Thought Experiment: Getting Rich by Housing Artists

Flood by Edgar Imler (c. 1935-1943)

Hi friends,

I'm going to veer from the typical content of this newsletter to indulge in an adjacent topic: affordable housing for artists. Don't worry, what follows is apolitical and generally optimistic in nature.

Idea: Artists need to create an investment trust, or a co-op, or community bonds of some kind in order to secure artists’ housing and protect the long-term vitality of their cultural landscape. Middle class artists and arts supporters should collectively invest in multi-unit real estate, creating affordable rental housing for artists while also generating stable returns.

A hip-fired thought experiment of how this could apply to my nearest city, Halifax:

Let’s say this arts housing organization raises $1m of capital by offering 100 x $10,000 shares. This is used to buy a four-unit multiplex, which costs exactly $1,000,000 after fees. Rather than buying the building outright, $750,000 is used as a downpayment and $250,000 is mortgaged at 5% on a 5-year term with 25-year amortization, resulting in an expense of $17,448 per year. The remaining $250,000 of cash is invested in index funds returning 8% annual compound interest. Each of the four 1-bedroom units is rented to artists at $1500/mo plus utilities, generating $72,000 of income per year. Let's budget $20,000 per year for maintenance and property taxes, and say that the Canadian housing market will increase 3% in value each year.

In 5 years this organization will have:

Assets
$367,332 in investments
$172,760 in rental cash
$1,159,274 in property value

Liabilities
(-$162,760) in mortgages

Net
$1,536,606

Further rounds of re-investment in this model could allow for sizeable expansion in a relatively short timeframe, and be applied to the benefit of other equity-deserving groups as well.

Obviously, I have no idea about what kind of taxation and regulation this whole thing would be subject to, this is likely not the optimal balance of mortgage vs. investments vs. cash, et cetera. If you're a finance person, or if you know one who would want to school me, please send them my way.

Now, just for fun, let's attempt to translate the intangible cultural value of having neighbourhood artists into monetary terms. Don't roll your eyes: you would be objectively less interesting without the decorative backdrop that culture provides. This is an investment in your own attractiveness.

Let's say that on average, each artist utilizing this housing model produces $20,000 of intangible cultural equity through their work each year. $20,000 x 4 artists x 5 years = $400,000 of cultural equity generated by a single building. Think of this as a civil service that a municipality provides to their community, like fluoridated water, except it's a scentless non-toxic gas pervading the air that makes everyone happier: culture.

Feedback time. I'd be curious to know:

1. Is this an interesting premise to you?

2. Are there major gaps in my math or understanding?

3. Would you or your friends or your parents or your parents’ rich friends want to invest in this kind of thing?

4. Would you prefer that I stay in my lane and just send a newsletter when I drop an album every 1-3 years?

5. How are you doing?

Okay, out of the skyscraper and back to the earth,

IV