Introduction to T-Homes – Part #1
Introduction to T-Homes – Part #1
Adding Inventory to the Housing Market
Recap: In our last substack, we shared how Case Study #1 – Solve for affordable housing / rental crisis would be addressed by REAT. Today, we will delve into Case Study #2 – Solve for housing inventory crisis while providing safer debt for institutions.
As we all know, rising rents, inflation, and depleting inventory are all key contributors to the current housing crisis. Rents have increased an average of 8.86% per year since 1980, consistently outpacing wage inflation by a significant margin1 and inflation in the U.S. accelerated to 7.9% in February 2022.
You don’t have to look very hard to notice that housing inventory levels in the U.S. are at record-lows. Here are just a couple headlines from recent news articles:
How A Low Housing Inventory Impacts the Real Estate Market
And if that isn’t enough doom and gloom for you, U.S. housing inventory has decreased 66% over the last five years. And as my Econ 101 professor taught me: when supply goes down, prices go up.
Current Solutions to the Inventory Problem
Historically, the housing inventory issue was “solved” by simply building more homes. However, building new homes is a very limited solution and is not viable in the long term. Builders are struggling with unstable and rising supply costs, and a lack of skilled tradespeople to build new homes. These make it nearly impossible to make a profit on entry-level new home sales.
Consider this: Over the last five years, lumber costs have increased 173%, while the median home price has increased *only* 56%. With supplies and material prices rising faster than housing costs, there is a huge chokehold on the building market.
Needless to say, the way to tackle the inventory problem is NOT by building more housing.
The Solution
We have a solution that does not require building additional houses. We are simply going to leverage the existing real estate infrastructure and enable innovative ownership mechanisms.
There are currently 44 million U.S. households who rent their primary residences (apartments, single-family houses, etc.) We are willing to bet that a substantial number of those households would rather own their residence instead of rent it.
Introducing T-Homes
T-Homes is a private company that will be TheopetraLabs’ partner. This entity will hold the mortgage products and will legally own the real estate in the U.S.
There is one caveat: If your definition of homeownership is “the government gives me a deed”, then you won’t be a homeowner under our model and this solution is not for you.
However, as we’ve explained in this substack, if your definition of homeownership is “I want to have the freedom to do what I want with the property. I want a fixed payment. I want to be able to sell the property. I want to earn equity in the property,” then T-Homes is the solution you’ve been looking for.
How Will It Work?
At T-Homes, our process starts by purchasing existing real estate, beginning with multi-family properties in the U.S. Then we will sell each unit by offering a 99-year lease to tenants (read: owners!) with a 30-year payment plan, which stipulates that you will have a fixed payment; you will have the rights to sell it whenever you want; and we basically won’t be able to screw with you. Congratulations, you are now a homeowner!
Think about it: In terms of physical attributes, condos and apartments are essentially the same thing. They often have similar amenities such as pools, trash disposal, manicured green spaces, etc. The only difference between the two stems from the ownership model: A condo owner is building equity, while a renter is not.
This arrangement also makes it easy on the selling landlord because he/she won’t have to deal with converting the property to a condo or other traditional housing type. T-Homes will buy the entire building and you will be able to buy your apartment unit and start building equity and claim any price appreciation as your own almost immediately.
The resulting cost efficiency will allow parties to sell individual units rather than the entire bundle that the property comes with.
Reimagining Homeownership
We are re-writing the rules of homeownership. You no longer have to save until your mid-thirties for a down payment; you can start owning and earning equity much sooner. Want to sell your apartment? You can do that too, and you don’t have to ask for anyone’s permission.
T-Homes holds the title and you’re able to swap with other people anytime you want. You will save tons of money on selling fees and other closing costs vs. a traditional real estate transaction.
This is similar to L1/L2 scaling solutions on blockchains. While keeping the ownership layer constant, you are able to swap at a much more efficient cost. The owners are still traditionally the owners, just not with the main settlement (with the government).
What Other Assets Can You Own and Leverage in the Future?
A decade ago, people would have thought you were crazy if you said you wanted to rent out your couch or spare bedroom for the night. Fast-forward to today and Airbnb, VRBO, and other peer-to-peer couch-surfing marketplaces are the norm and are overtaking major hotel chains.
In fact, Airbnb’s total market cap of $108 billion is equal to that of Hilton, Marriott, and Hyatt combined.
Traditionally, mother-in-law suites, garages, hotel rooms, and individual apartments have never been liquid on any marketplace. Ten years from now, you will essentially be able to sell your master bedroom if you want to thanks to the innovative ownership structure of T-Homes.
T-Homes is lowering the barriers to entry for homeownership and also laying the foundation for a marketplace where much more than just whole homes will be bought and sold. In fact, we’re introducing a modular and flexible ownership structure in real estate unlike anything you’ve seen before.
Stay Tuned for Part 2
Today we tackled the housing inventory issues and introduced you to T-Homes, our partner for the housing solution. Next week’s substack will answer the following questions: How do we buy a T-Homes'-owned apartment? What does the ownership structure look like? What can I expect out of it as a homeowner? How does this all tie in together?