Calvin Cooper, Rhove
How a Technology Startup is Helping Renters Become Owners
When I was writing my latest book I found myself double guessing the idea that while one of the greatest ways to build wealth is through real estate investment, and that while one way to do that is to own a home, many people have been excluded from being able to buy a home because of increased prices and down payment requirements, tougher qualification requirements for loans etc., and that, while not wanting to appear to be discouraging home ownership, I suggested that investing in real estate through crowdfunding syndication could be an alternative way to invest in real estate.
Well, my guest today, Calvin Cooper, who is co-founder and CEO of Rhove, has developed an innovative solution to this quandary by providing apartment dwellers a way of owning a piece of the building in which they live. What you're going to learn from Calvin is how the idea works, as well as how he communicates a novel idea like this to both sponsors and tenants alike.
What You're Going to Learn
- How renters can have a stake in where they live
- How Rhove is transforming rentership
- The way funds are invested in disbursed in the Rhove program
- That owning a piece of your apartment leads to longer leases
- Passive income and capital growth even as an apartment dweller
- That the barriers to home ownership are getting higher
- How every renter can have a vested interest
- That it's important for social justice to allow everyone to build wealth
- And much more!
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Renters Can Have a Stake in Where They Live
ADAM GOWER: Calvin. Thank you so very much for being on my podcast today. I've actually had a bit of a break from podcasting. I've been working on a ridiculously ginormous intensive campaign to raise money for a client that is beginning to wind down so I'm so happy to be doing podcasts again. Here's what I've got to ask you. So simple as this. I looked at your website and it says at the very top: Don't Just Rent. Rhove. So my first question to you is: explain.
Calvin Cooper: First of all, thank you so much. I'm so excited to be here with you today. I think what you're doing is so important, democratizing access to this multi-trillion dollar real estate market. And so, I'm pumped to dive in. To answer your question, don't just rent, rhove. Rhove is really built on an old idea. It's an idea as old as Rome and before that. In fact, Aristotle talked about this. James Harrington talked about it. John Adams, our second president, talked about it. That, ownership, land ownership is critical for democracy. It's something that is so important. And so what Rhove is, is a way for renters to have a stake in where they live. Our vision for the world is quite simple is that: every renter is an owner.
ADAM GOWER: It's absolutely fascinating, actually. And I did mention this to you in one of the emails back and forth before we set this up, that in the book that I have coming out later this summer, I actually touched on this. I touched on this idea that with the accessibility to direct home ownership becoming more and more distant or harder and harder, that one way to participate in the benefits of owning real estate is to invest via crowdfunding. So what is so interesting to me is that you have converted the idea of apartment rental into ownership.
ADAM GOWER: So tell me a little more about actually how that works, because it's an absolute.... as far as I can tell, it's a brand new concept that's actually being applied. If I was a renter, how would you explain it to me?
CALVIN COOPER: Yes. Yes. So as a renter, if you live at a property offering rentership, you're a stakeholder by default. You move in and you can download our app and just claim a stake in your apartment. It's as easy as downloading the app, setting up your profile and you automatically own a stake in that property. So let's say that's a $50.00 stake. You can choose to buy more in single dollar increments. You could hold onto your stake and receive cash distributions. So the minimum rent return is a 5% return on your stake and you can hold onto that, sell it at any time but if you choose to hold it, if the building sells or is refinanced in a way that causes a distribution of ownership, then you receive value for your stake as if you were an owner. So let's say you had a $1,000 stake in the property and you accumulate that over the year and you just stop buying. You just have a $1,000 stake. You're going to get $50.00 in distributions throughout the year, for every year that you hold on to that stake. If the property grows in value over time, let's say it grows by 10% and there's a distribution ownership, your stake would be bought out for $1,100 in that example. So you would have received $50 every year that you held onto that stake and $1,100 to retire stake in the property. So effectively, you maintain the flexibility and freedom and amenities of renting. To live, work, play, lifestyle. But we're adding into that: Own. You get some of the economic value that homeowners receive when they own their their home.
A Tool to Attract, Engage and Retain Tenants in a Transformational Way
ADAM GOWER: So here I am. I'm a property owner. I own a 100-unit apartment building. How does it work and how does it benefit me? I mean, let's just start with this. I have to say, there is the obvious and the obvious is loyalty, presumably, right? That somebody is going to be incentivized. And I did read your rent agreement. I forget what you call it's actually, on your website. I scanned it. I didn't read it in detail. But, I see that you have to renew to vest in the property and the investment you got to renew. But how do the finances work from an apartment owner's perspective? What are the financial benefits to an owner of employing Rhove?
CALVIN COOPER: Yeah, great question. So first of all, we've been really inspired by the number of owners that have reached out. There's many people who view real estate as their art and their contribution to building communities. So that's usually the first reason people are reaching out. They're like, wow, this is an idea that needs to happen in the world and I want to be a part of that. The second reason is, as you mentioned, it's a tool to attract, engage and retain tenants in a transformational way. You're really turning every renter into a stakeholder, changing their mindset. But third, from a financial perspective, some owners choose to receive capital up front. You're really paying 6%, so 5% for the rent return to residents and 1% for our fee to create this pool. So, it's a way for some owners, it's a way to receive some cash to create this opportunity for their residents.
ADAM GOWER: So, if somebody has a $1,000. I'm just picking easy numbers. So, if someone has a $1,000 a month in rent and they choose to participate in this program, what are they doing exactly? I saw something about matching funds and if I decide I want to invest 5%. So, every month I want to add $50 to invest in the building. Where is that money going? How is it being used? How is it being matched? I was missing some of the detail.
CALVIN COOPER: Yeah, yeah, yeah. Part of that is, so what you're talking about. The matching program was a pilot that we created that a lot of owners... it was never intended to like, grow in the market. We wanted to create rentership because I made the mistake of calculating how much rent I spent in the past 10 years. And I'm like, wow, I don't want to buy a home. The math doesn't make sense. I'm going to have to... the break-even point is 5 years out, it's so expensive. It's actually cheaper to live and rent in this neighborhood that I want to be in. I don't have the down payment. I was a venture capitalist at the time. So if I'm having a problem in Columbus, this is a massive problem in the market. So we wanted to create a product where renters could just own a piece of the building they lived in. To get to market really quickly, to build the technology and everything we needed to build rentership, that took some time. So in the interim, we wanted to learn from the market. So we launched this savings match product, really, just to do that. So anything like on our website currently that's talking about the "savings match program". That is a different product than rentership.
How Funds Are Managed in a Rentership Program
ADAM GOWER: So let me explain it from my perspective and see if you can help me understand exactly. So, the world that I live in is sponsors want to, let's say, buy a 10 million dollar building, an apartment building, just for example. And so they're going to need to raise three million or so of equity. So they go out to the market and they go to high net worth accredited investors and they invite those investors to invest with them. When those investors invest with them, there are various terms. It may be that they get a percentage of any growth in the the value of the building. They'll got a preferred return that pays some kind of interest and the value that the sponsor gets is that they get that investors cash through which they pay right returns as part of the bargain. So what is it with renters? What is the... this is a program for owners who already own a building. So how are they using that cash, especially if they've got to pay it back? I mean, I'm not quite understanding what's going on.
CALVIN COOPER: So imagine you got this 10 million dollar project, right, and you might raise money from LPs, maybe you pay them 8% preferred return. You might distribute cash throughout the year, quarterly or monthly, right 8%. So that's your capital stack. Let's say you want to implement rentership in your building and you want to create a $100,000 pool, then you would receive $100,000 from us and you would pay 6% on that pool. We'll invoice you monthly and then we have a per door fee. So, say that's $5 a door and it's a 100-unit building. So, in that model we would invoice you a $1,000 a month and it's just a flat rate. And now, rentership is implemented in your building. Renters who live there can claim a stake, they can download our app, they can buy into that $100,000 pool that we created and as we invoice you, the owner, for the 5% plus our 1% percent fee, then we're going to distribute the 5% rent return to the residents, in our app. So, the residents have our app. They have an FDIC-insured FBO account with us, at Evolve Bank, and they can just let the fund sit there or pull it out any time.
ADAM GOWER: And it's a loan to the property, is it Calvin? You're making a loan. It's not an investment in the property is it, what is it?
CALVIN COOPER: It's not debt or equity, technically. It's a contract right, that we're creating. It's a vendor contract between Rhove and the owner that establishes this rentership pool and some owners just want to create the pool and sell it down to residents directly. Some would like an advance on that pool. And so, we would we would advance you the $100,000 and we'll start invoicing you a flat rate, that 6% plus the per-door fee. So, if it's a $100,000 pool and a 100 units, then you're going to pay a $1,000 a month, just a flat rate and now you have this transformational program at your project.
Tenants Have a Vested Interest in Staying in a Property
ADAM GOWER: So the value from the property owners perspective is that they are creating an incredibly loyal tenant base. Is that the primary advantage? They're getting a check for $100,000 on day one that they can do with what they want, presumably.
CALVIN COOPER: And if you just fully load it, like, let's say it was a $100,000 project, $50 per year grant to residents and the $5 per door fee, you're really talking about, all in, the cost for this concession being like $100 - $200 per door if it were just a cash concession. Right? And many owners pay a lot more than that to acquire and retain residents. They're giving out $600 VISA gift cards and all these things that don't create lasting value for the community. So, this is a lot... this is a very value-add, kind of, concession that you can roll out in your project that transforms the relationship between renters and owners. And so, from a pure play perspective, you might think about this like a concession that you're rolling out in your building that you might receive cash up-front for.
ADAM GOWER: It's very interesting. All right, so you write a check to that owner for $100,000, so they get $100,000 on day one and they pay a 6% fee, let's call it, right, on a monthly basis. And then on your side, you now go ahead and promote that to the tenants. So from the owner's perspective, they're getting a big check on day one that they have to pay interest on. So, it kind of functions...you say it's not debt and it's not equity but it kind-of functions in a similar way. It's cash coming in - it could be equity, it could be debt. They'd have to pay interest on that in real time. The value that they receive for that, apart from the $100,000 that they got, that they can do whatever they want with, right, fix the roof or whatever they want to do with it, is that you are now, your value proposition is now, the tenants are.... have a vested interest in staying in the property. So tell me just a little bit about that side of the value proposition. What is it, because I do recall tenants are vested when they renew. Right? So, there are some clauses that tenants have, or some terms that tenants have to meet in order to vest.
CALVIN COOPER: It is that every year they're a tenant, they get another grant. So, say that was a $50 stake just for moving in, being a resident. Next year, they'll be granted another $50 stake. So, you can use this as an incentive program for renewals.
CALVIN COOPER: But, every resident.... like I move in, your leasing agent might have a piece of print collateral. We have email channels and we support every aspect of the marking of this. We make it really easy for the leasing agents to talk about this as an amenity of the property. So you tell a tenant who's looking to sign a lease there, hey, not only do we have a wonderful pool and a fitness center, we're centrally located and every resident who lives here is a stakeholder. "What?" Every resident who lives here is a stakeholder. Just download the Rhove app and claim your stake. You'll get $50 and you're now an owner of a stake in this property, just for living here and you can buy more on your own terms if you want to.
5% Minimum Return and Exposure to the Sale of the Property
ADAM GOWER: So your tenants, the tenants in a building, in this example that we're talking about Calvin. There is a limit of $100,000 in this example that you could accept. So let's say a tenant walked in, on day one and they said, hey Calvin, we really like this. I'd like to invest, well I'd like to give you $100,000. I want $100,000 in it. Could they do that?
CALVIN COOPER: We have a $500 a month limit right now for residents because we want everybody to participate.
CALVIN COOPER: This is really about democratizing ownership in the community. So, if we sell out quickly, we could just do another deal with the owner. We get an appraisal, create another pool. But, for now, we want to limit that because, yeah, there's a few people in each building. If they realized how great of a, just from a pure financial product this is, they would absolutely dump as much money in it as possible into it. You've got a 1X preference with a 5% minimum rent return and exposure to the sale value of the property. It's amazing. It's a wonderful deal.
ADAM GOWER: It is very interesting.
CALVIN COOPER: Some people would be like, yeah, instead of a down payment, I'll just shift that and put that into this rentership pool and own a stake of the building I live in now.
ADAM GOWER: Yes. And that's actually exactly what I was talking about in my book when it comes out, you can see it. I was a bit hesitant when I wrote it because I was concerned people might think I was suggesting, you don't buy a house, which wasn't the point. The point was that, it's sometimes very difficult. Right? You might save enough...you might save and save and save and still never have enough for a downpayment. And so what that means is all those savings, they're never going to go into real estate, which is something that you might want to invest in and so if you can invest through crowdfunding, was my point in the book, you do get an interest in real estate. And in your case, it's actually where you live, which is what makes it unique, actually. So if somebody says, alright, I want to invest $500. So they pay their rent. Their $1,000 a month rent and then they can add $500 to that. Or do they... that's the relationship they have with you, is it?
CALVIN COOPER: Right. So they pay their rent the same way they normally do and download our app separately. They claim their stake, they can buy more. It feels like Robin Hood or any other fintech app that you might be used to where people buy public equities. But instead of buying a public equity, they're buying a stake in the place that they live.
ADAM GOWER: And they're buying that from you, right? So you're buying it first from the owner and then they're buying a share of that from you. So what are the terms that you have with owners? You've got some kind of profit split. It does function like an equity investment, as well, doesn't it? If the value of the property goes up, so does your $100,000 stake. So how is that structured?
CALVIN COOPER: That contract right is as a percent of the sale value. So, in that earlier example, if it were a ten million dollar valuation project, a hundred thousand dollars is 1% of the sale value. If that building appreciates and you sell the property for ten point one million dollars, then you buy the pullout for one hundred and ten thousand dollars.
ADAM GOWER: I see.
CALVIN COOPER: It would be distributed to the stakeholders accordingly.
ADAM GOWER: So you know what actually....
CALVIN COOPER: It is not equity or debt. It has no collateral interest in the property. It is completely standstill. It provides some of the economic value in this contract right.
The Barriers to Home Ownership are Getting Higher
ADAM GOWER: Fascinating idea. All right, so tell me, how do you market this? I told you right at the beginning that this is, kind of the core of my Podcast and business, at the moment is, marketing ideas. So tell, me how you do that. What are you doing?
CALVIN COOPER: So, it's evolving. I mean, you're reaching.....We launched this at Gravity three weeks ago.
ADAM GOWER: I noticed, June 2000.
CALVIN COOPER: You are on the front edge, like the cutting edge of this. I mean you're reading things about our last product that, our really "pilot" that allowed us to build all this technology to do this. So we're learning every day, but really, it's just... So, what we're saying and people are resonating with our very simple vision: that every renter should be an owner, by default. This isn't an investment product.
CALVIN COOPER: This is about home ownership with zero barriers of entry. And so, that's how we're marketing it because that's what it is, and as you mentioned before, people are saving up money and the barriers to home ownership are getting higher and higher.
CALVIN COOPER: Millennials have zero dollars in net real estate wealth. Zero dollars! That's horrible, right, and, the implications for society are going to be very profound. So, we need to do something about that and, I believe, that the way to do something about that is to help people own a piece of where they live. This is about community. This is about getting value from the place that you're giving value to. It's about fairness. And so, that's what we're talking about. And then, people can do their own math. Like, if they want to use this to compete with home ownership, throw a couple of hundred dollars a month into it and for the first few years, you're actually getting more value than homeownership because there's a J curve when you buy a home because of all the fees. Right? And so, our vision is that, over time, this will be.... we will create a product that is better than homeownership. One where you have the flexibilities, amenities and freedom and no barriers of entry, like you do with renting but you get as much or more economic value than home ownership. That's where we're going to take the product. Right now, we're just taking a step in the right direction. So, as you know, owning a home correlates with public markets. After paying for all the transaction fees and closing costs that come with buying a home, you're really making 8 - 10% per year, ROI. With rentership, you're getting a minimum of 5%, just in cash distributions. So we're closing the gap, Right now.
ADAM GOWER: So, just a quick technical question. When somebody buys.... gives you their $500, what are they getting in return? Is it a security? Are they getting a share of an LLC or what do they get, actually, in return?
CALVIN COOPER: It's not a security. It's an economic...it's a rebate on rent actually. It's a variable, transferable, rebate on rent.
ADAM GOWER: Really?
CALVIN COOPER: And so, only residents who live there can buy in.
Every Renter Should be a Stakeholder
CALVIN COOPER: What is our biggest challenge? We thought that it would be finding property owners that were interested in turning renters into stakeholders and that wasn't a challenge at all. We're getting tons of owners reaching out every day to talk about this and explore. But what we're learning is, it's just time. We need time to execute. I mean, we launched this three weeks ago and here we are on a podcast. Right? So, it's about time. On the first day of launch, a bunch of residents bought into the building and didn't have any questions. They educated themselves from our FAQs and that's really because this is a very simple value proposition. Every renter should be a stakeholder. Every renter should be an owner. Claim a stake in the building, buy more, you'll get cash on your stake, 5% and the value of that grows with the value of the building. And so now, our task is just to execute, to keep up, to continue to learn from renters, iterate how we're talking about this and be really focused on value, who our customers are.
ADAM GOWER: Now, when you put that.... let's say, 10 people, this afternoon, give you a call and say we want you in our building. That's now a million dollars, right? If 100 people come to you, well, that's ten million dollars. So, you've got to have the cash in order to be able to fund the investments in each one of these properties. How are you capitalizing that? Is that something that you have individual finance for? Like how are you financing? Are you crowdfunding that? How are you doing that?
CALVIN COOPER: Our company is a venture-backed technology business. And so, the first few deals, we're going to work with partners. We're going to be very selective about who we work with. But we fortunately, we're not fundraising. We're well capitalized. Long-term at scale, there's a lot of different options for financing those projects. It's a profitable deal. We can handle that. There are some owners who have reached out who don't want capital upfront. What they want is to add this to their amenity mix but not to receive capital upfront because it's more expensive. If you...it's actually more expensive if we advance you the capital and you have to start paying 6%, day one, plus our per-door fees is higher. So, there's a lot of owners are going to do this without needing an advance of capital. They're just going to create a pool and sell it to renters.
ADAM GOWER: And they're going to tap into your app that's the value you're going to do.
CALVIN COOPER: Yes. So anybody can.... if 10 owners called us and we didn't want to advance that many deals at once. If we chose not to, we could say, great, just implement it. Pay the per-door fee and let renters buy into this pool. You'll just set the cap, let's say, at $100,000. We could do as many deals....we can do an infinite amount of those deals.
Solutions That Allow People to Build Capital
CALVIN COOPER: And when the pandemic hit, and when we went into lockdown in late March, a lot of people started to withdraw their funds. And that's because, as you know, millions of people are facing eviction and they're wondering where their next paycheck is going to come from. If they were laid off then they're waiting on unemployment checks. We don't have a very efficient system in the US for getting people money when they need. Fortunately, residents that were participating with Rhove, had more saved than the average American.
CALVIN COOPER: So they started withdrawing their funds. It takes seven days, usually, to withdraw through the ACH network. So we built a same-day ACH withdrawal mechanism, within days, so people could pull their pull funds out. So, we saw renters, you know, a 15% decline in renters contributing to their account and a lot of people withdrawing and three months later, four months later, we're seeing... we have more renters now than we did before on that program and people are contributing to their account again. So, that's what we've seen is an initial dip.
CALVIN COOPER: And then now we're seeing a return to where we were and that's just in Columbus. We've got a really strong economy, locally here, that's particularly resilient. But we'll see what happens yet ahead.
ADAM GOWER: And when people contribute, you said that there are, they vest when they renew, but presumably there are also conditions that require them to pay rent on time, not just.....
CALVIN COOPER: Yeah, yeah, under that product. And so, we learned a lot about renters. So, the reason why we released the savings product was really just to learn. And what we learned was renters can participate regardless of their financial standing, and that, as we suspected, the renting population is, just like the average American, doesn't have $400 saved for an emergency. And so, it is critical that we have solutions that allow people to build capital and so, we're taking that to the next level with rentership. Imagine if everyone, last recession, was able to buy into their apartment community.
CALVIN COOPER: In return, they participated, and if there was an event that disrupted their income, they'd be able to easily sell their stake through our app and pay their rent and take care of whatever else they need. It's like home ownership, but completely liquid.
CALVIN COOPER: You can tap it and use it for what you need to, without being displaced.
ADAM GOWER: Fascinating. So, I on the show notes page, for today's podcast I'm going to put every link that you want me to include so that anyone listening can find out more, because it's very interesting. I don't know how many listeners I have in Columbus, Ohio, hopefully at least one, and that would be you. But, hopefully there are more that might like to reach out to you. But, if anybody does reach out, it may be from other parts of the country.
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