There is a simple solution to the affordable housing crisis, but most everyone I share this with rejects it almost immediately. I hear this lamentation over and over, “I can’t afford it.” The right question to ask is: “How can I afford it?”
When I consider my primary residence, I am not emotionally attached to it. I take an investment perspective. My house is appreciating faster than any bank’s interest rate. Read my book The 7 Profit Centers in Real Estate – it’s free.
Since getting into the market is expensive, the solution is joint venture partners. Pool your financial resources and come up with the down payment together. If there are different amounts involved, just pro-rate the ownership stake.
As an example, let’s take a $2,000,000 house with a legal secondary suite. Using simple math, a 25% down payment for a conventional mortgage is $500,000 (excluding legal and closing costs). The down payment amount could be split up in a variety of combinations. Everyone has their pro-rated ownership stake. Their seed equity belongs to them at exit. Everyone shares in the equity appreciation. And yes, everyone goes on title. Or there can be a caveat attached to the title for those who wish to remain silent investors.
One investor can choose to live in the house as a renter. Thus, the mortgage interest in the house is tax-deductible. Any repairs and maintenance to the house is a business expense.
Select a 5-year term to give the house time to appreciate. Conduct a new appraisal. Refinance the house at mortgage renewal. There are several options for exit at this stage. Is there enough equity to pay out all or some of the joint venture partners? Do they even want to exit? There should be a joint venture agreement that specifies what happens at exit.
The important consideration here is living in a home that not only belongs to the bank, but is a financial burden to maintain. The focus is wealth creation and building financial resilience.
The purpose of this hypothetical scenario is to think outside of the conventional box. Remember that 100% of nothing is zero. Wishful thinking is not going to manifest financial security. Just get into real estate, even if you only start off with a 1% ownership stake – that’s $5,000 by the way on $500,000.
Contact July Ono
July Ono
Professional Real Estate Investor
