CHAPTER XXXVIII.
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.