Introduction
It wasn’t until I became a renter in college that I encountered the real estate world firsthand. I was struck by a harsh realization: someone richer than me was profiting from my necessity to have a roof over my head. This stark introduction led me to question the foundational ethics of real estate: Is rent inherently exploitative? Are landlords inherently evil?
Driven by these questions, I embarked on a journey to transform my initial cynicism into constructive action. I co-founded Wild Capital LLC with the intention of learning and practicing mindful real estate investing while having a meaningful impact on the community.
In this document, I will walk you through two scenarios. The first is a real-life example of our company’s work as a landlord, illustrating the flow of money (which I commonly refer to as “economic energy”) through our operations and within the broader economy. Through this exploration, you'll see firsthand how real estate investment is much more than its profit-extracting stereotypes. By adopting mindful business practices, we demonstrate that landlords can significantly enhance community welfare, debunking the myth that they must profit at the expense of their tenants.
For readers less keen on land-lording and more interested in homeownership generally, I have included a section covering why someone might want to strive for homeownership, even though it’s a harder goal now than ever.
Join me as we delve into how to use the system to benefit us all.
Learning and Building a Foundation
In my opinion, the best way to learn anything is to practice it. While wanting to jump into real estate right away, I noticed my first barrier to entry: cost. My indebted college self could not afford to buy a house, so I needed leverage.
The first bit of leverage came from education. I spent weeks absorbing knowledge through various channels—podcasts, videos, and articles. I could then check my understanding by conversing with business professors to understand their industry experience. I learned about the process of buying a home and now only needed a team to make it happen.
A small group of like-minded peers and I came together and formed Wild Capital LLC, a company grounded in the principle of responsible ownership. The plan was to use this business to practice being landlords.
Case Study: Being a Landlord
Though we participated in multiple deals over the years, our journey led us to acquire a multifamily property in Berlin, NH, which became a cornerstone project. Previously a distressed asset, this property was both a challenge and an opportunity. We invested heavily in renovations during the first two years, directing about a third of all expenses to date towards repairs and safety upgrades.
Economic Flows and Community Impact
We have managed its economic impact for almost three years, and it has become clear to me that property management is more than mere profit extraction; it’s a story of how resources are stewarded to benefit all parties involved.
Our team has revitalized this multifamily’s community of occupants and spurred local economic activity by employing local labor and improving living conditions for residents. Let’s step through our operations and measure the impact of our expenditures. This is a breakdown of our expenditures as a percentage of the total capital raised by this project, including our team’s contributions and all rents collected. The figures are current as of May 2024.
Repairs and Upgrades
A substantial 36 cents per dollar spent has been dedicated to enhancing the property’s safety and livability. This encompassed many improvements, from repairing essential utilities and upgrading fire safety measures to repairing the heating and insulation systems. We also focused on cleanliness and structural repairs, such as fixing ceiling tiles and cleaning floors.
This investment provided local workers jobs and significantly improved our tenants' living conditions. In turn, these improvements contributed to a modest increase in the property’s valuation, benefiting us as equity owners by reinforcing the asset's worth in the real estate market. Course-correcting a decaying property is always paramount to ensuring the safety of its residents.
Mortgage Payments
Thirteen cents per dollar spent has been allocated to Chase, our banking partner, which facilitated the purchase of the property by providing a loan that covered 80% of the cost. We secured a 30-year fixed-rate mortgage before the post-COVID rate hikes, which was lucky, although the interest payments still accumulate significantly over time.
While this portion of our funds went to the largest bank in the world, it's a smaller slice of our overall expenses, for which I am grateful. From an impact standpoint, it's not the most impressive. In an ideal, more technologically advanced society, I would have preferred to leverage a local peer-to-peer lending network, allowing us to keep the financial benefits within the community by paying interest directly to local investors instead. At least this money supports the world's largest banking employer with over 300,000 employees whose salaries were partially paid by our interest.
Property Management
Eleven cents per dollar spent has been directed towards the operational expenses of our property, managed by a local property management firm. These companies typically excel in utilizing the best locally available resources and expertise and are essential partners in this business. They handle various essential tasks, including paying our bills, hiring contractors, collecting rent, maintaining the property's landscape, and filling vacancies as they arise.
The allocation of these funds supports not only their firm but also contributes directly to the livelihoods of the employees and their families. Berlin is a small town, so this money injects financial stability into the local community and fosters economic growth. Paying our property managers to handle these incidentals on our behalf impacts our ability to scale this venture by effectively buying our time back to use on other value-creation initiatives.
Electricity
Nine cents per dollar spent has been allocated to the electricity provider, covering the costs of powering, heating, and lighting the shared spaces and hallways of the property. Everything from lighting to heating to the alarm system uses electricity. This expense represents more than a utility payment; it's an investment in the essential infrastructure that sustains our building's functionality and safety.
A portion of these funds was used directly to generate the electricity, while the remainder supports the transmission process and compensates the dedicated workers who ensure reliable energy delivery. This expenditure not only maintains the operational integrity of our property but also contributes to the economic well-being of those involved in the energy sector.
Taxes
Eight cents per dollar spent has been allocated to property taxes paid to the State of New Hampshire. These taxes are not only a necessary aspect of real estate ownership but also serve as a vital source of revenue for the state, which does not collect income or sales tax. The funds collected from property taxes are critical in supporting the public services that benefit all residents.
It's gratifying to know that our contributions directly aid public initiatives that enhance the quality of life for the 1.4 million people who call the Granite State home. From an impact perspective, this expenditure is particularly rewarding, underscoring our commitment to supporting the community and contributing positively to societal well-being.
Insurance
Another eight cents per dollar spent has gone towards insurance premiums, paid to several companies through the years. This expenditure is a fundamental aspect of the real estate business model, designed to mitigate the risks associated with low-probability but high-impact events that could significantly affect our tenants, the property, and even the broader community. The insurance system pools premiums from a wide base to cover substantial liabilities that may only affect a few, safeguarding against potential disasters.
By investing in comprehensive insurance coverage, we ensure protection for our assets and all stakeholders involved—ourselves, our tenants, the property management team, and the community. This approach reflects a commitment to responsibility and foresight in property management, acknowledging insurance as a necessary, albeit grudgingly accepted, part of sustaining a safe and secure living environment.
Miscellaneous Expenses
Approximately 13 cents per dollar spent has been spent on miscellaneous but essential expenses that contribute significantly to our tenants' quality of life and safety. This includes payments to the town for water supply, which is crucial for daily living, and to private companies for oil, which is necessary to heat the property during colder months.
Additionally, a portion of this budget goes to a local landscaper who performs vital seasonal services. In summer, they mow and trim the landscape, maintaining the aesthetic appeal and functionality of outdoor spaces. In the winter, their responsibilities shift to plowing and sanding, which is critical for ensuring safe pedestrian and vehicle movement during icy conditions. While seemingly straightforward, these tasks are indispensable in providing our tenants with a safe, comfortable, and well-maintained living environment.
Building Equity
The final 3 cents per dollar has been spent to build equity in the property itself through monthly loan repayments. Each payment we make reduces our debt and increases our ownership stake in the property. This is considered an expense in our financial structure because it reallocates economic energy into building our asset base, indirectly enhancing our financial position over time. As we continue to pay down the loan, our equity—and potential for future gains—grows.
This aspect of real estate investment is a bit complex from an impact perspective; it does not directly contribute to community or immediate tangible benefits. However, it embodies the advantage of this business model, allowing us to accrue economic value through leveraged capital that is repaid over time. This approach positions us for potential financial success upon the property's eventual sale and underscores the long-term investment mindset fundamental to this industry.
Reflections
Reflecting on the role of a landlord, it's clear that the potential for exploitation exists, but it is not inevitable. The ethical impact of landlords depends significantly on how they reinvest their earnings back into the community.
For example, consider a landlord exploiting tenants by under-investing in repairs but using those excess profits to fund local dinners for the homeless. In this case, the landlord transfers economic energy from the rent-payers to the grocery stores that supply the area’s food.
In our case, we believe in the prudent handling of repairs because they often represent real safety and quality of life issues for real people who live there. You can make a huge difference to someone’s mental health by considering their basic human needs.
Despite being net negative on paper due to our upfront investments in the property's rehabilitation, we remain committed to our vision of impact-first investing. We aim to sell the property eventually at a fair market price, acknowledging our efforts to improve the state of the asset and allowing us to reinvest in more high-impact local ventures.
Case Study: Being a Homeowner
The experience of being a homeowner shares many similarities with the complexities of property management. Homeowners still encounter recurring expenses such as repairs, utilities, taxes, and insurance. However, the primary distinction lies in its financial structure. Instead of collecting rent from tenants and managing the property on their behalf, you are responsible for paying the mortgage and investing directly in your own home.
Building equity in a home is one of the most effective ways for individuals to accumulate long-term wealth. This is achieved with each mortgage payment, which reduces your debt and increases your ownership stake in the property. The principle behind this is straightforward: as you pay down your mortgage, you gradually own a larger portion of your home, converting what was once a liability into a valuable asset.
Real estate is generally considered a scarce resource, contributing to its appeal as an investment. Unlike many other assets, the supply of land and properties cannot be easily increased, which tends to increase their value over time. Additionally, real estate appreciates in value in an economy where the U.S. dollar experiences inflation. This natural appreciation, combined with the gradual reduction of mortgage debt, gives homeowners a powerful hedge against inflation.
For individuals not deeply versed in financial strategies, homeownership offers a relatively straightforward path to saving and building wealth. By simply making regular mortgage payments, homeowners can secure their living situation and incrementally build significant equity. This dual benefit makes homeownership an attractive financial strategy for many, serving as a place to live and a long-term investment that can yield substantial returns over the years.
Conclusion
Throughout this exploration, we've delved deep into the nuances of real estate as investors and homeowners. Starting with my realization as a college student facing the burden of rent, we've uncovered the layers of ethical considerations and economic dynamics underpinning real estate investments. Wild Capital LLC was born from a vision to redefine the landlord-tenant relationship and demonstrate responsible property management's profound impact on community welfare.
By managing a multifamily property in Berlin, NH, we have provided residents with safe and improved living conditions and contributed to the local economy through direct investments in property upgrades, utility payments, and services. These actions have shown how landlords can transcend the often negative stereotypes associated with their roles by focusing on community and sustainability rather than mere profit extraction.
The homeownership case study further emphasizes real estate's potential as a personal wealth-building tool, highlighting how straightforward actions like mortgage payments can lead to significant financial gains over time. Homeownership is not just about having a place to live; it's about investing in one's future through a tangible asset that appreciates in value, providing both stability and economic security.
In both scenarios—whether as landlords or homeowners—strategic real estate investments can serve as powerful vehicles for personal and communal advancement. The key lies in the mindful management of these assets and a commitment to ethical practices that benefit all parties involved.
As we reflect on these insights, it becomes clear that real estate offers more than just financial returns. It presents opportunities to make a positive, lasting impact on our communities and to build a sustainable future for ourselves and others. By understanding and harnessing the economic flows within real estate, we can use this powerful tool to benefit not just individual investors or homeowners but the broader society.
Thank you for joining me on this journey! I hope this discussion not only informs but also inspires you to consider how you might leverage real estate in your own life to achieve financial independence and contribute positively to your community.
This is how we use the system to benefit us all.