neighborhoods may not have a conventional affordable housing complex or even the conventional apartment rental units. So the employers may enjoy the full ownership (both full legal title ownership and full economic ownership, i.e. with the entire upside financial appreciation potential) of the houses because of the employer's high monthly income earning power.

The domestic servants may get to enjoy similarly the full legal title ownership of a smaller house and perhaps only a much smaller economic ownership that entitles them to the financial value of only a small fraction of future appreciation potential because of their much lower monthly income level. They can of course buy into more fractional units of future appreciation potential of either their own home or the city level property value represent by an index through SwapRentSM contracts at their free wills at any time when they start to have higher earning power in the future. Meanwhile they may get to enjoy a nicer living neighborhood and their children may get to attend the same high quality school districts as their employers' children do. Doesn’t that sound like a good step closer toward a true democracy?

While upon first thought, acquiring the future appreciation potential of properties could be a desirable thing to have, it does come with a cost and the cost of this investment could be totally wasted as we have seen in recent years if the value of real estate property declines instead, let alone the risk of bearing further financial losses that usually comes with economic ownership when the property market actually collapses.

Houses may appreciate in value slowly through time under most usually competent governments but we cannot always count on governments to do the right things to foster a gradually growth of property market. Therefore the inability of the low-income people to participate in the boom and bust cycles of the property investment games may not necessarily be a bad thing after all.

Through SwapRentSM contracts these low-income families could simply continuously enjoy the comfort and the security of their homes by having the legal title ownership and becoming the “economic renters” of their own homes irrespective what may happen to the financial value of the property markets in the future. An investment in a home ownership could finally become a true long-term shelter and be removed from the financial ups and downs similar to that of a casino game.

The main implications of this are that first, cities may not need to waste taxpayer's money to build that many low-income housing complexes with substandard building materials anymore, which often end up slums and they foster class distinctions and prejudice in our human societies. Second, low-income people will no longer be forced, duped, coerced or at some other occasions, be allowed to willfully intend to go into borrowing and owning something they could not afford (i.e. the combined cost of both legal title ownership and future appreciation potential as expressed in economic ownership) based on their current and foreseeable future monthly earning power.

After this new housing finance methodology has been adopted, the abuse of irresponsible borrowing/lending and over-leveraging with a hope to get rich quick that had caused our current default-led global financial crisis will have much less chance to get to be repeated on a massive scale again.

People will learn that success in life may have to be earned in an old fashion way through hard work instead of keeping hoping to gamble with borrowed money. The practice of the simple economic concept of shared appreciation or shared ownership will indeed automatically discourage the abuse of over-stretched borrowing in our economic societies. SwapRentSM and REIDeX could be the right solutions as the newly invented business method and marketplace to make that simple economic concept a reality in the most effective and efficient way.

To summarize, among many other applications, the five key economic advantages of the SwapRentSM contract and its related consumer housing finance products are:

  1. For those informed and educated homeowners to hedge the financial value of the properties that they own by switching between owning and renting economically only based on their views on what the overall real estate market will do in the near future while keeping the legal title ownership of all their properties at all time.
  2. Considering the relative cost of owning and renting, the less affluent homeowners could decide to be economic renters or owners solely based on their monthly income reality and how much monthly subsidy they could receive to afford legally owning the properties while being partial or entire economic renters for a period of time. This will increase the housing affordability for young first-time would-be homeowners, low-income working families and retired senior citizens. For senior citizens, it also offers a much better alternative to the ineffective, inefficient and expensive reverse mortgage product for the seniors.
  3. Due to the alleviation of moral hazard associated with conventional renting, SwapRentSM will improve the neighborhood quality of both the public housing projects and the conventional apartment rental complexes. It could thus reduce crimes and improve the overall well being of the urban environments at anywhere in the world where it has been implemented. In addition, with this newly created portable housing affordability, municipalities will no longer have to waste taxpayers' money to build low quality affordable housing complexes that often turn into slums.
  4. For both institutional and individual investors to become synthetic “economic landlords” by simply receiving SwapRentSM payments and paying out mortgage funding cost for a particular neighborhood or city for a period of time. They could establish such cross border reversible long property exposures easily all over the world without having to worry about the management of these properties and incurring the normally high transactional cost and taxes.
  5. For current apartment or house renters to establish an “anticipatory hedge” position through receiving SwapRentSM payments based on a particular city level property price index so that they can lock in today's real estate price levels for intended purchases of real estate properties in that city in the future. They would not be priced out of the market if indeed real estate prices rise sharply in the future since they would have locked in the cost level through the SwapRentSM contract.

           For more information on SwapRentSM, please visit http://www.SwapRent.com

                                                                                                                                                                                        


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