Thanks to blog reader RPG for sending me this article from from the Village Voice about a few New York City residents who are attempting to keep rents low by purchasing real estate as a collective group.
The idea isn’t brand-new, but it’s not something we’ve seen in our market in a long time, and is particularly difficult given the heat of the market, and the ever-increasing value of property.
Could this idea actually work, or is it just pie-in-the-sky thinking? And if it could work in New York City, could it work in other major metropolitan areas like, oh, I dunno, say……Toronto?
I’ve read this article, through and through, about ten times now.
Every time I read it, I flip-flop as to how I feel.
I don’t know if these people are naive, or if they’re smart.
I’ll reproduce the whole article below, then we’ll debate…
“This Group Wants To Help Lower Rents By Buying Real Estate As A Collective”
By: Madison Margolin
The Village Voice
“Things are getting a little ridiculous in New York City!” says Rafael Jose, Queens-based real estate agent. “Fifty or sixty percent of what people make goes to housing. Working-class people who have done all the right things — gone to school, saved money — are still getting priced out of the neighborhood.”
While wages remain stagnant in contrast to soaring real estate prices, Jose adds, the situation is unsustainable — and he’s not the only one frustrated by this truism. He is now among more than 300 New Yorkers who have joined theNYC Real Estate Investment Cooperative, a group whose stated goal, according to their website, is to “secure permanently affordable space for civic, cultural, and cooperative use in New York City.” Translation: they want to form a collective to buy up real estate throughout the five boroughs to help price low- and middle-income residents, as well as small-business owners and community organizations, back into the market.
But they’re starting small. Requiring an initial $10 investment from each member, the co-op has, since launching in April, banked more than $3000 at the Brooklyn Cooperative Federal Credit Union and has more than $1.3 million in pledges for future investments. They aim to finance at least one property by 2017 (with a guaranteed return of everyone’s $10 if the goal isn’t met) and make further investments for the mutual benefit of the co-op’s member-owners and their communities. They are also considering a ten-year project.
The REIC isn’t the only organization in New York working toward cooperative real estate goals. Founded in 1973, the Urban Homesteading Assistance Board has preserved over 1,700 buildings and created 30,000 home-ownership opportunities, while getting to know New York’s low-income co-op community. And in March, the community organizing project Greater Brooklyn formed the “NYC Cooperative Housing Exchange” a Facebook group of now almost 800 members, designed to “aid in the creation of new cooperative houses, link people up to houses with vacancies, and to assist in the exchange of resources between co-ops.” The REIC however focuses on affordable commercial space, with efforts comparable to the Small Businesses Jobs Survival Act to “level the playing field for business owners when negotiating fair lease terms,” or the Artist Studio Affordability Project, which advocates for legislation to keep studio space affordable.
The idea for the REIC formed when Brooklyn artist and activist Caroline Woolard was faced with a decision whether or not to renew her Williamsburg lease for an additional three years. She had been using the space as a living and working collective with other artists. By the end of the new lease, the group would have spent nearly $1 million in rent — money she realized could be better invested in a cooperatively-owned property.
Woolard stresses that the group is not just for artists: members of small businesses, civic groups, and cultural organizations also comprise the co-op’s constituency. “I am excited that the first project we do as the REIC will likely not be for artists, as I am an artist who understands the power of organizing for affordable space for all New Yorkers, not just for artists,” she says. “We are part of an ecosystem that must be diverse across sectors to be healthy.”
Over the summer, members of the co-op’s working groups (they eschew formal leadership roles) established “threshold criteria” for investments. Inspired by similar efforts in other cities, such as theNorthEast Investment Cooperative in Minneapolis, they have already begun vetting properties everywhere from Coney Island to the Bronx.
“I think it’s very important that there’s a model that’s separate from the standard real estate market model,” says new member Drew Kiriazides. “It’s very challenging because a new model can seem a drop in the bucket against a tidal wave. I think this could be valuable because it will offer something that people can see.”
Another challenge, some members say, is streamlining the ideas of many to produce tangible results. “They’re activists, social justice activists, they have great ideas of what they want to do but they don’t know how to get to where they want to be,” says co-op member Malaika Martin, who works in real estate. “They just say we want to preserve affordability in perpetuity, but how do you do that?” she asks. “One of the things that brings me to this is to find ways to develop real estate that is not only environmentally sustainable but also financially sustainable for as long as possible and that also moves with the community.”
The group is now seeking funding to hire paid staff for the incubation phase, to work with partners to formalize their research and share it with co-op membership and beyond, and to establish a governance structure to facilitate their goals and responsibilities.
Jose says the group is an important move against the hedge funds, private equity firms, and international investors who are pouring billions of dollars into the New York real estate, because it’s safer than the stock market, and driving up prices for everyone. This is especially prevalent in Brooklyn, he adds. “Now everybody’s feeling it. If you go anywhere and open up a conversation with people relative to affordability and housing, there’s a consensus across the board,” he says. “You can’t rent an apartment by yourself, you have to get roommates. That’s a sign that things are getting ridiculous.”
Jose serves on the REIC’s “public building inventory” and “outreach to institutional investors” working groups to help identify potential investments and look for additional sources of funding. “I like being part of taking action,” he says. “This is something that benefits [many] people instead of just a few.”
So first, I let my cynical side take over.
These folks, pledging a paltry $10 per head, have collected a whopping $3,000………since April.
Is this even a story?
300 people in a city of close to ten million?
How is this even newsworthy?
But I took a step back from that line of thinking, and then considered………wait for it…….bike lanes.
What do bike lanes have to do with a NYC cooperative?
Well, when I wrote that blog post two weeks ago about how I don’t feel the number of cyclists in Toronto necessitates dedicated lanes, taken away from cars, a lot of people shared their ideas, and while some were illogical, a few sentiments stuck in my head.
It was something along the lines of “you have to start somewhere.”
Or maybe the famous line from Field of Dreams would ring true here: “If you build it, they will come.”
One person commented that we need to be “progressive,” and somebody else mentioned that cycling to work is something that will “take time to catch on.”
So while I haven’t changed my opinion on the matter, I do see a completely different way of thinking about it.
My initial thought when I read the story about 300 people in NYC who put down $10 per person was that this is insignificant, naive, and a waste of time.
But if this catches on, maybe that number grows to 300,000. And maybe (because I think $10 is just way too little skin in the game), that dollar amount grows to $100. Or $1,000.
It’s a ways off, but 300,000 people at $1,000 is $300 Million.
You never know. It could happen.
They have to start somewhere, right?
I applaud the effort, no matter what happens. But I always wonder about the underlying thought process involved, and how people’s socio-economic values shape their opinions.
I was having a conversation with somebody earlier tonight about retirement. I asked, “Is it a right, or a privilege?” I feel like many people believe it’s an inherent right, and thus, ultimately, it’ll fall back on the government to ensure that everybody can retire. But retirement is a privilege, in my mind. It’s the reward for people working hard all their lives.
How can anybody think it’s a right?
What about the person who didn’t work hard, spent money frivolously for a half-century, and then turns 65 with nothing in their pockets. Does that person have a “right” to retire?
Many people think so.
Some people just think differently; they have a different value system.
So what goes through the minds of NYC cooperative owners who are making a “move against the hedge funds, private equity firms, and international investors who are pouring billions of dollars into the New York real estate, because it’s safer than the stock market, and driving up prices for everyone”?
Do the cooperative owners understand commerce? Do they understand the free market?
Why wouldn’t hedge funds, private equity firms, and international investors buy NYC real estate?
Should they be banned from doing so?
I feel like we’re only getting part of the story in the article from the Village Voice. As I said, I applaud these folks for trying something different, and for coming together. I think the whole “lack of formal leadership roles” goes against basic human nature, and that eventually, they’ll have some internal friction.
But what’s the underlying value system that these cooperative owners live their lives by?
Do they think that all real estate “should” be affordable, somehow, in some way?
Or do they acknowledge the realities of free market economics, and are simply trying to carve out a small piece for themselves?
If it’s the latter, then good on them. Their logical, they see the reality, and they’re trying something different.
But when I read that they’re “looking for funding,” I wondered if maybe they’re 300 people who have put together $10, and are now looking for millions of dollars to get their project off the ground.
In any event, I’m going to follow this group over the next few months, and perhaps we’ll bring this up again in 2016.
And of course the question needs to be asked: could we see this start to take shape in Toronto?
Kyle
at 9:59 am
Lots of talk about what they perceive to be the “problem”, but unfortunately not much talk about exactly how they intend to solve them. Short of getting massive funding from the Government, i don’t see any economically feasible business model that would actually help make housing more affordable for their members. Say they 200x their membership and actually raised $600K (enough to buy a tiny studio by 2017. Are the 60,000 members going to take turns living in it? Probably explains why they’ve only managed to raise slightly less than the average Girl Guide troop. The idea of affordable living in NYC for $10 membership sounds amazing, but unfortunately they could only find 300 people dumb enough not to ask “so what’s the catch?”.
Call me a pessimist, but it seems impossible to purchase somewhere that is highly desirable (and expensive) and then somehow turn it into something affordable without losing a ton of money. Would seem much easier to go the other way around. Purchase somewhere not very desirable (and cheap) and then somehow turn it into somewhere desirable. With a critical mass of enough like-minded people moving into such an area this actually would work and has been proven time and again, by neighbourhoods that gentrify. If they could find enough New Yorkers to buy up swaths of somewhere like Detroit and then inhabit it and become the community there, i could see merit in that.
Taking that same idea, I could actually see it working even better in the GTA, as we have affordable, depressed neighbourhoods that are reasonable commuting distance by train to Toronto, such as downtown Hamilton. If a few thousand house hunters from Toronto decided to buy, fix up and live in the the houses in Stinson, Corktown, Beasley and Landsdale (walking distance to the Go train station), i could totally see this being an affordable solution to bring good housing to people priced out of our city.
Joel
at 5:16 pm
Your idea is exactly what I was thinking reading this article. Especially with the artists. Would they not be better off to buy some land in upstate New York and make it more attractive for people to come there?
By living in a commune setting, or simply by purchasing many houses in a specific area and encouraging cultural and economic growth they could raise the values of their homes and live in an affordable place.
While I rarely agree with David’s Tea Party attitude on these issues, I do think that these people are just complaining that they have been priced out, but with no realistic solution.
Libertarian
at 11:01 am
I want to go slightly off topic here because David wrote about it in the post and we just had an election a week ago – retirement. I agree with David that it’s a “privilege,” but it’s very clear to me that with Wynne winning a year ago and now Trudeau, people in this country think that everything is a “right” and that the government must provide it. That scares the crap out of me!
“Retirement is the reward for people working hard all their lives.” The problem is that everybody thinks that they work hard, so they think that they’re entitled to live happily ever after.
People expect cheap housing, cheap food, cheap gas, cheap cars, and then the Freedom 55 lifestyle. What they don’t realize is that somebody has to pay for that, but nobody wants to. But then along comes the Wynnes and Trudeaus of the world who say that they can make it work. Here’s hoping that they have the magic formula, but I doubt it.
Kyle
at 1:50 pm
Correction, they are not saying retirement is a right, because you can not retire on Government pensions alone. They are saying a pension plan is a right. And these are only meant to mitigate the drop in income once someone retires. Most people aren’t actually prepared.
The new ORPP only affects employees without a qualifying employer sponsored pension. Those with a pension or those that are self-employed are excluded. It is paid for by the Employer (1.9%) and the Employee (1.9%). For those that say, “I work hard and already save for retirement, why should i have to pay more?” You don’t have to pay more, if you are eligible to collect the ORPP, you can reduce your savings by 3.8% each year, since your employer now has to pay into your pension.
David
at 1:14 pm
Yes, but it’s my hard earned money, why the hell should I have to reduce my savings because of an ill-conceived, manic government that can’t stop spending? We don’t need the ORPP, we already have the CPP. What the hell is wrong with people being responsible for their own lives?
Kyle
at 1:59 pm
“What the hell is wrong with people being responsible for their own lives?”
I take it you consider yourself to be responsible for your own life and you’re confident you’ll be ready when you retire, so then let me ask you two questions:
1. Exactly how much will you have to live off of when you retire?
2. How long will that nest egg last you?
If you can’t answer that, then how do you really know you’ll be ready? With ORPP the answers to 1 & 2 are known with certainty. With your being responsible plan, you have to have a lot of faith in many uncertainties.
David Fleming
at 6:33 pm
@ Kyle
Just so you know – “David” above isn’t me.
I’m surprised it took almost a decade for another person with the handle “David” to post on TRB…
Kyle
at 10:21 pm
@David Fleming
Just so you know, i promise to quit hijacking this thread. Let’s get back to affordable artist co-ops here! I have $10, where can i get my NYC apartment? 🙂
David
at 1:11 pm
Yes, I do take full responsibility for everything in my life and the choices that I make. I blame no one when things go wrong, that’s life and I don’t expect anyone or the world for that matter, to come bail me out, ever.
So to answer your questions:
1. Yes, I do have know what I’ll have to live off of but I have no plans to retire, I will keep working until the day I die and that’s a good thing. I like to keep busy and I’ll work at something that I like to do. I have no plans to just stop working and do nothing or “play” all day.
2. I do have some idea how long my savings and investments will last.
Even if I couldn’t answer those questions, the existing CPP and other government programs are enough. The ORPP just needlessly complicates matters.
Also, are any government programs guaranteed? What’s to stop future governments from changing or abolishing them or the existing RRSP or TFSA programs. In fact the new liberal government may in fact lower the existing TFSA annual limit. Who knew when the TFSA was introduced that this would happen?
There are no guarantees in life, but why do I have to be forced into paying into a retirement program that I don’t want? We already have more than enough government interference in our lives.
Kyle, I hate to break it to you, but the ORPP was not created by the Liberals as an act of love or concern for people of Ontario. Think of all the new government employees that will have to be hired to run this program, most of them being unionized of course. The ORPP was merely a nicely packaged “thank you” back to the people who put the Wynne government in power, it is not an act of kindness.
Even the existing CPP has lots of overhead, we don’t get it for free. Nothing from the government is ever free, there’s always overhead and massive corruption associated with anything government related. It’s all going to come crashing down one day when the nasty stuff hits the fan, just have a look at Europe, it’s not much fun over there. If we don’t get a grip, we will start to look more and more like Greece, good luck with that.
So yes, I’d much rather be allowed to run my own life and do what I want with my hard earned income than have some semi-literate, civil servants tell me what I can and can’t do. Of course having said all of that, I have no problem with helping those who are ill or disabled and can’t support themselves, but that can be done without all of the corruption and waste that’s currently going on.
David
at 1:13 pm
David, I have posted here a few times before and I love your website, keep it going! 🙂
Joel
at 5:27 pm
“Retirement is the reward for people working hard all their lives.” The problem is that everybody thinks that they work hard, so they think that they’re entitled to live happily ever after.
For someone that may not have been able to finish high school as they had to work to provide for their family and thus was not advantaged in life as others, who is now working as a Walmart greeter to pay for themselves does deserve to retire? I think many people are under the impression that they worked hard to get where they are, but when you grew up in a middle class family in Canada you’re already well ahead of most.
I don’t mind having part of my taxes go to these people as I know that I will be fine in retirement and would rather not see 80 year olds having to work to survive.
Libertarian
at 6:03 pm
My post was not about the poor. There are programs (CPP, GIS, OAS, etc.) that ensure that seniors do not fall through the cracks. I am not calling for the elimination of any of these programs. (Although, OAS should be tweaked to helper lower-income seniors more and higher-income seniors less.)
I am talking about the government taking over the business of retirement savings. Kyle points out the ORPP. It is scheduled to replace any work plan that is not a defined benefit pension plan. The government is deciding that defined contribution pension plans and group RSPs are insufficient. It is not for them to decide. Also, by contributing to the ORPP, a person gives up ownership of their contributions. So if the person passes away, the majority of that person’s contributions are lost to the system. It’s socialism.
Feel free to call me selfish, but I’m not the one asking for a handout from the government. I put aside money for my retirement and my family. If somebody else chooses not to do so, that’s their prerogative. I won’t be shocked that people will start complaining that their paycheques are reduced by 1.9%. People complain about housing affordability now, the complaining will only get worse when their paycheque shrinks. Maybe that’s when this collective movement will come to Toronto. Additionally, Trudeau is going to expand the Home Buyer’s Plan so that people can raid their RSP even more. Essentially, the government is saying that buying real estate is good, but saving on your own is bad. That’s why he’s also going to reduce TFSA contributions back to $5,500.
People should have the freedom to choose how to live their life. If you want to spend money on real estate, or vacation, or cars, or whatever, go right ahead. But don’t turn around and complain that you don’t have any retirement savings. If you want to retire, sell all of that real estate you own. Don’t ask the government to create some socialistic structure that affects everyone.
On a lighter note, David is always talking about real estate videos for selling and marketing a property. Here is the one for Michael Jordan’s estate:
https://www.youtube.com/watch?v=BdYUV2rTdIo
Joel
at 8:29 pm
I did misunderstand the point that you were originally making, assuming that you meant no one should be given those programs.
The ORPP should have an opt out option if you can prove fiscal responsibility. As I am self employed I don’t have to worry about it, but it does help those that don’t have the education/sense to save for themselves.
As for the handout from the government; you are getting one on your tax break when you put money into an RSP. The extra 5K limit in the TFSA only helps those who can afford 10K a year, in which case you have enough money that you can be paying tax on your investment earnings.
I like that video!
Appraiser
at 8:10 am
Why should I have to sell my real estate holdings, just because I guessed right 29 years ago?
Our retirement plan looks just fine. Thanks. As a long-term real estate investor, I learned (not theorized) that rental income is in fact relatively steady and reliable; probably more-so than average employment income, in the long run. We also figure that selling one property every five – ten years during our retirement years, should keep us well in to our dotage.
Disclaimer: Real estate is NOT a get-rich-quick scheme. Cheers.
Kyle
at 9:25 am
@ Libertarian
Let me preface this by saying i have a defined benefit plan at work, and i have never needed to access my RRSP for the Home Buyers plan, so i don’t have a stake either way. Overall i think the vast majority of people affected by the ORPP will be better off for it, businesses on the other hand with will suffer somewhat, but the risk of having a wave of baby boomers outliving their savings and becoming a burden on society will be drastically reduced. As for the Home Buyers’s plan, i think it makes total sense to increase the amount available, but those that do use it should also be aware of the the repayment strings that come attached.
You said, ” The government is deciding that defined contribution pension plans and group RSPs are insufficient.” This is untrue, defined contribution plans qualify as long as the annual contribution is greater than 8%, of which employers must contribute at least 4%.
http://www.ontario.ca/page/orpp-who-enrolled#section-5
You are correct that ORPP does not provide survivor benefits, but the reality is unless one spouse vastly outlives the other, most people are better off having their employer contribute 1.9% of their lifetime earnings into a pension than being able to pass on the remaining portion to a spouse. Also in your analysis you seem to be ignoring the many ways that the ORPP completely blows away any individually managed retirement, just to name a few:
– Ability to invest and hedge with assets such as real estate, private capital, infrastructure. OTC derivatives and commodities
– Larger scale, means lower management fees
– Far more ability to leverage and do long/short, relative value strategies
– Large scale also means more industry clout and larger network which translates into better terms from brokers, dealers, vendors, service providers, co-investment partners etc.
“Trudeau is going to expand the Home Buyer’s Plan so that people can raid their RSP even more. Essentially, the government is saying that buying real estate is good, but saving on your own is bad.”
I’m confused, after trashing the ORPP because it reduces options and doesn’t let someone do whatever they want with their money, you now lash out at expanding the Home Buyer’s plan, which is essentially increasing people’s options and allowing them to do what they want with their money.
Frances
at 11:35 pm
In a classic defined benefit pension plan, when you (and your beneficiary) die, whatever is left of your contribution remains in the plan. Those who die earlier than the average subsidize those who live longer than average. If you don’t do it that way, everyone’s original contributions will have to e higher. It’s not socialism.
condodweller
at 12:18 pm
As evidenced by this sub-thread, retirement is a whole separate subject and I find people have very strong opinions on the subject depending on which side of the fence they are on. I’m glad Kyle made the distinction between retirement and pensions. I would take it one step further and separate private and public pensions in which case I can say that people in the private sector who have paid into CPP + pension plans definitely have a right to their pension regardless how hard and how long they worked as what you get is based on what you have contributed to the plan. ORPP is designed to address the disparity between public gold plated defined-benefit pensions vs. public defined contribution plans or the lack thereof. As long as one contributed to the CPP and a pension plan they should be relatively ok in retirement as far as they don’t have extravagant spending habits. If one wants luxuries in retirement that’s where they need to save in addition to CPP+pension.
Real estate investment is a perfectly sound investment to fund retirement whether it’s in the form of rental income or the eventual sale of the property. It gets tricky if the principal residence is the only real estate holding however they are ways of unlocking capital there as well. I think owning a home, by that I mean having paid for it by retirement goes a long way to retirement security.
It will be interesting to see if the Provincial liberal will scrap ORPP now that the feds are talking about expanding CPP.
It’s OAS and GIS that I consider a privilege as it is covered by tax dollars and has no relation to how much you worked.
Kyle
at 2:58 pm
” ORPP is designed to address the disparity between public gold plated defined-benefit pensions vs. public defined contribution plans or the lack thereof.”
Bingo! I have to admit i am one of the incredibly fortunate ones to have a “gold-plated pension” and when people find out, they basically turn green with envy. So it is ironic that many of these same people are so adamantly against the ORPP, when in fact it gives them many of the benefits that they wished they had. I’m not saying the ORPP is the best thing since sliced bread, it too has pros and cons, some of the things raised by Libertarian are very valid, but from an outside observers viewpoint it actually seems like a pretty sweet deal for most folks, even those who think they are responsible enough to look after themselves.
Let’s take a look at some simplified numbers:
If you’re a 25 year old and make $45K/yr, you will pay 1.9% of your income for the next 40 years (which equates to a contribution of $34K over your working lifetime). When you retire, you can expect $6,410 every year from 65 until you die.
– If you live to 70, you would receive back $32K (almost as much as you contributed)
– If you live to 80, you would receive back $96K (almost three times what you contributed)
– If you live to 90, you would receive back $160K (almost five times what you contributed)
Unlike the “I’m responsible and can look after my own retirement” plan, you can bank on the above numbers.
http://www.ontario.ca/page/ontario-retirement-pension-plan
condodweller
at 9:32 pm
The only drawback with both ORPP and CPP is that if you die young you don’t get a penny back. Which is a big one.
The two good features of defined-benefit pensions are that 1. you can’t touch it until you need it and 2. you can’t screw it up because someone else manages the money for you.
You can actually do much better than ORPP with a participating whole life insurance policy and retain ownership of the funds but most people never heard of it.
ORPP helps out low-income earners who probably don’t know how to manage their finances and most likely would otherwise not save for their retirement.
The catch is that ORPP is a major download by government to tax payers as many will lose their GIS due to ORPP and therefore that 34K you paid over your lifetime just became an unnecessary cost! Essentially you are now paying for GIS.
David
at 1:26 pm
That’s all nice but you can’t “bank” on anything in this life. For that 25 year old, what makes you think that in the 65 year time span until the age of 90, that the payout from the ORPP or the CPP is going to remain the same? Or that this 25 year old will even make it to 80? many don’t. You’re also assuming that this 25 year old will be fully employed for 40 years, which will probably not be the case.
65 years is a very long time, our world is vastly different that it was in 1950, and I expect that 65 years from now in 2080, the world will have changed even more, and probably not for the better. You’re making a lot of assumptions about the future, but one thing is clear, government spending and wastage is going to give us a lot more to worry about than the ORPP.
GinaTO
at 1:16 pm
A side-note on the retirement thing: you assume that you’ll always work that hard. But maybe you’ll have an accident that leaves you unable to work, after your spouse died, leaving you with two young children (what happened to my dad). Or you’ll have kids, and want to see them grow up, so 80-hour work weeks will be out of the question. Just to say: 1-sh!t happens. 2-priorities shift. We plan the best we can, but it’s not entirely up to us, sometimes.
condodweller
at 12:36 pm
@GinaTO You were in an unfortunate situation and since you experienced it first hand, you can take steps to protect yourself against the same situation. Most people think they are fully covered by a group plan at work when in reality in most cases it needs to be augmented with a private insurance plan which is surprisingly affordable for a young family. However, most people think insurance premiums are a waste and don’t do it. Best planning will cover you for most eventualities. You just have to put it in place before you need it.
GinaTO
at 1:13 pm
Oh, absolutely, I agree with you, and this is what I’m doing for my own family. I’m just commenting on how even the best-laid plans can go awry – some commenters here are so quick to label social safety net as entitlement, handouts, etc.
Appraiser
at 7:48 am
Crowd sourcing and co-op housing. Wow!
Brilliant non-governmental, non tax-dependent societal initiative.
Almost human.
condodweller
at 11:18 am
This is very interesting and as long as they can find people to fund it I hope it works for them. My only concern is twofold: 1. governance 2. tenant selection. If they are planning on freezing rents once the property is paid for thus making it, and keeping it, affordable I think it’s a great idea. Once the property is paid for then rent can stay at a level where it covers expenses plus maybe a bit extra to fund the purchase/build of the next property. They might even be able to leverage the equity to fund the next build. The question is what scale can they achieve?
michael
at 7:07 pm
obviously at $10 per contributor, this makes exactly zero sense. BUT, leveraging the economies of scale that would result from a group of people getting together, forming a co-op and buying a building, renovating it and moving in definitely could make sense. If you remove the builder’s margin on a large project and pass that along to the eventual purchasers, you can probably bring the average price of a home down by 25% to 40%.
Next thing you would need to do is establish co-op bylaws that prohibit buyers from selling the property within a certain time frame or potentially even at a price reflecting more than a specified annual growth rate and maybe even limit rental rights… that way, you don’t just get a bunch of investors buying low and immediately flipping (which is basically the same economic outcome as consumers buying from a builder.)
This would take a ton of organization… but there’s a business model there that could work.
Given the amount of organization required, though, there’s no way this will succeed with people eschewing any formal organization structure or hierarchy