Homeowner Partnership

[Dylan Hall]

Hi everyone,

I've been thinking through an idea that likely has many issues, but I am hoping to get feedback on if you have time and are intrigued. If the idea proves desirable, I am interested in trying to create a business from it, but am still investigating if it is feasible.

Also, any recommendations on people to speak with would be helpful as well.

Problem: Even though there has been an increase in rentals, most people still express a desire to own a home. The control associated with ownership is very attractive to most. A house as an asset is a secondary consideration for some, but still attractive as well. The most recent recession has left people in negative equity situations (currently about 25%) and younger generations have higher debt burdens from student loans, which may make people more averse to debt to finance home purchase.

People want to invest in residential real estate, but it can be a difficult management problem and creates a lot of risk for investors.

Possible Solution: Imagine there is a company that establishes a limited partnership arrangement with prospective homeowners. The homeowner would be the General Partner and oversee the management of the housing while living there. The homeowner would pay rents to the investor company, and acquire ownership (say 5%) every year. However, the company would remain a passive investor throughout and always maintain some ownership in the property. Also, the limited partnership would have shares that could be sold to other investors. The rents collected would effectively be dividends.

Known issues:

Homeowner as investor: If the homeowner has built up 25% ownership and wants to leave the house, do they have to be bought out? Or do they just become a passive investor? Would this scare homeowners since homes are sometimes illiquid?

Handling Repairs: I believe the homeowner could be compensated either by reducing rent and/or by providing additional equity for the repairs that were made.

Passive investor rights: Ability to refuse unneeded repairs or at least not pay and prevent homeowner from selling house without consent.

Monitoring house: The home would be appraised/inspect periodically. Rents and the price of "buying ownership" would be updated to reflect new home price.

Again, any feedback would be helpful, even if it's, "you're on the wrong track and here's why."

Thank you,
Dylan