"If I Were a Rich Man"

Today’s essay is based on a recent discussion during which we discussed McDonalds being known as a real estate company with an associated restaurant operation.

In recent years, housing affordability has become a critical issue in many parts of the world.

Skyrocketing real estate prices, stagnant wages, and limited housing supply have made it increasingly difficult for many individuals and families to find suitable and affordable housing.

In the US we just learned that the average house price for single family homes reached a new high.

This crisis affects not only low-income households but also middle-class families, impacting their quality of life and financial stability.

Corporate Involvement in Housing Solutions

Several major corporations have already begun to address this issue:

1. Amazon: Pledged $2 billion to create and preserve affordable housing in its key operational areas.

2. Facebook: Committed $1 billion to address housing affordability in California.

3. Apple: Allocated $2.5 billion to combat the housing crisis in California.

While these initiatives are commendable, I have thought about something that would take it further.

My proposed model takes a more direct approach by having companies invest in housing for their employees.

The Corporate Housing Investment Model

Under this model, a company would:

1. Invest in existing single-family homes and construct new ones following the Build-to-Rent (BTR) model.

2. Pay 25% of the property cost from company funds.

3. Finance the remaining 75% through 30-year mortgages.

4. Rent properties to employees for no more than 30% of their income.

5. Offer a rent-to-own option for long-term employees.

Let’s pretend AH Green Homes LLC, my company were much larger than it is and it’s real estate investing arm, Ideal Wealth Grower, would be applying the new model.

I would describe it this way:

As the CEO of Ideal Wealth Grower, I've always believed that with great success comes great responsibility.

Recently, I found myself humming the tune "If I Were a Rich Man" from Fiddler on the Roof, and it struck me - I am a rich man, or at least, my company is a wealthy entity.

What if we could use our resources to make a real difference in our employees' lives and our community?

The housing affordability crisis has been weighing on my mind.

I've watched as our employees struggle to find suitable homes, often commuting long distances or living in less-than-ideal conditions. It's time we did something about it.

So, I've decided to launch an innovative housing program.

We're going to invest in existing single-family homes and build new ones, following the Build-to-Rent model. But here's the twist - these homes will be for our employees, rented at affordable rates, with an option to own.

Let me tell you about some of the families who could benefit from this program.

First, there's Sarah and Mike, a young couple both working in our software development department.

They've been saving for a house, but with the current market, it always seems just out of reach. Under our new program, we'd buy a $200,000 home, investing $50,000 of company funds and taking out a $150,000 mortgage. Their rent? Just $1075 a month - that's the mortgage payment. It's well below the 30% of their $100,000 combined income that we've set as the maximum rent.

Imagine the relief on their faces when they realize they can finally afford to live in a nice home and still save for their future.

Then there's the Rodriguez family - Maria, Carlos, and their 5-year-old daughter, Sophia. Maria's a project manager with us, and Carlos runs his own small business. They've been cramped in a two-bedroom apartment, dreaming of a yard for Sophia to play in. We could provide them with a $250,000 home, perfect for their growing family. Our investment would be $62,500, with a $187,500 mortgage. Their rent of $1344 a month is a steal compared to local rates, and well within their means given their $120,000 combined income.

Lastly, consider the Johnson family - Tom, Emma, and their two kids, Jake and Lily. Tom's been with us in operations for over a decade, while Emma teaches at the local elementary school. They've watched house prices soar, feeling like the American dream of homeownership was slipping away. We could offer them a $300,000 home, investing $75,000 and mortgaging $225,000. Their rent of $1,613 is comfortably within their budget, given their $150,000 family income.

But here's where it gets really exciting - the rent-to-own option.

Let's say the Johnsons decide they want to put down roots permanently. They could opt to pay 40% of their income instead of 30%, with that extra 10% going towards paying down the mortgage principal. Even if Tom decided to pursue other opportunities after five years with us, they could continue in the program. Depending on home values and their income, they could own their home outright in 20 to 30 years.

Now, I know what you're thinking - this sounds expensive.

And you're right, it is a significant investment. To kick off this program with 1,000 homes in our Midwest community, we're looking at an investment between $37.5 million and $87.5 million, depending on whether we're buying existing homes or building new ones.

But here's how I see it:

This isn't just an expense, it's an investment. An investment in our employees, in our community, and yes, in real estate that will likely appreciate over time. We're not just building houses, we're building loyalty, stability, and a stronger community.

If you want to see how our company can grow a portfolio worth more than $600 million with this model, see below in the Nerds part, where the calculations are shared. ??

I can already envision the block parties in these new neighborhoods, the gardens our employees will plant, the sound of children playing in yards their parents never thought they'd be able to afford. This is about more than balance sheets and mortgages - it's about giving our Ideal Wealth Grower family the security and stability they deserve.

So yes, I am a rich man - or at least, I lead a wealthy company. And with this wealth comes the power to make a real difference. This housing program is just the beginning. Because when I imagined what I'd do if I were a rich man, this - creating real, tangible positive change in people's lives - this is exactly what I had in mind.

Anybody out there who has about $50 million and wants to jump into this program, please contact me…

Conclusion

This innovative approach to corporate-sponsored housing could provide significant benefits:

1. Improved employee retention and satisfaction

2. Addressing housing affordability issues in communities

3. Potential long-term financial returns for the company

4. Positive impact on local economies and real estate markets

While this model would require a substantial initial investment, it could create a win-win situation for employees, companies, and communities. As companies increasingly seek ways to demonstrate their commitment to social responsibility and employee well-being, this "If I Were a Rich Company" approach to housing could become a powerful tool for positive change.

Nerds part:

Assumptions:

• 1,000 total houses
• 500 existing houses at average price of $175,000 ((150,000 + 200,000) / 2)
• 500 new built BTR houses at average price of $300,000 ((250,000 + 350,000) / 2)
• 4% annual appreciation rate
• 50% of houses are rented, 50% are in rent-to-own program

Initial portfolio value: (500 $175,000) + (500 $300,000) = $87,500,000 + $150,000,000 = $237,500,000

Now, let's calculate the portfolio value at different points in time:

After 10 years: $237,500,000 * (1.04^10) = $351,420,879

After 15 years: $237,500,000 * (1.04^15) = $427,544,094

After 20 years: $237,500,000 * (1.04^20) = $520,069,888

After 25 years: $237,500,000 * (1.04^25) = $632,697,791

However, we need to account for the rent-to-own program. Assuming a 30-year ownership timeline and linear equity buildup, after 25 years, the company would have transferred ownership of about 41.67% (25/30 * 50%) of the total portfolio to employees.

Adjusted portfolio values:

After 10 years: 100% of $351,420,879 = $351,420,879 (no houses fully owned by employees yet)

After 15 years: 91.67% of $427,544,094 = $391,915,422

After 20 years: 83.33% of $520,069,888 = $433,374,235

After 25 years: 75% of $632,697,791 = $474,523,343

These calculations assume that the appreciation rate applies equally to all properties and that the rate remains constant. In reality, market conditions can vary significantly over time and between different types of properties.

Also, just so you know, this doesn't account for any mortgage paydown on the company's initial 75% financing, which would increase the company's equity in the properties that haven't been transferred to employees. Including this factor would increase the company's total asset value beyond what's shown here.