Friday, September 21, 2007

POTW: Mark Cuban on taking your house public

For this week's POTW, Mark Cuban chimes in with a thought-provoking why not: Solution for the Real Estate Market? Take Your House Public? It's a tidy, top-of-mind brainstorm about the illogical, binary approach to home ownership ... reminds me a little of our question posed a few months ago (liquidity for private company investments/real estate partnerships), but The Great Cuban has given it much more thought. Here's an excerpt:

Why not create a market or exchange where homeowners can sell equity in their homes ?

The rules could be very simple:
1. The house is appraised by a company approved by the exchange that lists the houses.
2. "Shares" are set with a Par Value of 10pct of the appraised value. For a 100k dollar house, there are 10 shares potentially available. However at no point in time can more than 40pct of the "shares" in a home be sold. We dont want the opportunity for "hostile takeovers".
3. The price of the shares will of course be set by the market. In a hot market it will be set above par, in a tough market like today, it will sell below Par.
4. All Proceeds from the sale of shares MUST be used to pay down any debt on the home.

This is the key element of this approach. By selling equity in a home, the buyer gets an asset based security that will move up and down with the market. If this market is big enough, there should be enough liquidity to move in and out of positions.
I like it. And, in the spirit of our inaugural post, Yes, and ..., instead of home-by-home IPOs, how 'bout bundling homes into an offering, analogous to the burgeoning consumer-back micro credit facilities/loans? You can do quarterly or annual appraisals (reporting) through a reputable third party, though the market value/stock price would be based on -- rightly so -- what an investor's willing to pay. Residential home equities. Pretty cool, especially in light of the credit crunch/mortgage meltdown.

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