The path to generational wealth is through…rentership?
That’s the premise behind the newly-launched Renter Wealth Creation Fund by Enterprise Community Partners in collaboration with Stake, the startup which provides banking services and cash back rewards for on-time rent payments. Enterprise was an investor in Stake’s Series A announced in July.
The Renter Wealth Creation Fund, which closed $47 million in investment earlier this month, stipulates that when a building is sold or refinanced, which typically happens around the eight to 10-year mark, 80% of the profits will be shared with the residents as long as they have lived there for four years. Even residents who have moved out will receive their portion of the proceeds. Investors will receive at least a 4% return. Any profits above these thresholds will also be shared between investors and renters.
“I’ll be honest. I kept getting stuck on the cash back angle,” said Lori Chatman, interim President at Enterprise Community Partners. “That helps day to day, month to month. But that is not going to create wealth. That’s why it became critically important that we understand and engage investors around sharing in the profits.”
This model of returning parts of the profit to renters comes with the expectation that renters will take better care of the building, which in turn will increase the eventual sales price and decrease the amount of repairs required. This increase in profit margin, which would have previously evaporated due to the deterioration of the physical asset, compensates for part of the funds investors have agreed to forgo as part of the deal. While it is unlikely the margin would compensate for a full 80% of profits, it would still have significant impact on the bottom line.
Stake also announced today the addition of more services to the app renters use to access their Stake “wallet”. Called Stake1, renters now have the possibility of receiving access to payroll deposits two days early and a cash back Visa debit card with 5% cash back on the first 90 days and 1% cash back thereafter. This is in addition to the existing 2% cash back for on-time rent payments and a matching program which rewards users for keeping money in their wallet.
Stake will now also provide optional reporting of on-time rent payments to credit bureaus through their Credit Builder feature, allowing renters to build their credit score for what is typically their largest monthly expense.
“We want to begin with getting cash back,” says Stake cofounder Rowland Hobbs. “Start building your savings and wealth and then unlock other financial services. Unlock an FDIC insured checking account. Unlock your credit builder. We wanted to really make it this kind of super app for all your financial needs, from housing to banking.”
Enterprise estimates approximately 7,000 rental units will be saved under this fund, whether it be low-income housing that reaches the end of its compliance period and would otherwise be turned into market rate properties or units that are currently considered affordable but are at the mercy of the price appreciation taking place in the neighborhood.
The fund will also help cover the costs of renter services, which can be every from financial literacy education to health and fitness workshops. “There’s a lot of mandate for [renters services],” says Chatman. “But there’s no place and cash flow to pay for it. So this is the ask of those investors. To affirmatively acknowledge that we need to build in a stream to provide residents services.”
Enterprise plans to build wealth through rentership not seen at this level of scale before while still supporting the needs of people typically left out of the property ladder. Or, as Chatman summarizes, “there’s nothing to convince me that you can’t return a healthy amount to investors and do good for society.”