How one state is pioneering a way to let renters earn cash back for paying rent

Danielle Rickards is a 30-year-old single mother and a full-time caretaker to her 5-year-old daughter, who has a rare heart condition. For many Americans in similar circumstances, the pressures of affording rent and daily expenses are a constant and crushing burden.

But she counts herself lucky: She found an affordable two-bedroom apartment in Grand Junction, Colorado, where rent is subsidized by the local housing authority. On top of that, she also receives a rare financial bonus, part of an experimental program to build equity for affordable housing tenants in Colorado.

On the 18th of every month, Rickards receives a small cash stipend – $21.62 – in exchange for paying her rent on time. It amounts to 2% of her total rent amount – not just the amount she pays, but the total due before her housing authority voucher kicks in.

The money goes onto a kind of debit card run by a financial technology company called Stake; she can spend the money from the card or deposit it into her checking account. It's a small amount, but she says she's put it toward groceries and gas.

Next City reports that in one case, the card and the funds helped her out of a jam: She was driving to Denver late at night, planning to stay the night before a doctor's appointment, but forgot to fill up the tank. When the fuel light came on, she realized she didn't have enough money on her. But there was $42 in her Stake card, enough to get her to Denver and back.

"Thank god I had the Stake card," she said. "It was too late to call anyone.

"I just absolutely am so grateful," Rickards said. "It sounded too good to be true. You get free money back for paying your rent, which you have to do already?"

The money is part of an arrangement between the property owner and a company called Colorado Housing Accelerator Initiative testing out new forms of "tenant equity," which seeks to compensate tenants for the value they create in the properties they live in. It could also be a preview of how Colorado will operate a new, statewide program meant to help renters make money off the buildings they live in.

A new model in Colorado

In 2022, Colorado voters approved Proposition 123, which set aside 0.1% of the state's income tax revenue for affordable housing programs. This includes familiar programs like housing vouchers and down payment assistance for home purchases. But Proposition 123 also included a unique program that would allow tenants of new affordable housing financed by the initiative to be paid the "equity" for the homes they rent, in theory giving them some of the financial benefits a homeowner might get.

Likely the first such program in the nation, the Tenant Equity Vehicle program is still in its early stages and has not been fully developed, but the state has slowly started making some of its parameters public.

"We are working to have this program in place before the first tenants move into housing created through the Proposition 123 Equity Program," Hillary Cooper, director of innovative housing and funding programs at the Colorado Office of Economic Development and International Trade, told Next City/Shelterforce. The agency added that it expects to introduce the program in the next one to two years and that tenants would have to live in the newly built units for one year before they're eligible for the program.

A request for proposals for a third-party contractor to run the program closed in June and applications are being evaluated. Nonprofit and for-profit contractors who will build new affordable homes have also not been selected, but the agency said it had received 35 applications.

There are many inequities between renters and owners, driven by the value that building owners can derive from the potential resale value of their properties. It's often taken for granted that property owners should benefit from this resale value. But this ignores how a neighborhood's social cachet, including its shops, stores, nightlife and culture, help determine property values, and a neighborhood's social life is largely produced by the people who live there.

The "equity" that tenants access in the Proposition 123 tenant equity program will not be derived from the home's appraised value but from interest payments on debt paid by developers. The payments are made to the state, which will act as a lender. This means renters are actually accessing the profits typically reaped by lenders rather than by property owners.

Under the plan, the state provides cheap loans to developers to build affordable housing. As developers pay back the interest on those loans, the state forgoes profits, instead routing some of the interest payments directly to tenants. In theory, this means the often-predatory element of private debt has been removed from the equation. Predatory debt and ballooning loans are an under-discussed factor in high rents. In recent years, banks like Signature have come under scrutiny for ballooning interest payments that incentivized evictions. Many developers say they're unable to build more income-restricted housing because lenders won't approve loans with higher returns.

Abby Murray, a co-founder and principal at the Colorado Housing Accelerator Initiative (CHAI), said the most crucial part of the equation is reimagining debt financing.

"Creating an investment fund is not a very unique endeavor, there are thousands across the country," Murray said. "But most of those are built on a pretty extractive model of just trying to take as much out of properties, raise rents as much as possible, reduce expenses as much as possible, and create a really attractive return to investors."

"Colorado is kind of weirdly the center of gravity around this," said Santhosh Ramdoss, president and CEO of Gary Community Ventures, a philanthropic organization that supported Proposition 123.

Ramdoss said that the state's funding model – providing low-cost loans to borrowers – represents a departure from how affordable housing is typically built, through federal financing in the form of Low-Income Housing Tax Credits. Ramdoss refers to this as "a new muscle to build," as often states are not the primary financiers.

Experimenting With Equity

While Colorado's program hasn't officially begun, several Colorado companies are running pilot programs for tenant equity vehicles that could provide a window into what the state's program would look like. Among them is CHAI, a project of Weave Social Finance, which does mission-driven finance and consulting. According to Weave founder Ed Briscoe, CHAI focuses on affordable housing priced higher than what federal tax credits typically subsidize. Briscoe said the organization focuses on this range because this is "increasingly where most people are and where a lot of them struggle to pay their rent."

CHAI's tenant equity projects are similar to the model that Colorado officials told Next City/Shelterforce it will use: The company issues loans that are cheaper than that of most banks and uses debt payments from developers to pay tenants. The organization currently has 10 projects throughout the state where tenants are signed up for the program. Whereas Proposition 123's Tenant Equity Vehicle will use state funding, CHAI's program used a private equity fund with investors who have capped their return on investment.

"If the main problem is the cost of financing that drives the rents, we want to replace the highest cost financing with cheaper financing," Briscoe said.

This model was also chosen because it's fairly straightforward and less legally convoluted than other models, said Briscoe, allowing tenants to access the property's potential resale value in the form of debt as homeowners do.

While tenants are still renting, the tenant equity vehicle "ends up being kind of a proxy for ownership of the properties," he said.

The future of tenant equity

CHAI has tenant equity vehicle projects in Grand Junction, Denver and Wheat Ridge. Projects are currently under construction in Silverthorne, Walsenburg and Buena Vista; it expects to have about 300 participants by mid-2025.

Tenants in the program receive cash payments through Stake's app and can deposit the funds into their bank account, as they would with Venmo or PayPal. CHAI says it's aiming to generate $500 per household per year in payments.

Briscoe said it was important that the funds be unrestricted and that tenants can move it to their checking account whenever they want. He also believes direct payments are more beneficial than discounting rent, contending that the psychology behind regular cash payments into an account would help tenants save more.

"It's kind of a passive savings mechanism like we all enjoy with our 401Ks, those of us that have it," Briscoe said. "The best way to save money is to never see it in your checking account. … If they need it, then you pull it out. But if not, it stays there and just accumulates, which will hopefully within a year or two get them to have an emergency fund.

"We and our funders can say there is a certain amount of money, that's enough. And we can share the rest, especially with the people who ultimately are the ones who generate all the income and add value in the property," Briscoe said.

Ultimately, this requires funders who are forsaking profits to take part in the project. In CHAI's case, it has social impact investors willing to help with the experiment. But a state government would be the ideal funder, as a large-scale program of this type ideally wouldn't rely on the whims of investors.

Rickards, the single mother in Grand Junction, said she's concerned that a state-funded version of the program could lead to overreach.

But she said if the program is kept exactly the same but expanded to more people and could pay people more money, she would support it. She doesn't have a bank account, so the card is the closest she has to a savings account: Stake provides small amounts of interest payments for keeping her balance high. A representative from Weave Finance said that Stake offered a checking account option with 4% interest and a savings bonus program. While Stake still offers a checking account, the interest payments have been discontinued, in part because Stake's banking partner lowered its interest rates.

"We're exploring ways to expand offerings to residents beyond those that Stake is able to provide," Carol Morse, program manager at Weave Finance said in an email. Morse said they're hoping to reintroduce interest payments.

As a single mother without an income and who is caring for a sick daughter, Rickards gets some peace of mind from the money. She just completed a medical assistant training program, but says spending so much time in hospitals with her daughter is prompting her to do more soul-searching about her career. For now, she's grateful for the time they get to spend together.