3DN Long Island Home Enterprises
By: Terry Daniels
What is Home Enterprise?
- Home Enterprise is a group of individuals who contribute time, money and skills to refurbish below-market valued homes. In the process of updating the homes, members can rent the home at reduced rents. Any hours spent restoring the house can be “banked” to the individual member’s account for future withdrawls, which we will explain shortly. Individuals with cash to invest can convert this contribution to hours at a rate of $20 per hour. A database will keep track of all time logged.
- With time and capital invested in this manner, Home Enterprises will pool resources quickly and retain them long enough for them to be utilized with powerful effects.
- Home Enterprises membership will be comprised of anyone with any combination of effort, skill or capital to contribute to turn run-down houses into homes. No minimum amount of time, requisite skill, or initial cash investment is required. The only stipulation is that whatever resource is contributed be allowed to stay within Home Enterprises for a minimum of a two year period. To prospective members we say; if you can’t part with it for that long, don’t part with it.
How does it work?
- Through commitments of labor, money and materials, Home Enterprises will build and rehabilitate homes that meet the strategic goals of the organization. For example, we will target the purchase of houses that are fifteen percent below market value, are structurally sound, in desirable locations, and need repair in ways which best take advantage of the skill set of our members. Home Enterprises houses can be sold or rented depending on the strategic goals of the organization at that time.
How do we keep track of individual inputs and outputs?
- Home Enterprises will have an elected committee that will make policy and strategic decisions. The committee is responsible for the day-to-day running of the organization. Regular meetings are open to all members. Computerized records are kept of all transactions and an account is sent out to members twice annually. Financial statements will be prepared and the net worth of Home Enterprises (Assets-Debts) will be divided by the hours (or shares) of all the members. The appreciation or depreciation of the assets held by Home Enterprises will be shared by all on a basis that is proportional to the individual’s contributions.
How does one cash out?
- Once the two year vesting requirement has been met, a member may withdraw their “hours” in any number of ways. They may rent or purchase one of the homes using their hours as rent, or even as a down payment. They could have other members refurbish their homes - our roofers can patch a roof, our plumbers and tilers can re-do an entire bathroom! Finally, and most simply, members can just take the cash. Profitable re-sale of refurbished homes will allow the organization to have cash distributions. Naturally, some advance notice or payment schedule will need to be set up for departing members due to the nature of the assets and legal commitments of the organization.
- It is anticipated that relationships of members within Home Enterprises will begin to cross-pollinate into areas outside of home refurbishing. What’s to stop members from “trading” accrued time with other members within the organization? A painter, who has hours credited to his account, may utilize the services of an accountant who is looking to log time. The possibilities are limited only to the skill and imagination of the individual members.
- An example:
- A house is purchased for $250,000 in January of 2005. We estimate that the house is priced at fifteen percent below the market. In addition, the bathroom needs to be updated, the electrical system needs help, the roof leaks and the landscaping is overgrown and a bit tired. Lastly, we feel that with a new bay window and some fresh paint, this house would sing.
- We will need investors to fund closing costs of $11,000, a twenty percent down payment of $50,000 and material costs for all improvements.
- It takes three months for the group to tackle all these improvements. Meanwhile, three members have been renting the house for $1000, well below similar rentals in the area, but considering they have been living in a construction site, everyone considers this a fair deal. This rent helps offsets some of the monthly mortgage and taxes of $1800.
- In March, we put the house back on the market for $340,500. Full market value of the house we purchased at $250,000 would have been $287,500; if we add in our improvements of $40,500, we arrive at a selling price of $328,000.
- By mid-April we accept a serious offer of $322,000. At July’s closing, the down payment is returned to the investors, along with the closing costs of $11,000 (twice) and material costs of $6950.
- It is agreed that our initial investors be paid 5% interest for the use of the $78,950 needed to buy and sell this house. Interest costs of $3,047.50 leave us with $39,102.50 for 287 hours of work.
- Home Enterprises leaves the lawyer’s offices with $39,102.50. In this scenario, each hour of labor has produced $91.58 of capital.
Other considerations
- It is important for Home Enterprises to have an early success. A quick sale is needed to minimize a risk of a market downturn, to refund initial investors, and to show members of the viability and power of forgoing wages to accumulate capital.
- We will encourage no member to participate with time that they need in the wage-earning economy to pay the rent.
- This is time after “work” or on the weekend – spare time. We intend to have a good time working hard, meeting new people and learning new skills. If this experiment gives us a nice return on time spent, this will be an added bonus.
- I believe certain economies will begin to occur naturally as we gain experience and expand the network to include lawyers, real estate brokers and any other service providers that are essential in keeping transaction costs low.
- Having experienced trades people is essential for us to minimize costly mistakes and to guide and teach members with less experience. An important organizing principal for Home Enterprises is that no member be paid more or less for their skill level. The power of this organization will come from the participation of its members and the full gamut of their skills; member’s inputs will not be reduced to a single skill or trade.
- Our culture teaches us to get the highest dollar value we can for our time. So we specialize and work our 40 hours at that skill that will bring home the biggest paycheck. This thinking can kill our creativity, our sense of community and I sense that there is a false economy here that has become a cultural blind spot. We become bored at work, we’re too afraid to learn new things and we loose respect for those outside our field of expertise. Besides, a skilled craftsman can leverage his skill with a group of enthusiastic workers who haven’t grown bored with grunt work associated with any trade. I expect we will capture the fruit of an esprit de corps that may offset most, if not all, of the loss in productivity due to inexperience.
Capital to Hours
- I believe that, as soon as is feasible, investors should become members whose capital has been converted to hours. This will put capital on an equal, not greater footing, than effort and skill. Typically in our economy, capital captures the risk/reward premium of most of our enterprises. Management utilizes outside capital to pay a wage to an employee and to buy whatever equipment is needed to do the job. If successful, profits leave the organization in the form of a dividend. The risk is that the venture is unproductive and more outside capital is required to sustain the enterprise.
- Home Enterprise creates capital with its member’s time. Additional capital can be captured by creating a commitment to pay back with future time, not money plus interest. Thus capital has been stripped of an advantage it often receives to counteract the effects of inflation. Since time is not inflationary, there is no need to compensate it for this risk with an interest premium. This organization rewards time not money. The power of capital is put to use for, and the gains received will be allocated to, those with the most time committed.
Wage Earners become Capitalists
- I expect that many members will have to adjust to not seeing a check a few days after they’ve worked. But we are a community of investors now. Member’s time no longer has the fixed value of a wage earner. The value of time committed becomes a function of how well we manage other resources, take advantage of opportunities, and minimize risks inherent to any ongoing concern. The net value captured by Home Enterprise will “float” depending on any number of factors. Normally, wage earners aren’t directly concerned with market values of assets, insurance rates, or changes in legislation. Our members, like prudent investors, realize this is why the market will pay a premium - for assuming risks over time.
- Home Enterprise will assume this risk and it is important for member’s to realize that some projects may be losers, that markets can drop rapidly, and organizations can be dragged into court for any number of reasons. If anyone is uncomfortable with the value of their labor being exposed to such risks, they should think twice before committing their time.
Profit vs. Non-profit
- The motivation to create Home Enterprises started with the realization that affordable housing has moved out of reach for many Long Islanders. To make mortgage payments, it is almost essential that there are two wage earners in the house. A loss of a job can become catastrophic. Single folks are staying at home, or are renting without saving. For many the choice between home ownership means trading a social life for a second job.
- Home Enterprises can create an organization where we can work together for common and individual goals. Members can withdraw shares for a down payment or withdraw banked time by using our team to work on their own below-market houses that may be affordable but need work. Members can withdraw time and or assets to supplement their retirement savings.
- We want to be self-funded and to do so we will use profits generated by our organization. We will not be beholden to outside government agencies or independent charities. We will both survive and grow based on the viability of this organization or we must adapt or cease to exist.
Looking Forward
- Home Enterprises is a new kind of business – it reconnects the interests of capital and labor. No longer are these two forces in wasteful conflict. Home Enterprise will have a transparency that will not hide the costs and profits from those whose effort secures such gains. Labor will look to conserve precious resources and seek ways to become more efficient, as a means to not only preserve capital, but to add to it.
- In time, the success of the organization may create surpluses of capital. An entrepreneurial division of Home Enterprise may be created to lend capital to start-up ventures that take advantage of opportunities that appeal to members of the organization. These companies can produce jobs that have full-time wages and benefits and seek to deliver products and services outside of Home Enterprise. Equity in these firms would still be owned by Home Enterprise members, but would allow the organization to diversify some of its investment risks.
- These firms can capitalize on two distinct advantages that often derail many start-ups: a solid asset base for adequate working capital and a network of professionals that will help the fledging enterprise meet the administrative and legal challenges that any new business faces but often go unnoticed with tragic consequences.
- As far as I am aware, most barter exchange communities that already exist have non-profit status and can maintain this status with the IRS so long as the shares of such an organization have no monetary value, that member’s time banked is not a contractual liability, and that the efforts of the enterprise are charitable in nature. Since we are looking to realize the “capital gains” on our projects we will necessarily forgo tax exempt status. However, as members redeem shares by taking time out of Home Enterprise, they will not be paying any payroll taxes and will receive advantages of trade discounts on materials and equipment.
- Limits to capital in its many forms, such as land, money or equipment, represent missed opportunities for many who have no shortage of hard work and great ideas. This new type of enterprise allows us to “capitalize” a resource we all currently own: our time. If we commit our time, our skills and our effort those traditional kinds of capital are sure to follow.
- Modern American suburbia can induce a slumber that may have us forgetting our past heritage; and it lures us with its myth of independence. Perhaps we live in a place where we are adrift without the vital health of a good community. Perhaps we are now starved for something we didn't even know we lost. But it is clear that we cannot be an economy of one.
- Thankfully, a community economics is not completely gone from sight. To see the Amish barn-raising is a thing of beauty -- with no cranes and high tech gear the community comes together works hard, eats well and raises a neighbor’s barn! So a way back may start with a belief that everyone has something to contribute. And that our collective efforts are better than those done in isolation. People still desire to work hard, to work with purpose and to have fun while doing it. We are better when we work together and together we can accomplish great things.
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