MONTHLY PAYMENTS.--CALCULATIONS ON A LONG-TIME PLAN.--PURCHASE ON A
RENTAL BASIS.--HOW IT MAY BE WORKED OUT.
It is a pleasant thought that every one can own a home of his own. With
only a moderate salary, and little or nothing ahead, a thought of this
kind may appear more pleasant than real. It may be affirmed, however,
that, with few exceptions, any one who can pay rent may own his home.
This will require certain sacrifices and at first great economy, but in
the end the result justifies the means. There is no reason why any one
should pay rent. Building associations are instrumental in securing more
homes for people on a long-time plan than any other scheme. In the large
towns, however, houses are sold on various kinds of instalment plans. By
way of illustration, the writer calls to mind a five-room house,
pleasantly situated, which was built about three years ago. This house
is being paid for in instalments of $15 a month. An arrangement of this
kind is good for all concerned. It is an easy way for one to get a home.
It is a good use of money, from a business standpoint, for the one who
has the money to invest. A little demonstration will make this plain.
The lot on which the house was situated was valued at $400. The house,
with walks, well, cistern, and outbuildings, cost $900. Here is a total
investment of $1,300. The purchaser paid $300 in cash. There remained
$1,000 unpaid. The interest on $1,000 for a year at six per cent is $60;
but as the volume of interest is reduced as the payments are made, the
actual interest for the full period averages about one-half of $60, or
$30, per year. To make this point clear, I will state it in another way.
The principal is being reduced as the monthly payments are made. As the
payments advance, the amount of interest necessarily decreases, as there
is not so much principal on which to pay interest. As a matter of fact,
one pays six per cent interest on just one-half of $1,000 for the full
period, or, what amounts to the same thing, the average interest on the
full period is three per cent. Thus, one is paying an average interest
of $30 per year; and, as he pays $15 a month, this would be $180 a year
for principal and interest, $150 of which would apply to the principal.
Thus it is that in six years and eight months the one paying $15 a month
will own the house and lot. I know of other cases where less each month
is paid and a longer time is taken. It would take $10.83[1] per month to
pay for a house of this kind in ten years, with a cash payment of $300.
It may be said that nobody but a philanthropist would sell property in
this way. In the case of which I speak, the philanthropist is the
manager of the property of a life-insurance company which owns quite a
large amount of unimproved real estate in a Western city, and had a
surplus capital on which it desired to realize. It is a good thing for
the company. By this means it is enabled to dispose of its real estate,
and to use its money profitably.
This is not strictly architectural, but it may result in showing some
one how to get a home, or others how to make use of idle capital in a
safe and profitable way. It is better for one who has money to invest to
sell houses in this way than it is to rent them. He gets profit on the
sale, and interest on his money, which latter is all he expects under
other circumstances, and disposes of the houses before they need
repairs. This is the view which the capitalist takes of the situation.
By looking into it a little further, he may see that he will not be
troubled by insurance, a vacant house, or repairs. The cash payment is
sufficient to protect the expense of foreclosing the mortgage and the
rental of the house during the time of the redemption. In some instances
the property is leased on the payment of a small cash bonus, with the
stipulation that when one-third, one-fourth, or other agreed portion of
selling price is paid in, that a deed will be given; further payment
being secured by mortgage.
Building associations are not common in all sections of the country.
Those who are ambitious to build, and are not provided with facilities
which a building association offers, may ask what to do. The answer is
short: form an association. This can be done in a small community. Two
hundred shares paid in, say, by fifty people, would represent a hundred
dollars a week. Any one who wishes to do this can provide himself with
text-books and other information on the subject, which are now published
in different parts of the country. Any bookseller with a good catalogue
can give the necessary information.
It is sometimes assumed by those unfamiliar with building-association
methods, that they only provide means for building small, low-cost
houses. This is an error. It is not at all unusual that complete houses,
costing from three to five thousand dollars, are built by men of large
means, who secure their money from a building association. One has, say,
forty or fifty thousand dollars profitably occupied in a regular
business; he may not care to disturb this money except to buy a lot with
which to establish a basis of credit with the building association. The
price of the lot may vary from one-fourth to one-half the total
investment. One wishes to borrow three thousand dollars from an
association on the plan which is subsequently fully described. He would
have to take out fifteen shares on a payment of fifty cents a share a
week. This would represent seven dollars and a half weekly, or about
thirty dollars a month. On the plan where the interest and premium are
charged in addition to the regular weekly dues, a little over fifty
dollars a month would be required to keep up the building-association
charges. This would be less than house rent. These calculations are made
assuming that the premium is not more than ten cents and the interest
six per cent.