The world's concept of ownership and usage is changing. There has always been the great debate of rent versus own. Within the rental camp, there are now two subcamps – exclusive rental and shared rental. The shared economy falls within this second subcamp and makes for a compelling argument.
Most people cannot tell the difference between an asset and a liability. The definition of an asset and liability is very simple. An asset puts money in your pocket while a liability takes cash out of your pocket. Accounting is a wonderful discipline. However, it is guilty of one important disservice. It misleads people into believing that some of their assets are assets when they are liabilities.
Death to Automakers
Automakers are living in a state of denial. They are holding onto the antiquated belief that there is still exists a love of owning a car. There is no love in owning a car – there is love in driving a car. Car ownership opens your life to a world of complications – pushy car salespeople, rapid devaluation, hidden fees and costs, insurance, taxes, gasoline, maintenance, repairs, fines, and parking. In a world where there is a plethora of renting and sharing options, who in their right mind would you want to buy? I am not saying that you avoid all these complications when you rent or share. You only pay for the time you use the car and not when it is gathering dust in the garage.
Ride-hailing services have taken off as tree-hugging millennials look for ways to reduce the number of gas belching cars on the road. As at the end of 2019, Uber and Lyft boasted combined market capitalizations of almost $65 billion. The estimated valuation of Didi was $55 billion which takes the combined size of these three players to $120 billion. This is before the coronavirus got hold of them in 2020. Ride-hailing, however, is only part of the picture.
One also needs to look at operator car sharing. Zipcar offers a fleet of cars with fixed parking spots that can be rented by the hour. Car2Go offers a floating fleet of cars that can be located on an app and rented for one-way trips within defined city centers.
There is also peer-to-peer car sharing which is looking to disrupt the car rental business. EasyCar Club is a peer-to-peer marketplace that matches car owners with renters on an hourly basis. FlightCar allows car owners to rent out their vehicles from airport parking. How cool is that? To pay for airport parking, you need to max out your credit card and take out a second mortgage on your house. Now you can save on parking and generate some income in the process. It is like winning the lottery and discovering a cure for cancer.
Finally, there is a peer-to-peer ride sharing. Bla Car matches drivers with passengers for intercity drives. Scoop is an app-based matching of pre-booked commutes with people working in the same area. The next time you are stuck in traffic and you are tempted to rip your brain out of your skull through your eye sockets, take the time to count the number of vehicles containing only one human. I would be surprised if the percentage was below 80. Pooling and sharing is the ticket to reducing the number of cars on the road, getting that traffic flowing and healing the planet.
Your House – a Giant Turnip in the Country
Blackadder was a BBC pseudohistorical British sitcom in the 1980s starring Rowan Atkinson (aka Mr. Bean). There is a scene when Blackadder (Atkinson) has the following exchange with his dim-witted servant Baldrick (played by Tony Robinson):
Blackadder: So what would you do if I gave you a million pounds?
Baldrick:: Oh, that's different. I'd get a great big turnip in the country.
A little known fact about 2008 financial is that it has its roots in the 1990s with Bill Clinton. In 1995 Clinton took time off from using Monica Lewinsky as a human humidor and loosened housing rules by rewriting the Community Reinvestment Act. This pressurized banks to lend to low-income neighborhoods and facilitated the rapid increase in subprime lending.
The reason Clinton did this was to strengthen his political base in those lower-income households. Clinton calculated that if he could facilitate homeownership and make it easier for these families to attain the American dream, there would be a greater probability of being reelected in 1996. Bill is a cunning fox.
This lie of homeownership is just another way to enslave people financially. According to Zillow, 37 percent of homes in the U.S. in 2018 were "free and clear" which means that they were not encumbered by a mortgage loan. This means that almost two-thirds were encumbered. There is nothing like a 30-year mortgage bond to tie you down financially. If you have a mortgage and a job, that is a very compelling motivational force to stay in that job until such time as that death pledge has been paid off.
When I talk to people about financial freedom, the most common reason holding people back are debt obligations. Top of the list is that pesky mortgage. Also, these people firmly believe that their home is an asset.
Robert Kiyosaki, in his book "Rich Dad, Poor Dad", says that the test of whether something is an asset or a liability is simple. If it puts money in your pocket, it is an asset. If it takes money out of your pocket, it is a liability.
Let's look at a house. If you living in it, and it is mortgaged, you are paying rates, taxes, and interest on the loan. It is clearly a liability. If it is "free and clear" it is still a liability, because you still have to pay rates and taxes, not to mention lights, water, and general maintenance. But property prices always go up. That is a fallacy. Speak to anyone who bought a house before the financial crisis of 2008.
Real estate is like any asset – its price can rise or fall and if you are banking on your house price appreciating in value, then welcome to the world of speculation. Real estate is a very powerful income-generating asset, but it is only an asset when it generates income.
Airbnb – Converting Liabilities into Assets
Airbnb is like beer. In the same way that beer has been helping ugly people have sex since 1862, Airbnb has been helping homeowners turn their liabilities into assets since 2008.
This is the sharing economy at its best. The company was conceived after its founders put an air mattress in their living room. They turned their apartment into a bed and breakfast to offset the high cost of rent in San Francisco. The goal at first was just to make a few bucks for a beer. Today it has a worldwide presence.
You can rent a tent made from camel hair in the middle of the desert in Merzouga, Morocco; traditional Kazakh Ger in the Altai Mountains in Mongolia; and even a skypod which literally hangs off the side of a mountain in Peru’s Sacred Valley, outside Cuzco.
The younger generation is driving this change in asset usage. They do not want to be tied down to one place and are looking for original experiences. There is also a strong focus on sharing and community. Investors can benefit from both sides of the equation. They can use Airbnb to generate cash flow from their assets and they can personally make use of their service in their business and private travels.
Co-Working and Office Sharing
According to Wikipedia, office sharing is a concept that allows companies that have redundant office space to share or rent workstations to smaller companies looking for flexible workspace. This creates revenue for the company that runs the office and provides a cheap, flexible alternative for companies looking for an office outside of their home. Office sharing is cool, but the first derivative of office sharing is much cooler – it is known as co-working.
According to Wikipedia, coworking is an arrangement in which several workers from different companies share an office space, allowing cost savings and convenience through the use of common infrastructures, such as equipment, utilities, and receptionist and custodial services, and in some cases, refreshments and parcel acceptance services. It is attractive to independent contractors, independent scientists, telecommuting and work-at-home professionals, and people who travel frequently. Additionally, coworking helps workers avoid the isolation they may experience while telecommuting, traveling, or working at home, while also eliminating distractions. Some coworking spaces charge membership dues.
Until the third quarter of 2019, the 800-pound gorilla in the office sharing/ coworking space was WeWork. At the time of writing this, WeWork was in a downward spiral. In the space of a few months, the following happened.
They fired their mercurial founder chairman who had personally sold the trademark "We" to the company for $5.9 million. He subsequently returned the cash, which was big of him, but only after cashing out more than $700 million from the company before the Initial Public Offering through a mix of stock sales and debt.
The company then canceled its IPO which resulted in an accelerated decline in valuation from $50 billion to less than $10 billion. Softbank, run by Japanese billionaire Masayoshi Son (who once threatened to set himself on fire if not granted a telecom license) took a $4.5 billion knock on its investment in Softbank.
The decline of WeWork is not a blow to office sharing. The investment thesis of office sharing remains intact. The problems with WeWork were numerous, but the most important was that it was the tenant and the landlord. It typically rents large spaces, then creates ultra-modern workspaces out of them to re-rent out on short-term leases. It also owns some of the buildings in which it rents out spaces. The company, therefore, needed to borrow heavily. Its expansion plans were too aggressive and they got in over their heads.
Spouse Sharing
Bill Cosby, a comedian, and a loyal family man said that for two people to live together in marriage is the one miracle the Vatican has overlooked. Ashley Madison is a Canadian online dating service whose tagline is "Life is short. Have an affair." In February 2019, the company announced it had reached the 60-million-member mark in 563 companies. This is known as the spouse sharing economy and business seems to be booming.
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