Real Estate Developer On Path To Homeownership
Homeownership is still the best, largest and often only major investment that most Americans make. But price fluctuations, skyrocketing taxes and hefty maintenance costs have many homeowners looking for another way to keep a roof over their heads while still having a stake in real estate’s long-term appreciation potential.
According to CEO Brett Kaufman of Ohio real estate firm Kaufman Development, a hybrid model called “rentership” might be just the answer.
Traditional rent-to-own plans allow tenants to apply a small portion of their rents toward maybe someday owning their homes. But Kaufman’s rentership program is different – it aims to be a cross between renting and ownership.
The program allows renters to actually own stakes not in their individual units, but in the large-scale real estate developments that house their apartments. All renters coming into a development receive a free $50 of $1 “rentership units,” or “RNTs.” Tenants also receive another $50 of RNTs every year when they renew their leases.
These RNTs pay 5 percent interest per year, and can also give renters a share of any appreciation if the complex ever sells. Renters can also sell back their RNTs at any time at the original $1 each or can buy additional RNTs for $1 apiece.
The program is run by an app made by Columbus, Ohio-based startup company Rhove, which Kaufman co-founded and aims to expand far beyond just his developments.
Rhove teamed up with Kaufman to roll out the rentership concept at Kaufman’s latest Columbus mixed-use project, called Gravity. Located in a trendy neighborhood with a younger demographic, Gravity mixes apartments with offices and community space.
Kaufman said the rentership program aims to honor the tenants behind the rent checks – often millennials who are struggling to build some wealth.
“Rentership is essentially an opportunity for every renter to own a stake in the community in which they live,” he told PYMNTS in a recent interview. “We just saw a situation where rents had gotten to the point that they weren’t allowing people to save money or build any wealth. So we came up with ‘rentership’ as a way for people to go in between renting and owning. [It creates] a new category of saving money and building wealth by living in a rental community.”
Like A 401(k)
Kaufman said there are parallels between rentership programs and a typical workplace 401(k).
“If you work at a company, over time there’s an opportunity to build some wealth and a nest egg by paying into [a 401k] and being supported by your employer,” Kaufman said. “If you do that over a long enough period of time, there’s real wealth creation.”
The rentership program applies the same theory to the money that renters spend each month on housing and the communities in which they live. Rentership provides an opportunity to increase their stake in a large property over time, building wealth in a 401(k)-like fashion.
But one major difference is that unlike owning a residence, rentership gives tenants the ability to own a stake in their homes without the risks and responsibilities involved in actually buying a place.
COVID-19 Could Help Demand
Kaufman said that COVID-19’s impact on residential real estate has been limited when compared to restaurants, hotels and office buildings, which have been slammed by reduced occupancy rules.
He said housing has held up better because “people still need to live somewhere.” For example, Kaufman noted that markets like Columbus, Ohio – where he owns and operates about 1,000 apartments as well as some commercial space – have been stable in terms of jobs and people being able to afford rent.
“Columbus has been a steady growth market, and we’ve seen the same thing in other Midwestern cities – Pittsburgh, Indianapolis, Cleveland, Cincinnati, Detroit,” he pointed out. “There’s been steady rent growth over the last decade, and I don’t see that changing.”
In fact, Midwest affordability has become a major draw as renters and businesses leave high-cost centers like New York or California. “I’m pretty bullish on where we are from a rent standpoint and where that’s headed over the next decade,” he said.
Building ‘Conscious Communities’
However, as a way of differentiating his properties from those of his rivals, Kaufman is introducing what he calls “conscious communities” to the Midwest.
Those communities are heavy on art, murals and contemporary design, as well as communal offerings for volunteering and other health-focused and holistic features that embrace the human experience.
“I like to compare it to yoga or meditation 10 or 20 years ago,” he said. “Those things were maybe a little more fringy” then, as they were available in places like California, but seen as “kind of weird” in the Midwest.
“I still think it’s a little bit in pioneering territory, but I don’t think that will last for long,” Kaufman said. “We’re already seeing a tremendous reception” for the concept at the builder’s new Gravity project, he noted.
Follow The Artists And Creatives
But no matter how conscious or contemporary the property, certain business fundamentals must still be in place.
“You can start talking about consciousness and have all the right intentions, but if you’re in the wrong location or your economics are upside-down or you’ve got to charge too much rent, it’s not going to work,” Kaufman said.
To make things work, he typically looks for stable job growth when deciding where to put new developments, then builds where the artists and creative types are.
“This is probably my No. 1 thing: ‘Where are the creatives?’” he said. “That’s always where the most valuable real estate is going to be. They’re ahead of the curve.”
Kaufman said it’s also typically where the jobs will be, as it’s often where tech companies will go to attract and retain talent.
“It’s no longer the focus to be in the central business district,” he said. “You want to be squarely where the energy is, and that’s where the creatives are – and rentership is a big part of that.”
