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Thursday July 7th, 2011

0707 2011 FARJHO combined with Section 8 rent assistance – Section 8′ed FARJHO!

Recently I attended an excellent seminar put together by the Orange County Housing Authority explaining how Section 8 rent payment assistance program works in Orange County. We have been on the lookout for developing more FARJHO and SwapRent based housing affordability programs for PeoplesAlly Foundation so that the new economic benefits could extend to low income working families. It seems that there potentially could be a great match.

One of the very convenient ways for Joint Property Investors (JPIs) to make lower risk investment through FARJHO LLC structures is to pair up with the Section 8 recipients in each state as the AHOs (Aspiring Home Owners). Since these potential partial home owners are most likely low income working families therefore these services are handled and provided through PeoplesAlly Foundation instead of InvestorsAlly, Inc.

The goal of both PeoplesAlly Foundation (PA) and InvestorsAlly, Inc. (IA) is to provide free market based solutions to housing affordability, joblessness and unemployment of our capitalist society so that capitalism could stay intact, irrespective what may happen next to the middle class American people in the unfolding economic crises. None of the solutions provided through either PA or IA would be dependent on tax payer’s money. Free market based solutions are absolutely a must to save our country’s economic future.

The reason why it may provide synergy when linking up with the Section 8 rental assistance program is that FARJHO could make the assistance money for the working poor already committed by the Congress to work much more efficiently. Here is how.

Section 8 rental assistance payment recipients could already choose where they want to live. It has become a tenant oriented assistance program since 1998 rather than building specific as in the past or as in many other affordable housing projects which are often plagued by many problems. So what if some of these recipients have worked hard and earned some savings or inherited some small sum of money? Let’s say it is $50,000. It is not large enough to buy a home here in Southern California and they can not use it as a down payment to borrow a mortgage to buy a home with a 100% ownership since they have very low income to service the debt.

Why not let them own a piece of the property that they rent through the FARJHO structure? It would be a win-win for the Section 8 rent assistance recipients and the landlords. By having a part of the ownership, they would treasure and love the homes that they rent from the Section 8 approved building landlords. They would get to have a percentage of future appreciation value of the property that they own and they would take care of the properties as though it is their own. Most importantly, it would develop a self prestige that they may have become a proud home owner (although partial) and be a more useful and stable member of the local neighborhoods that they reside in. That could be one of the best features of capitalism at work made possible by the new FARJHO structures. Landlords would for sure no longer have as many problems with the tenants as they once did!

Furthermore, since the Section 8 recipients could choose where they want to live, they no longer have to reside in multi-family housing complexes. It is a perfect chance for some of them to choose a dream house to buy through FARJHO from the pools of HUD REOs or even the Fannie Mae Homepath REOs so that they could help our governments clear those massive unsold REO inventories.

Isn’t this a perfect way to help the working poor in America realize their American dreams without using any more of the tax payer’s money or using any form of those dangerous mortgages and/or securitizations?

We look forward to starting to work with some of the housing authorities in many cities, counties and states in the near future to make Section 8′ed FARJHO a reality soon.

 

Monday July 4th, 2011

0704 2011 Confusion on Various Equity Sharing Schemes – Why FARJHO and SwapRent are more social innovations than simply financial innovations.

As I once commented before, if a person is new to the French language or the Greek language, he/she probably would not be able to tell the difference between a baby gibberish vs. a poetic recital as both are “new and foreign” to him/her. It is all Greek to him/her so to speak. That seems to be the current situation with many people when they started to learn about the property equity sharing concepts and methods for the first time. Since both the concepts and the methods are all new to them, many people find it hard to tell a good method from the not-so-good or not-so-smart methods.

Shared equity “concepts” as applied to real estate property is not new. As mentioned before, the Brits have been applying them for over three decades but since the “methods” such as “shared equity mortgage” or SEM and “shared appreciation mortgage” or SAM had not been developed so well, they remain a government led socialism oriented facility so far to assist the poor in their country. Few, if any, free market based investors or participants have been interested in participating. Some British banks got black and blue bruises all over their face when they tried those primitive methods in the 80′s. There have also been some copycats of those exactly the same ideas and methods but re-bottled and promoted in the US and Australia with little success within the past few years.

What makes FARJHO stand out? Well, here is a short recap as a patriotic 4th of July message.

Three unique features make FARJHO different from all the other “equity-sharing methods” or various other “shared equity schemes” ever proposed or practiced so far.

First, the FARJHO/LLC owns one home at a time as “a single family solution”. So the goal of FARJHO is to ensure the sanctity of individual home ownership for individual citizens one home at a time under pure capitalism principles, not a defunct or hippy-ish multi-family commune, land trust, kibbutz or socialist compound concept. We do not have to turn our country into a socialism or communism society to help the poor!

Second, unlike SEM, SAM or all other shared equity schemes proposed by other academics or practiced by other private companies so far, FARJHO does not allow, or does not encourage at least (remember it is a free market democracy and no dictator allowed), any borrowing at the property level to use the entire home property as collateral. All other equity sharing methods are schemes developed to make Wall Street loan sharks even happier so that home owners and investors who gang up together can go crazy leveraging and punt again. Do some simple research through Google searches and you will quickly know what I meant. Those shared equity properties that borrow again at property level may still get foreclosed. They may make the elite minorities on Wall Street happy again but there are few, if any, social benefits in those schemes to mom and pop families on Main Street.

With FARJHO, going forward in the future, borrowing will no longer be the only way for people to own homes. There is no reason why the home property purchase could not be done using all pooled-together cash. The term “foreclosure” may even become obsolete when people started to apply borrowing only under the FARJHO proposed concepts, i.e. borrowing at the member level instead of at the property level. AHO (Aspiring Home Owners) and JPIs (Joint Property Investors) could decide to use prudent leveraging individually before they come to the table to form a FARJHO LLC to own the home. Once the FARJHO LLC is formed there is no more borrowing allowed at the property level so that banks or anybody else in the world would never be able to seize the property from the tenant/partial home owner in a FARJHO structure.

Therefore if and when any of the leverage-loving FARJHO/LLC members ever loses his or her own debt servicing capability in the future, he/she could drop off quietly individually without jeopardizing the stability and occupancy rights of the home property for AHO or the investment security any other JPI investment members who own the rest of the interests in the property. This defaulting member could simply sell the percentage member interests in the property that he/she owns to any other people in a free market or turn them over to the lenders if he/she had financed the purchase of these member interests in the beginning.

Thirdly, it provides an enhanced stability for the home occupier through a voluntary feature offered by the Aspiring Home Owners (AHOs) to the other Joint Property Investors (JPIs) to use the AHO’s equity stake in the FARJHO LLC as a buffer for JPIs to deduct the missed monthly rental payments by the AHO so that the AHO would not be evicted so easily until the buffer runs out. It therefore offers much more home occupier stability than any other rental arrangements.

In a bigger picture for the society, when lesser credit-worthy aspiring home owners have resorted to these new socially beneficial equity financing methods, what is left for the banks to lend to, using conventional mortgages, will be much better credit quality home buyers/borrowers. More free market based consumer choices will always be a win-win situation for everyone under the uninhibited capitalism. So there is no reason for those good banks or good capitalists on Wall Street to fear or feel threatened by these socially oriented new inventions.

More summaries on the social benefits of SwapRent will be described again later. Many of them could of course already be found at the SwapRent.com web site.

So today’s message on the 4th of July, 2011 is really – you can still be a capitalist to provide social benefits to the working class people in America. For doing that we may need the American people to acknowledge and accept these new social innovations under capitalism operating principles rather than keeping asking for bail-outs or hand-outs. In addition, we will need the ultimate transparency in their implementations so that the new innovations would not be stolen, hj-jacked and abused to benefit the privileged few when landed in the wrong hands by the dark forces of the elite minorities in our society again.

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