Investing in real estate for as little as $1. Is that really going to be more equitable? Isn’t that just putting more people into real estate and driving up prices? Even worse, is that inducing people who really can’t afford it to invest into real estate?
These are legitimate questions, and both are bound to spike passions.
To properly answer the questions we need to explore two issues:
- The fairness of the present situation. Especially for opportunities like property redevelopment, and
- how property consumption and investment are tied together.
The fairness of property redevelopment.
By far, the most lucrative returns in real estate come from property redevelopments. As explained in our post “Hey IMBY, can you really get a 35% return in real estate today?” the permission to increase density for a given plot of land is the driving factor in creating those high returns.
Increasing density in our cities has both benefits (better services and more housing) and drawbacks (traffic jams and construction). Most people in the community have little say and absolutely no direct financial benefit in a redevelopment. However, they bear all the drawbacks.
Regular citizens cannot participate in a redevelopment, because most of us don’t have access to these developers and even if we did, we couldn’t afford to invest. The investment cutoff is $250k or more, because the administrative and legal costs are so high.
IMBY is eradicating those barriers. Rather than creating yet another way for the wealthy to get wealthier, we are giving regular people access to opportunities previously only available to the connected and wealthy.
Property Investment and Consumption
Matt lives in Vancouver, he’s stressed. He’s missed the opportunity to buy Real Estate and believes he will never get into the market. He laments that all he can afford is property way out of the city, when he really wants to stay living in Vancouver. So he rents.
Amber lives in Vancouver, she’s stressed, too. Amber got into the market in 2009, but she put all of her money (including borrowing from her parents) into the down payment. She can barely make ends meet with mortgage payments, maintenance, and utilities.
Matt has 0% invested in real estate, and Amber has 100% invested in Real Estate. Both situations are common today and both are poor situations. Any financial planner worth her salt would strongly advise against this. It’s poor portfolio management.
Wouldn’t it be better if Amber could divest a portion of her home as equity so that she is less levered, and wouldn’t it be better if Matt could invest a prudent amount of his savings into property located where he wants to live while he rents an affordable accommodation?
Amber should sell Matt part of her home, both will be better off. In fact, wouldn’t it make sense for Matt to split his real estate investment into a number of houses in the area where he wants to live rather than just one home? For that matter wouldn’t the same logic also apply to Amber?
This just makes sense. It’s better for Matt and Amber. It’s better for society. But to make this possible we need a way to divide a property into smaller investments so that ownership can be shared with more people.
That’s the future that IMBY wants to see.
You can learn more about IMBY here.