Thursday, July 9, 2020

Another Tool to Help Address the Housing Crisis

Most believe renters "throw away" money because they don’t build equity over time. But new startups are hoping to offer  a different approach. For example, when someone rents an apartment in a new complex in Columbus, Ohio, they can now also get a financial stake in the building.

Companies such as Rhove offer the security of ownership with the flexibility of renting. Rhove extends “renterships” to tenants in Rhove-partnered apartment complexes. The arrangements give tenants a stake in the building -- and their assets grow with the property’s value.

Rhove acts as an investor in the property by paying a lump sum to the owners. Tenants earn returns as property owners collect rent from the whole building, and as the property appreciates, the value of the shares increases. Another start-up, Nico, offers a similar concept, launching in the Los Angeles neighborhood of Echo Park, where gentrification threatened to push out some long-time residents. By purchasing rent-stabilized buildings and registering them in a financial trust, Nico offers portfolio shares to residents. This provides an opportunity keep their homes. Such ideas are not new: a real estate investment trust (REIT) is a closed-end investment company that owns assets related to real estate such as buildings, land and real estate securities. REITs sell on the major stock market exchanges just like common stock.

According to Hotpads, a young person will spend $200k+ in rent over the course of his or her lifetime. With many Americans spending a third of their income on rent, it can be difficult to save money to eventually buy a home. And renters generally don’t have the same opportunities to accrue wealth as homeowners. This Harvard study found wide wealth gaps between older homeowners and renters, even when their incomes are similar.

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