h a l f b a k e r yBone to the bad.
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'Bob the Builder' buys a dwelling, appartment or house, outright. He now owns this property, fully and wholely.
However he does this with an attitude : He wants to rent it, with the renter's right to buy it, included, in the contract. At zero interest,.. !.
Over the rent/gradual buying in, period,
say the nearest 15 years, 2011 to 2026, the renter pay an equal portion, in direct fraction, from the outright price, monthly.
Bob the Builder, still owns the property, takes out a fixed loan, to 80 % of the bought price of the property.
He invests this money in commercial bonds, the steadiest and most secure financial instrument. He might even invest some part, in direct shares, in businesses he wants to take a knowledgable, informed, and active, part in, exerting his person and increased influence,plus knowledge base, to productivity and increased yield for those companies, in society.
His moral in making the property available at just the direct fraction, monthly, over the period of 15 years, is that family in growth shouldn't be burdened with costs on a neccessity, only the fair distributed transistion of ownership.
Bob the Builder gains the yields on his commercial and business investments, while still owning the property.
The yield on business i typically minimum 7 %, which accumulates exponentially.
The interest on the fixed 80 % of the property value, is rather less, say 2,3 or 4,5 %, but these do not accumulate, - they get paid every month in full by the rent, from the renters-to-be-new-owners, in full, and a little more.
It's like raising a barn, in the period of some years, - chip in, and it's easier for all. All win.
In typical Danish real estate numbers, I have calculated :
Period : 15 years.
Free capital : 2.0 million dkk
Price of regular appartment/rural house : 2.0 million dkk
Rent to paid by renters-to-be-new-owners : 11.111,- dkk monthly
Bob the Builder Business Capital value : 4.1 million dkk, net, after having transferred the lease document to the renters-now-new-owners.
Results in summation :
The family gains a debt free house in just 15 years.
The builder gets a rock solid placement of his funds,
and an exponentially increasing yield on his business volume.
Society gets a burst in commercial/business investments, and an ownership, rather than debt-ridden, solid economy.
In just 15 years !.
(costs not included : 1 % to a lawyer to work out the papers, some 1 % to a bank, and ,5 - 1 % to file the contracts with authorities. PLUS : dah dah : 0,1 % to the Originator (sirau), - just for one solid family dinner, :-) per deal).
Islamic banking
http://en.wikipedia...iki/Islamic_banking
ways around the interest issue. May be relevant. [calum, Aug 23 2011]
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I will confess I don't understand this. But am I right in thinking that it pre-supposes that Bob has his own money, so doesn't need to borrow to acquire the property in the first place? |
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I can't speak to the Danish principles of property law, but I do know that in Angloriffic jurisdictions you tend own the property outright, with the borrowing on it being subject to security to your lender, so there is no graded transition of ownership. Rather than rewriting the laws of property what you want to do is put the house in a company and transfer, bit by bit, the ownership of the shares in that company. |
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I don't like it - it presupposes that the bank is happy to lend at 80% LTV at a rate lower than that of the prevailing investment market. I don't think that's feasable - and if it were, it would encourage everyone to max out their borrowing to take advantage of the unusualy profitable circumstances. (Something counter to the idea's apparent intent) |
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Also, why should Bob the builder wish to subsidise another family's house purchase, sacrificing in the process his own retirement income? |
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And even more so, how many people get to live in the same house for +15 years? If one family need to move, must they now weigh-up how much of a downpayment they've invested in a house? How does this downpayment get transferred? It'd create a mess. |
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Now the alternative is that you place a large financial institution in the middle to soak up both the risk, and the trickier bits of the accounting in order to allow people the usual flexibilities they rely on in life and before you know it you're back in traditional mortgage land. |
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There were examples of Islamic typogram banking, financing priavte houses, in Denmark, some years ago. |
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Since no interests were allowed, the 'end' price, i.e. the value of the house, seen at the termination of the contract, was set at projected, higher, price. |
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I now doubt, having read briefly your reference, that such a projection, is entirely within the islamic intent, as some time variation will have influx on the economy of the deal, - prices of houses in that area, country, state of maintenaince, etc. |
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The bit-by-bit transfer is correctly percieved as a key item. |
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That Bob the Builder formally owns the house, could boost his original line of business, in that he gets to decide for his own construction company, to maintain the house/appartment |
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Yes Sirau, but if he was able to buy the property outright in the first place (or for that matter, if he had to borrow on a mortgage before buying the property) then he'd have equally associated maintenance rights. |
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There's no incentive for him to operate like this, except to suppose that he's a particularly charitable builder. In which case, aren't you just advocating that people in general(or perhaps builders in particular) become more charitable? |
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It's all a question a 'putting your money', into the system, with moral, and intent. |
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The rates are up to date Danish conditions. |
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The figure Bob the Builder could equally be a full-on credit society, or financial company, spreading such an attitude with heft and vigor, just at the decision of such an entity's Board of Director's. |
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The example shows that it can be started at a 'peoples level', not neccessarily by profit riding corporate executives. |
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The idea would need to be taken to evaluation in a meeting on Strategy, for economic entities, state, corporate, private companies, mom and pop financials, and actively CHOSEN, as a deliberate CHOICE, negating micro-management and narrow-field sub-optimization. |
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The most likely age ranges to apply such investments, would be 45 - 55 year old middleclass managers, having achieved already some lee-way, financially,in bonuses and free-capital value, with the outlook to some further 15 years of active proffessional life. |
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They might take a stance in the development of the financial jungle, and against it's volaltility and influx on less-educated,(slightly poorer), peoples life. |
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Such people would still gain a care-free doubling of their free money, AND have the peace in heart feeling from having done their fair share to lessen burdens on up-coming, lesser founded, family and families. |
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So are you telling me that in Denmark, you can borrow money at 2% and invest it and get a risk-free return of 7%? |
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Please send me an email with all the details, as I would love to make 5% by doing nothing! |
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Once we've made all our money, we can invest it in property, and rent it out to the poor people who missed out on the crazy loophole in the Danish economy. |
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Here in the UK, and in the rest of the world, it's common for mortgage rates to tend to be higher than the prevailing bond-rates. In some instances, bonds will provide better rates for the same level of risk, but purchase prices will reflect that pretty quickly, meaning that the effective yield will be far lower than the headline rate. Failure to do this would result in "free money", which like lunches, is not a thing that is widely known to exist. |
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The picture to play with would be : |
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A quick profit, is easily grasped as a 'gift', from a stroke of luck, or intelligence applied. |
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Sustained profit, is more of an aquired gain-RATE, a position that must be defended, maintained, possibly be re-evaluated and exchanged. |
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Profits form financial operations, these days, are justified be 'we distribute to the positive contributors', 'we increase opportunity', but mostly, they are running around in circles, rather than beeing based on economical facts, or projections of what's needed for a future society, : they follow hunches, notions, theoretical ideas and probability calculus, upsetting the peoples economical foundations, real estate markets (hence the actual and near-future costs of living to consumers), and pausing truly PROFITABLE yield increases from technical society progress, into new and stronger, efficient, and pleasurable, products and productions. |
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Yep, that's the figures as I have them,, |
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there's even a personal paid interests tax deduction, at the rate of your marginal tax rate,, |
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but that is,, hold for it : hovering around 60 % !, for craftsmans-type salaries,, |
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so the Tax reduction pays approx. 2\3'rds of the 'paid' interests,. |
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My own project : 'FAMIGLIETTA' / 'Hermes-Pegasus.biz' / 'KompasDesign.it' , also published here on Halfbakery, yields 7 % nominally, per year, on a deposit 180 million US Dollars budget figure - accumulated over 12 - 25 years even 400 - 600 % (total that is,,.) !. |
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Yadda yadda - I'm not saying that ethical and sustainable business practice is not the best kind (it most definitely is) - I'm with you on that one, who wouldn't be? If the choice is Good Businessmen vs Evil Businessmen, what's the reason to choose the evil businessmen again? |
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But your idea goes further than this,
1) It relies on an economic set of circumstances that simply doesn't exist
2) It relies on the assumption that people don't move house any more than once in every 15 years
3) It relies on the charity of builders to give away their houses when they could simply rent them (without any observable detrement to society)
4) It assumes that mortgage rates are consistantly lower than prevailing bond yeilds.
5) It plays an accounting trick (borrow money *after* buying the house in cash so you can spend *the same* cash on "investments") that is equivalent to the status quo and pretends that it is significantly different to the status quo (borrow money you already have invested elsewhere so you can additionally buy a house) that doesn't *do* anything. |
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So, if we take away the assumptions that don't apply in the real world (1), (2), (3) and (4). And then we remove the accounting bait-and-switch (5), what are we left with? |
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And, if we go all the way back to the start, how did Bob get all this money in the first-place? |
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And, why are we forcing Bob to go into debt? Isn't that his choice? What about the family's choice to go into debt, rather than put their trust in one individual, who may need to cash-in his collateral under difficult circumstances, say, if he falls off his ladder? Isn't it better to put your trust upon the shared burden carrying capability of a large coorporation, rather than put all that pressure and responsibility on a single builder? That's what coorporations were invented for, to help democratise the ownership of expensive assets and endeavours. |
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[edit] cross-posted -I'd not read your 2nd response before posting the above.. |
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So those figures, what are you telling me? That you invested 180 million dollars and received 7% return on your investment? Well done that's excellent! Now tell me how much you would have paid in interest over the same period if you had borrowed that money at 80% LTV. |
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Then tell me what would happen if Bob's investment lost money (sometimes it happens) and he needs to sell his house in order to pay his obligations. Now not only does he owe the bank money, but he also owes the family who live in his house (the family he's also had to evict in order to sell it) |
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the payments from the renting family could be accumulated in a cash account, |
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for bob the builder security. |
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The house isnt per se 'given away', it is financed with an attitude of 'zero interest', rented with an option to buy, but, the ownership still retained (for the 80 % fixed loan). |
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A partial timeline could be accounted for, counting accumulated deposits. |
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Yes, they could be held in escrow - but if so, then why did Bob go to the effort of renting the place in the first place? It's lovely and kind and thoughtful socially aware behaviour, but Bob gets absolutely no benefit whatsoever. |
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Tell you what, on the proceeds of your 180 million USD investment that pays 7% a year, what do you do with the income? Do you
i) Buy lots of houses and sell them on at cost to the poor, taking out a loan over the next 15 years that covers 80% of your estate purchase costs in order for you to reinvest the money you no longer have in other business opportunities, or
ii) do something else. |
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If you do ii), then why is that, because you could quite easily conduct business in the way you describe tomorrow - there's nothing stopping you from borrowing, long-term-leasing, and reinvesting your money however you see fit - but all that is personal choice, that's currently available to all, so what is the invention here? |
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Bob isn't going to be able to maintain the capital leverage on an asset that he owns less and less of each day unless his "renters" are willing to assume the liability of potential default which might well be equivalent in terms of capital risk to having a mortgage. In this scheme bob leverages an asset and short sells to the renters who bear the risk for the default of the bonds AND and any decline in the value of the property. It's not exactly free from the evils of capitalism. |
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It was meant from a notion, that debt kills all of the free will in society, dampening out adaptation, development and free reserves, from a 'wave' of up and downs of emence capital flows, fixed by enormous prices on housing, to actually buy and own a dwelling. |
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If you are a sprited living beeing, exploring, communicating and thus expanding the information, and concepts of thought, considerations, and indeed, technical/commercialible ideas and novelty, then you spend and spend and spend, but society, benefitting from this pure expansion in turn-over, just absorbs the spending, and doesn't appriciate the expansions, and information, provided. |
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The alternative, closing down curiosity, delaying travel, reducing innovation, cripples and halts Society, but can be the only resort, for the limited, state of renumeration, and appreciation. |
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The medieval ages systems of sponsors to thinkers and art forms, having produced many aster class works, pictures, theories, poems, and books, is rare today. |
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Therefore, the thought was to make a systematic, well defined, available as an option, a way to say no. to the interests calculated on existing values, houses and appartments, as to allow growing adults, to get 'ahead' in a normally paid salary work employment situation, elinimating past times transitions from 'cost-of-building-it', over 'market-price', decided by factors in the growth in the local area and quarter, into just paying the fair price, equally spread over a reasonable period, leaving them, the growing younger family, with a prospect of having their future better in place, even if they 'just' could manage a shorter, possibly more intense, working life. Then, to live in a fully debt-free house/appartment, from when thier children will begin to need support for school travel, college, and university,. |
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