To Rent or Mortgage (A Third Way) Part 4

To Rent or Mortgage Part 1
To Rent or Mortgage Part 2
To Rent or Mortgage Part 3
To Rent or Mortgage (A Third Way) Part 4

This post won’t necessarily about choosing between renting or mortgaging, but instead a third way that I have tried to drum up over the last little while which incorporates both. For the longest time I have been trying to understand what community means and the effects and sacrifices that should happen as a result of true community. I’m starting to realize that community takes on all forms, shapes and sizes and looks so different depending on the individuals that are part of it. Some communities are more shallow or deeper than others and some have different vices than others. So my idea I think would only work with a community of people that were sold out to each other on a number of levels, including financially, spiritually and emotionally. This is hard to come by, and usually the only time you see this happen is in communes (at least that I know of) but I’m hoping that it can exist without living in communes.

So imagine if I decided to rent for $550 a month, total expenses with insurance, cars, food and everything else was $1200 a month to live. Let’s say I’m making $2200 a month net pay. Now most people would say that I have enough money coming in that I could purchase a house and make the payments without a lot to worry about. However, what if instead of buying a house for myself I started paying off someone else’s in my community’s mortgage payments (personX). So $1000 a month more is going on personX mortgage which means that the mortgage would be paid of faster than double what it normally would be paid off. So if someone has 12 years left on their mortgage it can now be paid off in about 5 years. So now you have personX who has this extra money left over after five years and then they would be committed to helping someone pay off their mortgage for a minimum of that seven years (whatever was left on their mortgage.) So then we move to personY and now you have personX’s payments, my payments and personY’s payments all on the same mortgage which would pay it off even faster. And the cycle would continue until everyone in the community is debt free. Then the community’s money could go towards helping people outside their community survive, live or be debt free.

An idea like this has quite a bit of problems, and most of them are in the fact that we are dealing with humans. What happens when you get someone who is part of the community that wants help paying off his half a million dollar mortgage because he thinks he ‘needs’ a house that big? What happens when someone makes a bad decision with their money? How do you decide whose debt gets paid off next and how do you not hurt the people’s feelings when they aren’t chosen to be next? These of course are all normal problems that would suffice when you are dealing with money, but I think you could work around them if you have a group of people who cares about each other enough. Doing something like this reminds us that we are to share and take care of one another instead of just worrying about ourselves and our own equity.

There are only a few ways something like this could start. The first way is that someone has to take the first hit. Meaning if I want this to start maybe I should just stay renting at this great low price and then send all the access to personX’s mortgage so you can get someone else on board who can help you take it further. The second way I thought about doing it is if you could get ten people to give $100 a month and all of that goes to one person’s mortgage and then when that’s person’s is paid off they would start taking their extra money and putting it on whoever is next. The key to remember in something like this is it’s based on the idea that we don’t own anything, we are only stewards. My community is just as important as I am, and is just as much my responsibility as they are to themselves. Unfortunately we’ve been so pulled apart from each other and told the lie of independence that it freaks us out whenever we think about using our resources for someone else’s good. But this of course is our call isn’t it. To use what God has given us to bless those around us. So what do you think, do you think something like this could work? Would you ever be interested in doing it with your community?

8 Comments

  • I actually thought of a similar idea but you put it in words nicely. The feedback we got included:
    – The average homeowner lives in a home between 4-7 years and what happens when they move? There must be an agreement on equity and/or loss.
    – The payoff (15-20 years) seemed extraordinarily long to attract momentum.
    – Very few people were interested in the idea of being the first to take the hit.
    – Who determines loss and damage?

    In the end the better idea seemed to be a communal house with two to three families sharing the mortgage. It seemed to solve some of the issues above. And if someone needed to move it was easier to absorb the loss and find someone new.

    I sincerely hope you explore this and post. I’d love to see someone try it.

  • Interesting idea Nathan. How do you determine who “qualifies” for the help of the community? Or if the community is divided over who to help, who has the deciding vote? Or is it even structured like that or just a community supporting each other’s decisions? Or what of the people who use your money to pay their mortgage and blow their own now? It’s a really interesting idea – appeals to me a lot more than living communally cause that’s not something I feel called to do at all. Definitely food for thought. I hope you keep posting on all this, what you decide, how it works etc. How does Rachel feel about all of it?

  • I’m not sure I see how in reality this actually accomplishes anything.

    If 10 of us own houses and we are all paying off our mortagages, how is that any different than 10 paying off 1 mortgage and then repeating it 10 times?

    Well, actually I guess you are saving interest as you are able to pay down principle faster, but now you have someone paying rent which is almost like paying interest.

    The real problem I think I see is that you are viewing it as paying down “debt”. You’re not. You’re building the assets/equity of the people involved.

    (Let’s say you want to buy a $100,000 house. The bank gives $100,000 and you are in “debt” $100,000. you use the money to buy the house. Now you own a $100,000 asset. $100,000 asset – $100, 000 owed to the bank = 0 asset and 0 debt.
    After 1 year, pay the bank $5,000 principle, house appreciates $2,000, $102,000 asset – $95,000 owed to bank = $7,000 assets, or Equity)

    That’s not a “bad thing” but what do you do if you’ve been building someone’s assets in your community and they move to Australia ever?

    Is everyone giving/receiving equal assistance? Or is it according to ability/need?

    Given the fluid nature of a community over time, when will you ever be “done”? New people will come in, young people will grow up and move into their own homes, etc.

  • Please make all checks payable to Ron Smith!

    There are way to many variables here to make it ever work. Unless you did something like what John Brink was saying.

    That is the only way I could see that working. Once the first house is paid for, expand to another and have two, growing the community house by house.

  • ok nathan…ill post my ramblings for the bloggers to read :)

    so this is my opinion. so you can do what you want with it.

    i personally would buy over renting. it almost killed me when i went away to college and had to pay rent. it just seems silly to me..money id never see again. but of course in college i was in no position to buy a house. i understand that renting might seem easier and less stressful…if something breaks and you need it fixed all you have to do is call your landlord and he can deal with it. but what if you have a bad landlord who takes his time fixing things. important things. that can be stressful in itself..having to fight with someone to get something done. and im sure if you owned a house and something went wrong and you werent sure how to proceed..you dad/friends would come help you…being someone yourself who is willing to help someone else at the drop of a hat. im sure you’d have lots of people willing to lend you a hand.

    i understand feeling uneasy about going into so much debt. i remember when i bought my first car. i felt sick to my stomach and wanted to take it back..because the thought of oweing that much money upset me. but a car is a lot different. they drop in value as soon as you leave the dealership. a house will go up in value as long as the market stays strong. and from what ive seen sarnias market is going up. i mean people are flipping houses like crazy you see it splashed all over the tv. so they must be right. and everyone says that real estate is the best investment.

    i think the key is buying within your means. some people go all out…wanting to keep up with the jones & buy big expensive houses. which i personally think is stupid. i always laugh when people become jealous of other people..who drive their 60,000-100,000 cars & live in their 300,000 houses…because to me unless your rich. the more expensive the house & car the more debt your in. so why be jealous of that. you know.

    i mean if your going to live in an apartment anyway you might as well buy a small house. and then you will get the money out of it when you sell it. and smaller cheaper houses seem to sell faster. because they are great starter homes..and the cheaper the house the quicker you can pay it off. if you pay your mortgage weekly or bi-weekly you will pay off your mortgage quicker. i know when we got ours..we pay it bi-weekly and it will be paid off in 17yrs instead of 20 yrs if we’d paid it once a month. so those are things to consider. and if we’d pay it every week it would be paid off quicker than 17yrs. but we never looked into that. im not sure they really stress this when you are getting a mortgage because the slower you pay it off the more money they make.. right. so if your mortgage was $800 a month you’d pay $400 ever 2 weeks. plus when your setting up your mortgage you set it up that you pay your property tax everytime you pay you mortgage…so you dont have to worry about getting a bill off $1000 or so ever 6mths..or however much your taxes are. depends where you buy. but thats nice. because who really has $1000 just laying around. this way you dont have to think about it. also you can budget your bills…like your gas bill..we pay about $83 a month. if we use $83 or not..and then if we have money banked there are months that we dont have to pay it. so thats nice. its less thinking on our part..you assume your paying that money each month and its a nice surprise when you dont have to. just my thoughts.

    i mean there is a lot to buying a house..(deposits for utilities, lawyers fees, inspections ext) but once you get it and figure out whats going on. im sure you’ll enjoy owning a house.

    in your blog you said you wanted to have money to be able to help people and you werent sure you’d be able to do that owning a house. i know my friend melissa for example was paying $699 + util. in sarnia for an apartment. and she came to wallaceburg bought a $60,000 house and now i believe her mortgage is less than $400 a month and that was with the minimal amount down. if you really check it out. you might actually be saving yourself money.

    and i understand that its in your nature to want to help people. and im sure if you feel God calling you to help others then that what you will do. but you want to financially smart for your family..so you are able to help others. they go hand in hand really.

    ok im done rambling!! hehe

    ttyl
    vanessa

  • Been a long time. Hows church planting?

    I couldnt help notice your postings on renting vs owning (posting them on Facebook brought them to my attention) and I thought Id make a couple of comments based on my own experience.

    You asked the question Why would I invest in myself when there is people in need all around me?. Personally, I have a rather counter-cultural understanding of how to treat poverty that flies in the face of what the poverty industry believes. Simply put, give me a fish and I will eat for today, teach me to fish and I will eat for a lifetime. Let me share with you how I learned to fish.

    Being money wise

    First, I think it is important to understand the difference between good debt and bad debt. Good debt makes you money, while bad debt makes you poor. Good debt is an investment in the future, bad debt is indulging yourself today and paying for it later. Consumer debt (who hasnt felt the cruel slavery of the credit card?) is bad debt. Its always better to save up to buy a consumer item (and use the power of interest for your gain) than to buy now and pay later (and have interest used against you). If you can pull this off when you buy cars you will pay 50% less than everyone else.

    The best example I can think of for a good debt is when my parents bought a rental house recently. The cost of the mortgage, taxes, insurance, and all that stuff came out to around $1200 a month. Rent, however, is $1600 a month. This debt doesnt take money away from them (like credit card debt), but puts money in their pockets. Next year when rent goes up by 5% the profits will go up by 27%. Five years from now their $300 per month profit will rise to $841 per month. To make the deal sweeter houses will appreciate (based on long term averages) 5% per year which means that their rental house will be worth somewhere between $50,000 to $100,000 more five years down the road. Your comment that purchasing a house isnt like purchasing a car, because you can resell it usually for what you bought it for is a severe understatement you can usually resell your house for much more than what you bought it for.

    Based on my parents example, ask yourself if they, as landlords, are paying for any taxes, repairs, insurance, or even a mortgage. The answer is no. My parents are not paying for *anything* – the renters pay for it all plus a little extra. Some of the rent goes into a repair fund so my folks dont have to pay out of pocket to fix anything or to have the place cleaned and painted when the renters move. There is even a portion of the rent that goes into a special account to cover expense for when the place is vacant between renters which means that even when the place is vacant its still the renters paying the bills. When a renter says that they dont have to pay taxes, or utilities, or cable they are seriously misinformed! The renter pays for everything!

    What is worse for the renter is that every year rent goes up, but mortgage payments remain the same. Let me show you a simplified example of how this works (Ill be using very round numbers, with simple interest, roughly based on a $100,000 condo being paid off over 25 years):

    Table Deleted

    If I used real numbers with compound interest this chart would even be worse for the renter. If you look at Year 1 and conclude (as I once did the biggest financial mistake of my life) that since there is no immediate advantage to owning during the first year, you can put off owning until sometime in the future, you will be making a costly mistake. First, for every month you put off owning you also put off being mortgage free. This will cost the older version of yourself thousands of dollars. Second, because real estate keeps going up (at an average of 5% per year) when you do own, you will end up paying more and making less. If I had bought when I first had the opportunity when I moved to Mississauga in 2001 instead of waiting 2 years later I would have paid less money for a nicer home, would be mortgage free 2 years sooner, and would have an extra $100,000 net worth the biggest financial mistake of my life. What did I have to show for the $48,000 dollars I paid in rent during those 2 years? Nothing!

    Very often, owning costs less than renting (because if the landlord is going to make any money he has to set rent higher than his own cost of ownership hence your recent discovery regarding property for your church). Right now I pay $1100 mortgage (on a $200,000 townhouse), where before I was paying $1600 rent for something similar. But get this, while I pay $14,000 per year for mortgage and taxes, my house has gone up $15,000 in value every year. The appreciation on my house has cancelled out my mortgage payments so in a way, I now live for free (though the money I have in home equity is a little more difficult to access).

    If you want to own for less than it costs to rent there are a number of things you can do. 1) Shop around. There are good deals and bad deals when you buy anything it always pays to shop around. 2) Negotiate. The asking price is NOT the selling price. 3) Use a mortgage broker. Going right to the bank to get a mortgage guarantees that you will get the worst deal possible. Going to a mortgage broker, who shops around on your behalf, guarantees that you will get the best deal possible. I cannot stress this enough. Do these 3 things and I am certain that you will own for less than what you are paying in rent.

    But what if the market crashes? Well this brings me to the second biggest financial mistake I ever made. In 1997 when I was going to seminary, our landlord sold our place and we had to move out (these things happen and you have no control over the situation part of the risk of renting). While we were looking for a new place we had the opportunity of buy a condo for $115,000 (about $700 per month mortgage and taxes). The story was that some couple were in the middle of a bitter divorce and had decided to dump the place on the market. Other units in the same complex were going for $146,000 so this was a real deal. The only catch was that the condo owners agreement stated that we couldnt rent the place out. The town we lived in just outside of Vancouver was recession proof because it was dependent on the Japanese economy, not the Canadian. Our plan was to own for two years and then sell when I graduated and use the profit (which should be close to $40,000) to pay down my student loan. How could we go wrong?

    Two months later the Asian Economic Flu hit and devastated the Japanese economy, and then devastated the BC economy we became the Newfoundland of the West. We saw the prices of surrounding condos drop from $146,000 down to $120,000 down to $98,000. Now prices could have (and actually have) rebounded eventually (they are now going for $246,000) but because we were moving, we couldnt ride out the storm. We could have moved AND ridden out the storm if we were allowed to rent our place out while we were gone but the condo agreement didnt allow that. We ended up selling for $110,000 and lost all our equity (of course if we rented we wouldnt have had any equity to lose so we would have had the same bottom line). What was our mistake? Buying a house that we couldnt rent out. Period. Theres no way we could have known that the Japanese economy was about to tank, and we did everything else well. But because we picked a place that we couldnt rent out we couldnt ride out the storm. Do not make the same mistake. The ability to either stay in your home or at least rent it out is your insurance against market crashes.

    Stress Free Living

    Being poor is stressful.

    Renting keeps you poor. I dont know if you noticed that rent goes up every year just enough to eat up anything you gained by getting a raise. There is no way to get ahead by renting. Its is not like people wait until they get wealthy before they become owners, it is owning that makes them wealthy in the first place.

    If you dont like mowing the lawn you can either buy a condo, or pay a landscaping company to mow the lawn for you. Dont like to fix the toilet? call a plumber. Renters pay people to do repairs and mow lawns all the time it just comes out of their rent (you didnt think that this happens for free did you? landlords arent that nice).

    You want to be really stress free? Pay off your mortgage.

    Wealth and Charity

    If you are paying less as an owner than you are as a renter then you can give more money away NOW, not 25 years from now. If owning ends up costing a little more, you might have to wait a year or two, but eventually owning always costs less than renting (rent always goes up while your mortgage stays the same) and you will be able to give a lot more away.

    If you dont want to fall into the consumer trap remember the difference between good debt and bad debt. Bad debt is almost always a result of fleshly desires, wanting things NOW, and lack of self-control. Dont do it. Good debt is the opposite its about planning for the future and being wise.

    I hope this has been helpful.

    -John Albiston

  • Hey John
    Thanks for your comment and questions.
    It helps me understand my own crazy ideas and ridiculous sometimes.
    Ok to try and give you an idea where I’m coming from.

    You asked how its different.

    1. Because now we are sharing responsibility for people’s debt instead of leaving it to everyone for fending for themselves. This helps us remember that we are sharing in each others lives, our decisions effect other people, our finances effect other people. Not that we can’t have that without my idea, because I think you can. This idea just helps make it more of a intentional thing that we learn to discipline ourselves to doing instead of just having the option every once in a while.

    I like when you said
    “I think I see is that you are viewing it as paying down “debt”. You’re not. You’re building the assets/equity of the people involved.”

    A few suggestions (keeping in mind, that you saying that sent my head spinning, so I’m just trying to process it)

    1. hopefully its not considered building up people’s assets as much as it is seeing freeing up people resources to be used for the kingdom. could it not be seen that way? again this is dependent on how people actually use it.

    you asked “what do you do if you’ve been building someone’s assets in your community and they move to Australia ever?”

    2. if someone moves, well then we’ve helped free up their assets to build the kingdom wherever they go in the world, that’s how we’d have to look at it or else we lose the mission.

    You asked – “Is everyone giving/receiving equal assistance? Or is it according to ability/need?”

    NO idea.

    you asked “Given the fluid nature of a community over time, when will you ever be “done”?”

    I don’t know if we ever would be, and I don’t think that would be the point either, maybe the goal of this is to free up people’s minds/resources/time as much as possible to be used for kingdom purposes.

    Thoughts?

  • Re: different
    1. I like the idea that it helps people focus on what they are all about, but I guess I’m asking then, is that the goal? Is there an additional financial goal? I’m assuming the plan is to do better financially at least collectively if not for every individual.

    Re: suggestions
    1. Sure, you could see it as “freeing up resources” because with a mortgage, you are committing your resources to that. Your model attempts to allow more people access to their resources to do other things with them. The reason I raise the debt vs. asset question is because many people are ok with paying off a debt for someone without too much concern with what they do next because once a debt is paid, there’s nothing tangible to care about, but if a person has felt they have contributed something tangible to someone’s asset, they will often feel as though they have some stake in what the person does next, and that might be good, or very bad if they really disagree with their choices.

    2. I love the thought, but I question how many people could walk that out. It’s one thing to invest yourself and your efforts into your community and another to watch your investment evaporate and still be good with that.

    3. That’s fair that you don’t have an answer but it would become a HUGE issue before it would be practical

    4. Well, I agree with you, I doubt it would ever be “done” and that probably shouldn’t be the purpose, but you originally framed it as though everyone takes their turn, then it is accomplished and everyone has these resources to put into the Kingdom.

    The one thought I have on topics like this is that they are delicate, they have the potential to accomplish GREAT things, but if they go bad, they have the same potential to rip a part communities and people and lives.

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