ImpactAlpha, Nov. 28 – Late in the afternoon on a Friday in September, a dozen or so Latina small-business owners gathered at the headquarters of Just, a community development financial institution in Austin, Texas.
The women were veteran borrowers, having taken more than one “microloan” to start or grow their jewelry, cleaning or event planning businesses into livelihood enterprises that had paid their bills.
This day, their ambitions were higher: To own their own homes and build generational wealth. Just’s new “wealth club,” they were told, could turn them from borrowers and entrepreneurs into real estate investors.
The microlender’s partnership with real-estate crowdfunding platform Arrived Homes, along with $250,000 from Schmidt Futures, will enable the women to collectively invest in a portfolio of rental homes, receive regular dividends and appreciated value, and get into the housing market. Separate funding from JPMorgan Foundation will help Just expand the model to Black, female business owners.
“We are always looking for new models that disrupt antiquated and inequitable systems,” Schmidt’s Kumar Garg told ImpactAlpha. “We want other leaders across sectors to take note and help promising ideas like this scale.”
At Just’s offices, co-founders Steve Wanta and Haydee Moreno were anxious to learn how their clients would respond. The very first question: “Can I take my dividends and reinvest them?” Within hours of the presentation, Wanta and Moreno were fielding calls from clients interested in participating. In January, Just’s wealth club members will come together to select the real investments on the Arrived Homes platform.
“There’s an unmet need here,” Moreno told ImpactAlpha. “There’s a demographic that is hungry for these kinds of investments. They understand it and they’re eager to get in the game.”
Just’s venture into “client asset ownership” is one of a drumbeat of efforts around the country that aim to address persistent wealth gaps by expanding access to housing wealth and homeownership.
Innovative funds and fund managers, in turn, are taking aim at long-standing barriers to owning real estate, including down payments, income requirements and affordability.
Shared equity. Denver-based Dearfield Fund for Black Wealth earlier this month secured $7.5 million to help Black first-time homeowners make down payments. The fund provides families with loans of up to $40,000 and helps bring in grant capital to increase the borrower’s purchasing power. The family then pays back the loan and 5% of the home’s appreciated value upon sale or refinance.
Renter payouts. The Renter Wealth Creation Fund from Columbia, Maryland-based Enterprise Community Partners has raised about 20% of a target $250 million fund. Longtime residents of affordable housing properties in the fund have the opportunity to receive a payout – 80% of the profit – when the property is refinanced or sold. Residents living in properties in which the fund invests also get a monthly cash reward when they pay their rent on time.
“This presents a wealth-building opportunity for renters who would otherwise have no financial stake in their home, even after years of rent payments,” Enterprise’s Lori Chatman and Chris Herrmann wrote in ImpactAlpha.
Neighborhood trusts. And community actors in Philadelphia and Atlanta, as well as Tulsa, Los Angeles and Portland are harnessing legal structures known as neighborhood trusts to preserve ownership – and affordability – of commercial and residential assets in fast-gentrifying neighborhoods.
In Boston last month, East Boston Community Development established a neighborhood trust to acquire 114 units across 36 multifamily with a mix of public, private and philanthropic capital to preserve as affordable for current and future residents in the long term.
Just built its client base through microloans for small business owners. Just extends loans of $750 to $10,000 without requiring a business plan, credit score or collateral. Instead, women join community groups led by JETAs, for Just Entrepreneur Trust Agents, more experienced and trained borrowers who can support a borrower’s goals and repayments. Just has invested more than $12 million through 6,000 loans in Austin and Dallas, with a 99% repayment rate.
A survey of more than 200 Just clients by impact measurement firm 60 Decibels and other data have made clear the opportunity to help clients build wealth through asset ownership.
Just received a ‘net promoter score’ of 96 out of 100, a signal of client trust in the organization. Roughly three-quarters of clients, however, identified themselves as financially unstable. Based on separate surveys and loan applications, Just estimates that 90% of its clients dream of owning a home.
“The way we meaningfully create community transformation is by going deeper into ownership,” Wanta told ImpactAlpha.
For the wealth club pilot, only JETAs are eligible to participate. JETAs must have at least five borrowers in their groups, all loans must be in good standing and their own businesses must be in order. To have “skin in the game,” the JETA must give up their $1,000 loan-loss reserve, which Just provides to encourage JETAs to take risk and expand their groups. Initially, the JETA’s stake in the real estate portfolio will be covered by the grant capital.
Wanta and Moreno say the Arrived Homes real estate portfolio is just the first of possible housing wealth opportunities Just is exploring. Future opportunities could include helping clients collectively purchase local property through a neighborhood trust.
“How can we test it?” says Moreno, “How can we learn more so that when we get to this amazing affordable housing development we’re going to do in Austin or Houston or Dallas, we are really well informed about our client’s needs and their behavior and their attitudes and motivations.”
Such investment opportunities should motivate more clients to become JETAs and more JETAs to invite new clients to become borrowers, says Wanta. Instead of a continuum, says Wanta, Just’s set of lending and wealth building products “will actually be a flywheel.”