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It is unnecessary for ANYONE to borrow money to own a home!

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  • Tue, Feb 24, 2009 - 10:14pm

    #1
    kmarinas86

    kmarinas86

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    It is unnecessary for ANYONE to borrow money to own a home!

Several criteria:
1) The value of the home, upon completion, must be paid to the builder in full.

2) The method of payment must not be borrowed money.

3) The payments by each homeowner must be distributed over time.

The consequences are:

1) The IMMEDIATE payment to the builder for a home cannot come directly from the owner(s) of that home who pay OVER TIME.

2) The total of payments by homeowners NEED TO BE be enough to pay some percentage of existing housing in full.

3) That percentage, applied to the value of existing homes, MUST COVER the value of newly constructed homes.

The conclusion is:

A system can be developed that allows homes to be paid on the spot with NO BORROWING.

What are the consequences of borrowing money to pay for homes?

1) MORE DEBT ISSUED, WHICH LEADS TO…

2) MORE INFLATION, WHICH LEADS TO…

3) MORE INTEREST, WHICH LEADS TO…

4) MORE DEBT ISSUED.

How then does one justify the issuance of debt just to live in homes, when:

* It is proven to be totally unnecessary to do so.

* It is proven to cause inflation.

* It is proven that debt-based mortgages are less affordable than the houses they finance.

Take heed to the magnitude of debt issued to pay for homes in
comparison the typical CREDIT CARD LIMIT of an American consumer! The
debt issued to pay for housing can be in great excess of consumer
credit card debt!

  • Tue, Feb 24, 2009 - 11:39pm

    #2
    Peak Prosperity Admin

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    I post the following from another forum to clarify what is said

 

 

californian conservative wrote:

kmarinas86 wrote:
californian conservative wrote:
it is quite necessary for most people to borrow money to pay for a house.

If you live in the present, then that is the reality. While practically it is necessary AS A RESULT OF THE CURRENT SYSTEM, IN GENERAL, A SYSTEM CAN BE DEVISED THAT does not require this AT ALL!

really? No good system can come out of it, I can assure that.

Out of what?

californian conservative wrote:
kmarinas86 wrote:
californian conservative wrote:
And that isn’t a bad thing.

This is an unprovable statement, and therefore it can only be opinion, not fact.

LOL! As opposed to all of your statements, which of course have been proven? Fine, then, you want to take it this way?

Any system that does not require debt to pay for housing requires

1. The owner pays the complete cost upfront

False.

californian conservative wrote:
2. There is an installment type plan to the builder

True. That is what is needed.

californian conservative wrote:
#1 is completely impractical to implement on a widespread scale.

Right.

californian conservative wrote:
Most people, to save up that much money, would take many decades, and the home ownership rate in this country would plummet.

Right again!

californian conservative wrote:
Actually, it would just serve to to shut out many people from business opportunities, as well as just owning a home.

Right again!

californian conservative wrote:
Renting would become way more common, but the only people who could really buy would be those that were rich already.

Right again!

californian conservative wrote:
See a problem with this?

Yes!

Question for you: Did I just propose this?

californian conservative wrote:
#2 is also completely
impractical to implement on a widespread scale. You would have to have
the home builders acting as lenders,

False.

californian conservative wrote:
which would add a very
large amount of completely unnecessary risk among all participants, as
well as consolidating the construction industries among a very very few
giant players

It would, if you didn’t eliminate borrowing.

californian conservative wrote:
kmarinas86 wrote:
californian conservative wrote:
And why you created a new thread when you had an EXACTLY THE SAME thread that’s current I have no idea

If you have "NO IDEA", how did you come to the conclusion that the "NEW
THREAD" is "EXACTLY THE SAME THREAD" as the "OLD THREAD"? Count the
chickens AFTER they have hatched, not BEFORE!

dude, just look at the thread titles. The other thread, you ask a
question, then in this one you answer that exact same question.

A title of a thread is not a thread and a thread is not a title of a thread. Ok?

 

 

kmarinas86 wrote:
Several criteria:

1) The value of the home, upon completion, must be paid to the builder in full.

2) The method of payment must not be borrowed money.

3) The payments by each homeowner must be distributed over time.

Why do I have 1? Because the HOME NEEDS TO BE PAID UPFRONT. The
question remaining is, "Where does the money to pay upfront come from?"

Why do I have 2? Because if one uses borrowed money to pay for the
home, then that fails to show how it is UNNECESSARY to do so! The
question remaining is, "If we cannot used borrowed money or our savings
to pay for the home upfront, how are the costs of the home going to be
covered?"

Why do I have 3? Because if payments were not distributed over
time, then the great majority of homeowners would not have enough
savings to afford the house (even a very tiny one) and they would be
forced to borrow money, IF NOTHING ELSE IS DONE. The question remaining
is, "What reserve of money is there that will pay for the house
upfront, and how will it be funded?"

kmarinas86 wrote:
The consequences are:

1) The IMMEDIATE payment to the builder for a home cannot come directly from the owner(s) of that home who pay OVER TIME.

2) The total of payments by homeowners NEED TO BE be enough to pay some percentage of existing housing in full.

3) That percentage, applied to the value of existing homes, MUST COVER the value of newly constructed homes.

Why do I have 1? It is the observation that the builder needs the
money now, but the homeowner doesn’t have the money at the moment. So
does this require the person to borrow? In our current system, yes it
would. That requires that the solution be UNFAMILIAR to those who fail
to find a viable alternative.

Why do I have 2? Because the entire value of the housing needs to be covered to justify its construction.

Why do I have 3? Because the entire value of the new housing needs to be covered to justify its construction.

kmarinas86 wrote:
The conclusion is:

A system can be developed that allows homes to be paid on the spot with NO BORROWING.

That is, in essence, what is being proposed.

kmarinas86 wrote:
What are the consequences of borrowing money to pay for homes?

1) MORE DEBT ISSUED, WHICH LEADS TO…

2) MORE INFLATION, WHICH LEADS TO…

3) MORE INTEREST, WHICH LEADS TO…

4) MORE DEBT ISSUED.

Question: Do you think that it is reasonable to reject such observations as "irrelevant" to a properly functioning economy?

kmarinas86 wrote:
How then does one justify the issuance of debt just to live in homes, when:

* It is proven to be totally unnecessary to do so.

* It is proven to cause inflation.

* It is proven that debt-based mortgages are less affordable than the houses they finance.

Take heed to the magnitude of debt issued to pay for homes in
comparison the typical CREDIT CARD LIMIT of an American consumer! The
debt issued to pay for housing can be in great excess of consumer
credit card debt!

Question: If you don’t think this is problem, have you shown yourself
to be caring of the need to find root causes to our current economic
situation? Do you have the mentality of one who is capable of solving
problems, or do you have the mentality of someone who tries to diminish
awareness of the problems by denying responsibility to account for them?

 

 

 

 

californian conservative wrote:
dude, think about this
(because you seemed to ignore it in the last post). You have the
builders giving out a loan (in this case, a house (which has a large
cost)), and in exchange the renters have to pay a monthly fee.

What loan? LOANS REQUIRE BORROWING! Are you DEAF?

Why would the builder loan out money if they are going to be paid UPFRONT!

californian conservative wrote:
You just shifted the lending from a bank to a construction company.

ABSOLUTELY WRONG!

californian conservative wrote:
This has very notable implications.

You don’t even have a CLUE what "this" even is! You are arguing against
a STRAWMAN, even if you didn’t mean to! Either way, you have committed
yourself to a Strawman Fallacy.

californian conservative wrote:
1. It forces all the small
players out of the market. No small player can afford to build, and
then be payed in installments. I could appeal to reason to argue this
point, or my dad’s experience as a small time concrete contractor, but
let’s try numbers. Let’s say it costs $200,000 to build a house that
can rent for $750 dollars a month (much of this is highly dependent on
location).

Rent?

californian conservative wrote:
So what happens is that the builder sports the entire upfront cost, and gets paid in installments.

FALSE.

The builders get PAID UPFRONT (that means 100% of the value of the
homes) with money derived from a fund into which homeowners pay in
installments. Call it rent if you want. Can you see how mathematically
that those rental payments can collectively pay for the construction of
new houses UPFRONT. If the rent was valued at 5% of the value the
properties, it makes mathematical sense that such money could pay the
costs for new housing construction of matching value.

californian conservative wrote:
Most of the small
contractors can’t afford to implement on any reasonable scale. Even the
mid sized contractors (~100 employees) couldn’t do this reasonably. The
upfront cost is too high to make any reasonable profit measured against
the risk.

The risk you speak is entailed by a system of borrowing money. That is NOT what I am proposing in this thread!

californian conservative wrote:
Construction is already a
risky business, many companies go under. Add in the risk of owner
default, added legal fees for defaults, the interest rates required to
cover the upfront costs, and you have shut anyone but the largest names
out of the business. There would just be sub-contractors left, no small
contracting firms.
2. The reason that banks are able to loan at such low rates,

Are you kidding me? Low rates? What low rates?

californian conservative wrote:
is because of the
combination of depositors and other sources of cheap capital.
Homebuilders do not have this luxury. Homebuilding is risky, as such
borrowing money as a homebuilder requires much higher interest rates.
To cover the rates, add in a reasonable margin of safety, and then add
profit, and your rates are going to be a ton higher than they are now.
Which would a) price people out of the market, and b) further act as a
consolidator for the industry.

3. It seriously doesn’t work with the homebuilding housing model. Take it from someone whose done it

You acted against the strawman. Show that you understand the problem I am outlining!

Source: 
http://www.politicalcrossfire.com/forum/viewtopic.php?p=3292415

  • Tue, Feb 24, 2009 - 11:46pm

    #3
    Peak Prosperity Admin

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    The KEY POINT

I am going to emphasize again the major piece of information that seems to escape most people when I present the idea.

"The builders get PAID UPFRONT (that means 100% of the value of the
homes) with money derived from a fund into which homeowners pay in
installments. Call it rent if you want. Can you see how mathematically
that those rental payments can collectively pay for the construction of
new houses UPFRONT. If the rent was valued at 5% of the value the
properties, it makes mathematical sense that such money could pay the
costs for new housing construction of matching value."

Thus:

1) The builder gets paid in full and upfront.

2) The payment comes from a RESERVE FUND.

3) The reserve fund is paid into by homeowners in installments.

Now can you see how borrowing, interest, and prinicipal to finance property construction can be avoided in its entirety?

  • Wed, Feb 25, 2009 - 12:13am

    #4
    Peak Prosperity Admin

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    Re: It is unnecessary for ANYONE to borrow money to own a …

No. I can’t.

If the homeowners’ payments into the fund equal 5
percent of the housing value, then the fund will be able to pay upfront
for 5 percent of the total new housing, not 100 percent.

There is
no ‘magic formula’ in finance which will create something out of
nothing. A magic formula to turn lead into gold is probably a better
bet. Happy prospecting. Call me when you get rich.

  • Wed, Feb 25, 2009 - 01:08am

    #5
    Peak Prosperity Admin

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    Re: It is unnecessary for ANYONE to borrow money to own a …

kmarinas86,

    Some questions for you:

         1) who are you proposing would run the savings fund that pays the contractors who build the houses?

         2) how do you transition to such a system – do you require all those who have build a house under the old system to pay for their houses again? 

         3) How is the decision made to build a house – is it just when someone needs one?  Who designs it? 

         4) How long do payments by any one home owner continue?

         5) What happens when someone wants to sell their house before they have paid for it’s full value?

         6) Who owns the houses?  Is it the people living in it, or the people running the savings fund?

You are presenting an interesting idea, and potentially a good one, but it smells to me like Mathematically Perfected Economy, or what ever it is called – it sounds good at first, but I see it as basically being central planning, which, in my mind, is not a very sound system.

All the best,

Reuben

  • Wed, Feb 25, 2009 - 01:09am

    #6
    Peak Prosperity Admin

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    Re: It is unnecessary for ANYONE to borrow money to own a …

There is no money until someone, somewhere in the economy has borrowed it.  The simple answer to your question is it is currently impossible for someone to pay for a house without someone having to have gone into debt to a bank.  Whether is was them or someone else.

 BUT,

this can change.

http://www.youtube.com/view_play_list?p=14354FF904EB3AC7&playnext=1 in the ‘details’ section there is links to the Minnesota Transportation Act.

  • Wed, Feb 25, 2009 - 02:19am

    #7
    Peak Prosperity Admin

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    Re: It is unnecessary for ANYONE to borrow money to own a …

I knew from the title who authored the thread… to say anymore would waste more space.

  • Wed, Feb 25, 2009 - 02:27pm

    #8
    Peak Prosperity Admin

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    Re: It is unnecessary for ANYONE to borrow money to own a …

Why all this talk of building homes?!   9 months ago (the most recent data I could find googling: if someone finds more recent please post), there were over 4.3 millions unsold houses for sale.  We don’t need to be building more houses.  We need to be adjusting house prices down to a market-sustainable level. 

  • Wed, Feb 25, 2009 - 03:07pm

    #9
    Peak Prosperity Admin

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    Re: It is unnecessary for ANYONE to borrow money to own a …

[quote=machinehead]

No. I can’t.

If the homeowners’ payments into the fund equal 5
percent of the housing value, then the fund will be able to pay upfront
for 5 percent of the total new housing, not 100 percent.

There is
no ‘magic formula’ in finance which will create something out of
nothing. A magic formula to turn lead into gold is probably a better
bet. Happy prospecting. Call me when you get rich.

[/quote]

Since you clearly don’t get it, let me express it mathematically.

Value of All Homes at the end of the period = a + b + c + d + e + f + g + h + i

Value of newly constructed homes = i

Rate = Value of new construction divided by value of established homes

Rate = i / (a + b + c + d + e + f + g + h)

Amount due by Homeowner a = Rate * a



Amount due by Homeowner h = Rate * h

Amount due by Homeowner i is deferred to next period.

The result? i is completely paid for upfront while homeowners pay in installments. Even though i
is completely paid for by the collective, the individual has not
contributed enough money to the fund to match the value of the home.
Thus the person, like his more established counterparts, must pay into
the fund (c.f. "their is no free lunch").

If I am sure that you understand this, THEN I’ll explain what I
think needs to be done regarding the mortgages remaining in the system. 

  • Wed, Feb 25, 2009 - 03:09pm

    #10
    Peak Prosperity Admin

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    Re: It is unnecessary for ANYONE to borrow money to own a …

kmarinas86 – You leave several important  questions unanswered that are key to the process.  For example, how would the construction costs be funded?  You say that the contractor should be paid in full upon completion but you do not mention who writes the check and from what account will it be drawn?

Larry

 

 

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