Conscious Capitalism & Rent To Own

Written by David Pereira

Managing Partner and Co-Founder

February 22, 2023

I recently learned about a book called “Conscious Capitalism” written by John Mackey, the founder and CEO of Whole Foods: The premise is pretty simple: Businesses should operate ethically while they pursue profits. This means they should consider serving all stakeholders involved including their employees, humanity, and the environment—not just their management teams and shareholders.

This concept perfectly encapsulates what we’re trying to do with Rent To Grow Homes. Let me explain, starting with a bit of background.

Our Role in the Housing Crisis

As a Real Estate Investor, there are moments when I question whether I’m contributing to the housing crisis. Buying additional property raises demand for real estate. Upgrading homes raise market prices. Leaving homes in their current state yet renting them out as a buy-and-hold is great for my equity and cash flow…but given the vast supply shortage and the increasing waitlist of those looking for housing, Are my actions simply exacerbating the problem.

House prices are getting further out of reach for many people. Many of us were brought up with expectations or aspirations of owning our own homes. However as housing prices skyrocket all over Ontario, this dream is getting further out of reach for many people. In fact, A survey of Ontarians revealed that 74% of respondents aged 18-34 don’t believe they will be able to afford a home in their city or town. The chart on the left is another survey with similar dire stats. As a father of two young ones, that’s a very grim thought.

So as we thought about the kind of real estate business we wanted to start, it was important to us that our business needed to solve a problem that we cared about. Yes, profit is important. But our goal isn’t to squeeze as much profit as possible. Our purpose is to help deserving families that rent today get onto an achievable path of home ownership.

Applying Conscious Capitalism

There are 3 specific aspects of our RTO operator business that align quite nicely with the idea of Conscious Capitalism.

1) The shared goal among all stakeholders is to have the Tenant Buyer succeed and take ownership of the house in 3 years. To support this, we have procedures in place to keep the Tenant Buyer on the right track.

2) We keep house prices affordable through our investors accepting a capped upside rather than trying to maximize their profits

3) We have signed the 1% pledge, a global movement that encourages organizations to give back 1% of equity, time, profit, or any combination that works. We have decided to donate our money to Raising the Roof, an organization that’s making long-term solutions to homelessness.

Let’s look at each of these in more detail.

Profit with a Purpose = WIN/WIN/WIN/WIN

RTO is a real estate arrangement that’s truly WIN / WIN / WIN / WIN. Everyone has skin in the game which means everyone has a vested interest in making the deal succeed.

· The Tenant Buyer spends 3 years saving up a bigger down payment and improving their credit

· The Investor makes a nice return with minimal effort and risk

· The Real/Broker makes a commission on a house purchase deal for a client that qualifies through RTO

· The Operator (Rent To Grow Homes) makes the bulk of our fees at the end of 3 years when the deal completes

During these 3 years, we help keep the Tenant Buyer on track by having our mortgage & credit expert create a financial plan for qualified Tenant Buyers at the outset. Then every 6 months, our expert will have a meeting with them to ensure they’re sticking to the plan and are staying on track with their savings and credit improvement. Additionally, we do quarterly check-ins at the property to ensure communication is very open and we offer resources for those who have never maintained a home before.

At the end of 3 years, we all arrive at the desired goal where the worthy Tenant Buyer, that has diligently stuck to the financial plan outlined for them, now gets to take on ownership of the home. And they do it at a reasonable, predictable price.

Sound too good to be true? The RTO concept has been around for years and is successful when the Investor and Operator are willing to cap their upside in a hot market.

Capped Upside for Investors = Affordable House Prices

Some Ontario markets are reporting year-over-year price increases of greater than 10%. This explains how homes that were $500K just a few years ago are now selling for $850K. With the RTO model, the appreciation is capped at around 4.5% annually over 3 years. This means a home purchased for $700K today would sell for about $800K in 3 years even if the market price is much higher.

Now a reasonable question would be “Why would an investor cap their upside in a hot Ontario market”? As RTO investors, it boils down to effort/risk/reward conversation. What if I told you that:

· You can get a solid return (we target 20% annually for our investors)

· Your effort is extremely low, meaning you don’t have to deal with any home maintenance or communication with the tenants

· Your risk is reasonably minimized

· You get all your money back + profits in 3 years typically

· You get to help a family own their dream home

Would this interest you, as an investor?

We’ve found that these tradeoffs have interested a lot of people looking to invest HELOC (home equity line of credit) funds into real estate without having to deal with the usual hassles of managing tenants and toilets.

The 1% Pledge

We thought the idea of the 1% pledge was a fantastic way to make an impact that will grow over time as our business get’s more successful. And the best part is that we’re allocating a combination of our time and money to a local cause focused on affordable housing.

We’ve chosen to contribute to Raising The Roof, an organization started in 1997 and is dedicated to making long-term solutions to homelessness in Canada. Part of this effort is the Reside project, an innovative program that renovates vacant or under-utilized spaces into energy efficient affordable housing through partnerships with social enterprise contractors and local housing providers.

If you’d like to learn more about Rent To Own, our model or the 1% pledge, feel free to contact us. We’d be happy to answer any questions.

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