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I realize that this idea is dead in the water because it would require landlords to "give up" a stream of income. However, if we ignore that for a second and en

I realize that this idea is dead in the water because it would require landlords to "give up" a stream of income. However, if we ignore that for a second and entertain a bit of wistful "what if" ... What if we lived in world where real estate was not an illiquid investment, with extremely high barriers to entry? What if the monies taken in rent actually accrued equity by some schedule? What if you could move at any point without losing your equity? Crazy ideas, I know ... but via example: 1. developer builds a house, has 100% equity. 2. new tenant moves in and starts paying "rent", building up equity. 3. Costs for repairs and maintenance have to be paid per your equity percentage (so if I've accrued 20% equity, I have to pay 20% of the plumber's bill while I'm living there). 4. When the tenant inevitably moves, they take their 20% equity, and are paid 20% of the next tenant's rent payments, while still paying 20% of maintenance costs ... this % of course decreases as the new tenant makes more payments. This gives you the mobility to move from city to city to follow jobs, while avoiding the money drain that is renting (ie. paying someone else's mortgage). If a tenant stays in that property long enough, they will eventually reach 100% ownership of the property, they will have purchased your "shares" in the house. So it remains an investment that you can get returns from, but those returns do not last forever. I know, it's a crazy idea; in fact, this is the first time I've ever told anyone else about it ... but I think if it can be structured right, it could change society forever since real estate is one of the areas that is increasingly unavailable to the "have nots", thus contributing to ever-greater inequality.

bane 10y ago
So....you've basically described how the property market works today for the most part. > What if we lived in world where real estate was not an illiquid investment, with extremely high barriers to entry? It's not, about 70% of all people (in the U.S. at least) "own" or are scheduled to own their home. There's not an enormous barrier to buying property, you can even finance 100% of the property value in various ways so very little money is even required up front. > What if the monies taken in rent actually accrued equity by some schedule? This is basically how mortgages work. In general, some of the money you pay goes to the title holder to pay interest on the loan...this is effectively like rent except better, since you get some tax benefits for it. The difference goes towards buying the loan principle, which is effectively buying you equity in the property. Once the principle is paid off, you own all of the equity in the property. > What if you could move at any point without losing your equity? You can, you sell the property -- this is exactly how it works. The new owners effectively pay off your loan in one lump sum, you get pretty much the portion of the principle you paid off as equity, the organization providing your loan gets paid the difference. When you buy a new home, you can use the equity towards buying the new house so you have to finance less. In effect you move around your equity as you move around your house ownership. If you manage things well (it's up to you) at some point, you will own 100% of the equity in the property, in which case you will become the title holder. Selling/buying a home is a bit more complicated than waiting for a lease to end and moving to a new rental property, but not by much -- it mostly just takes a bit of patience. Let's look at your idea: > Crazy ideas, I know ... but via example: >1. developer builds a house, has 100% equity. This is exactly what happens >2. new tenant moves in and starts paying "rent", building up equity. This is sorta what happens. When a person goes to "buy" a house, they typically engage a bank or some other finance organization who buys the home from the developer and then you pay your "rent" to the financial institution instead of the developer. This enables the developer to turn over inventory quickly and continue building more houses rather than having inventory locked up for decades. > 3. Costs for repairs and maintenance have to be paid per your equity percentage (so if I've accrued 20% equity, I have to pay 20% of the plumber's bill while I'm living there). That's an interesting idea. Not how it really works of course, but an idea of shared ownership. To riff on this, if you default on your loan and the bank reclaims the property, they assume 100% of the maintenance costs. You'd need to control for people who want Cadillac everything throughout their house: Spanish tiles on the roof, gold plated pipes, top of the line appliances, etc. > 4. When the tenant inevitably moves, they take their 20% equity, and are paid 20% of the next tenant's rent payments, while still paying 20% of maintenance costs ... this % of course decreases as the new tenant makes more payments. I'm not sure I follow, if they take their 20% equity (to put into the next property) they wouldn't be entitled to receive any rent from the next tenant. But if if a previous tenant leaves their equity with the property it sounds like then a person might end up with percentage ownership of tons of properties if they move around a lot. Effectively your scheme describes that every property operates like a business with shareholders. Except the current executive of the property is whoever happens to move in. So you might end up holding equity in a property that somebody else burns down to the ground or uses it as a meth lab. But you would have no rights or controls over how the new tenant uses the property. Furthermore, distribution of rents and collections and management of payments implies that there is a person who handles the overhead and management of the property, greatly depreciating the value of the property. Not saying this is all terrible, but as an idea it needs some work. In the least it would greatly inflate the property management industry without providing much benefit to owners/tenants. In the worst it would require an entire rethinking of tenant/owner rights to use a property.
- CodeCube 10y ago
  oh yeah ... the concept definitely has lots of unanswered questions :P > I'm not sure I follow, if they take their 20% equity (to put into the next property) they wouldn't be entitled to receive any rent from the next tenant. I think maybe I wasn't as clear as I could have been ... what I mean is 20% ownership here. So when they "leave", they're not removing that value from that property. They maintain ownership of that "20%", and reap the rewards until their share is ultimately bought out and dwindles to zero. The corollary to that, is that they wouldn't have to take the value in order to finance their next tenancy ... if they could find another place to enter into the same kind of agreement, they simply move in and start paying there.
  - bane 10y ago
    Here's a crazy idea that actually exists. In a handful of countries tenants pay something colloquial called "key money". It's usually a lump sum, say $150k on up, to a landlord. The landlord invests the money and makes what they can off of it and the tenant lives rent free. When the lease is up the tenant gets back their key money to take elsewhere.
    - pkaye 10y ago
      Why not the tenant invest the lump sum themselves and give the interest to the landlord?
      - bane 10y ago
        If you fail to pay, the landlord gets your lump sum. It's a security deposit on the property in essence.
    - CodeCube 10y ago
      that's really interesting, thanks for posting about it I'll look up more info :) However, unfortunately in a scheme like this, the tenant would have to have 150k in the first place. I'm looking to find ways to lower barriers to entry so that one doesn't have to be rich.
mjevans 10y ago
I like the way that the 'rent' on the property encourages the builder to actually produce a product that will survive the purchase period.
xenihn 10y ago
I love this idea.
Shivetya 10y ago
There are many rent to own plans out there, even had a friend do that with all his rentals. He had one in all the time I knew him renting his "terms" I thought were just fine. However you also have to be very careful around this with regards to banking laws and even some local regulations will discourage it. The problem with taking your equity is that it likely is taxable an taxable on enough levels to make it not worth anyone's while. Now taking you idea further, you have a developer/startup/etc that owns units across the country with a form of interchangeable ownership. I think the logistics might sink it and if the company managing it all ever went bankrupt you would come out on the losing end. I guess it would end up being a more equitable time share?
deleted 10y ago
[deleted]
subway 10y ago
Tracking equity and liability on this sounds like an absolute nightmare. Once you've added an entity to abstract/simply the equity/liability situation, you end up with something that looks a heckuva lot like a bank and a mortgage on a condo/coop.
- Kinnard 10y ago
  I'm not sure, I wonder if a company like castle ( http://entercastle.com http://entercastle.com ) could do it programmatically.
- dpark 10y ago
  Islamic mortgages are exactly this. You have an incorporated entity (shares distributed between yourself and the bank) that owns the house and your "mortgage/rent" buys more equity from the bank. It's still just a mortgage structured to hide what it is. If you set this up with a "landlord" instead of the bank, it's the same thing and the landlord is still going to charge you a premium (aka interest) for assuming this risk, and assess your creditworthiness before entering into this kind of contact with you.
brightball 10y ago
That's basically a mortgage except the bank starts with almost 100% equity
- Kinnard 10y ago
  + rapacious compound interest with the end-result of extracting 30yrs of labor?
  - xrange 10y ago
    3.34% as of 2016Jun29 for a fixed 30 year mortgage. http://finance.yahoo.com/news/30-fixed-mortgage-rates-fall-180608774.html http://finance.yahoo.com/news/30-fixed-mortgage-rates-fall-1...
    - distances 10y ago
      Or 3 month Euribor is now -0.281%, so with say 1.2% margin for bank the current interest would be 0.92%. Obviously with no guarantee for it staying that low. http://www.euribor-rates.eu http://www.euribor-rates.eu
      - nimos 10y ago
        You can't compare 3 month term interbank loans to a 30 year term mortgage. 30 year tbills are around 2.25%.
        distances 10y ago
        That wasn't a comparison to the 30 year fixed mortgage, just brought up an alternative. And this is not theoretical, the usual way to get a mortgage around here is Euribor with a margin for the bank added, practically no-one gets decades-long fixed mortgages.
        rmah 10y ago
        A 3mo interbank rate is not an alternative to a 30 yr consumer mortgage.
ryandrake 10y ago
It's a cool idea but it won't work in areas where housing supply is scarce (basically everywhere). Renters are already perfectly willing to pay thousands of dollars a month for zero equity. Landlords have little incentive to offer equity in the underlying real estate to get people to move in, so they don't! In places where housing is plentiful and there is competition you do every once in a while see "rent to own" terms where part of your rent payments can be credited towards a purchase, and typically the renter will need to buy an option to purchase up front. Unfortunately, housing supply would have to skyrocket in order for landlords to be desperate enough to have to use your idea to lure tenants.
- Kinnard 10y ago
  I think this could change the national dynamics. Try it in a place that people are not too keen to live in yet, like Detroit and lots of people would move to get equity. This would take pressure off of in-demand places, and perhaps force them to adopt this to keep up eventually. Every lower tier location would have to adopt this to compete, if that happens, middle tier locations will start to adopt it, and if that happens . . . It also incentivizes people being better renters. Why would you want to damage your own house, in fact, you'd want to invest in it.
  - st3v3r 10y ago
    I really don't think so. People can already move to Detroit for pretty cheap if they want to. They're not. In demand places are in demand for a reason. San Francisco has palatable weather year round. Detroit gets pretty damn cold for about half the year. Would you get some people moving to lower tier places for this? Probably. Would it be enough to actually have an effect on things? Probably not.
jasonuhl 10y ago
If you want to buy real estate in small liquid increments, you can do that with REITs (essentially real estate trusts that trade like stocks). I live in an apartment owned by one of the big publicly traded trusts, and have amused myself in the past by calculating how many shares I'd have to buy for the dividends to cover my rent. On balance there are other ways I'd rather invest my money though.
Kinnard 10y ago
This is a great idea and you are not the first person to have it— Apply HN from several weeks ago: "Apply HN: reinvent ownership" https://news.ycombinator.com/item?id=11454138 https://news.ycombinator.com/item?id=11454138 I'm more than willing to work on it.
WalterBright 10y ago
Part of being a free market is people can set up a business any way they like. For example, there are neither legal nor regulatory barriers to setting up a commune (communes were popular in the US around 1900). People can set up workers' cooperatives. And your idea can be done if you can organize a bunch of like-minded individuals to try it. You don't need to change society to do it. Just do it.
- Kinnard 10y ago
  Where is this free market you refer to?!
  - WalterBright 10y ago
    It's free enough in the US to do all these things. As I said, there have been many communes in the US.
  - xrange 10y ago
    What would be the (say 3) biggest hurdles you see to kicking off that type of venture (and maybe give us hints as to how a freer market minimizes those)?
    - vacri 10y ago
      One would be the non-standard equity breakdown which might make getting a mortgage loan from a bank more difficult. Another would be keeping people 'in the system' long-term, otherwise it doesn't really work (if the original landlord tires of it, what stops them from 'just reverting' to the old system?) It's an interesting idea, but it'd be hard to test out.
      - WalterBright 10y ago
        > from a bank There are multitudes of banks with different policies. There are multitudes of other ways to get capital. In the D community, we used Kickstarter to fund the first D conference, for example. > what stops them That's what contracts are for. Contracts are a central feature of a free market.
MichaelBurge 10y ago
Just set up a corporation that issues shares according to these rules. You'll need to personally guarantee the loan for the bank, but otherwise they won't have a problem with it. You could also remove the bank, and say the builder has 100% equity at the start if you can get them to agree to it. It seems like it'd be a better idea to continue paying rent and just buy some shares in an REIT with the difference in cost with rent and rent+shares. And let's be clear: You would pay higher rent in your scheme, so said difference is nonzero.
- natrius 10y ago
  This is the right answer. As far as I can tell, the only reason to buy a home is to lock in a particular home for your family over time at a stable price, which this equity structure does not address. Otherwise, you can just invest in real estate in financial markets. (Tax incentives skew these incentives towards ownership.)
  - st3v3r 10y ago
    There is also the ability to do what you want with it (more or less, within reason anyway) that you don't have while renting.
  - billmalarky 10y ago
    >Otherwise, you can just invest in real estate in financial markets. Most of the gains from active REI don't come from RE appreciation (which generally tracks the inflation rate nationally). The growth from REI comes from using a TON of leverage to purchase the assets (ie a mortgage) then getting someone else to build your equity for you (the renter). Additionally real estate investors pursue extremely favorable deals, generally where the seller is motivated to use their built up equity to sell at a significant discount to what the remaining cost of their mortgage is. These distressed sellers are usually going through a divorce or potential bankruptcy (where getting a small amount of their equity value back is preferable to losing everything and destroying their credit via bankruptcy). As you alluded to, this of course relates to real estate as a business. Not to standard home ownership (where you buy a property because you want it as a home, not because it is a good business investment).
chris_va 10y ago
This will probably get buried deep in the thread, but... Lease to buy is a thing, more or less as you describe. However, it removes liquidity for both the buyer and seller (buyer cannot exit easily, seller cannot exit easily). As a result, mortgages are more popular and more-or-less functional identical.
- itchyouch 10y ago
  Except the way lease-to-buy is usually structured is in favor of the landlord where the landlord usually still gets to keep the payments when the tenant moves out instead of opting for the purchase option. The vast majority of the time, the tenant will usually move out due to life circumstances anyway. From what I've researched about Lease-to-buy, it is a strategy of charging higher rent.
nimos 10y ago
There are rent to own schemes, although less flexible than what you are describing. The amount of money renters would have to spend to get a relevant portion of the equity would be substantial. Landlords aren't just going to start giving away capital for free. The current Price-to-Rent ratio in SF is 45.88. So lets say your willing to pay an extra 50% of your rent to gain equity you would end up gaining about 1.1% of the units equity per year at market rates. This is somewhat unfair because SF has one of the highest price/rent ratios but 50% increase in rent is also very large. With an average tenancy around 2 years most people are going to own extremely little equity while the property accrues all sorts of minority owners which would be nontrivial to manage. The only real benefit I can think of is it provides some insulation against cost of housing increases but at the downside of exposing you to housing price decreases and trading cash for an extremely illiquid asset. Who is going to want to buy 2% of a house/apartment?
deleted 10y ago
[deleted]
meric 10y ago
That's a good idea. It's called "Musharaka al-Mutanaqisa" and is a form of Islamic banking and finance. "An innovative approach applied by some banks for home loans, called Musharaka al-Mutanaqisa, allows for a floating rate in the form of rental. The bank and borrower form a partnership entity, both providing capital at an agreed percentage to purchase the property. The partnership entity then rents out the property to the borrower and charges rent. The bank and the borrower will then share the proceeds from this rent based on the current equity share of the partnership." https://en.wikipedia.org/wiki/Islamic_banking_and_finance https://en.wikipedia.org/wiki/Islamic_banking_and_finance
- jpatokal 10y ago
  Why the downvotes? That sounds very much like the OP's idea.
ap3 10y ago
No one is going to "give up" anything - in a free transaction between two parties the terms are agreed by both sides. Rents are up because tenants can afford to pay the rate to live there - ask any landlord if they want to charge more, or ask any tenant if they want to pay less. Both parties end up settling in equilibrium. The price of rent is what the market can currently bear. In your plan there are always those that will settle for less yield, or will take on a larger risk, but it has to be out of free will, not mandated by law
Someone 10y ago
If this applies only to the first renter of a property, it is https://en.m.wikipedia.org/wiki/Hire_purchase https://en.m.wikipedia.org/wiki/Hire_purchase with the twist that maintenance risk slowly moves to the renter. That can go OK, but the wishes of you and the developer may not align perfectly (the developer may want to spend $20,000 on improvements, to be split 50-50 between him and you, but at the movement you have only $5,000) That gets worse once you move out. You effectively become a landlord, and your goals may no longer align with both those of the developer and the new renter. If you want to use hire purchase for the second, third, etc. renters, too, things would get complicated fast. Say, there's a maintenance job of $10,000 to do. The second tenant doesn't have the money, the third one died a week ago, the fifth one married and divorced, the seventh one wants to spend money on other improvements, etc. Now try to get all owners to give permission to spend any money. If you want to own something, I think it is easier to just buy one property or to invest in a developer that builds properties.
wccrawford 10y ago
If renters wanted to pay more, they could probably have this deal with any number of landlords. It's not common because renters aren't looking to own a part of that house/apartment, they're just looking to get by until they can actually own one themselves. How is it better for them to be forced to put money into that residence rather than in a savings account that'll go toward the residence they actually want to buy?
whack 10y ago
That's an interesting idea, but what you're describing basically sounds like a: A) 0% down-payment mortgage B) where you can stop making payments at any time, and get to keep your equity in the house anyway The above obviously sounds like a sweet deal for the buyer, but put yourself in the shoes of a developer/home-owner/bank: Why would you agree to a deal like that? Why not just sell the house to someone who is willing to commit to a traditional mortgage and buy it outright? You will only agree to the above terms if the buyer is offering you significantly more money. But as a buyer, are you willing to pay significantly more money than you would have to pay under a traditional mortgage? It sounds like what you really want is: A) The flexibility and mobility that comes with renting B) The ability to invest in real-estate in an incremental and liquid manner There is already a solution that accomplishes both of the above! Just continue renting your house, and invest the rest of your money into REITs. This way, you get all the flexibility and mobility of renting, together with the incremental and liquid nature of REIT investments. If the reason you're averse to the above, is that you don't want to "throw your money away in rent," that's a false misconception. When you buy a house and make mortgage payments, the fact that you get to "live in the house for free" is already baked into the price of the house. This is why mortgage payments (after amortizing the down-payment) is virtually always higher than renting the same house. Regardless of whether you choose to rent or buy, you're still "throwing away" the same amount of money regardless. Is what you suggested capable of "working"? Sure. Any arrangement can be made to work, with the appropriate numbers needed to attract a counter-party. But is it going to generate anything of value beyond what we currently have? I doubt it. If you want flexible living arrangements, rent a house. If you want to own real estate, buy REITs. If your complaint with this suggestion is that rent is too high and REITs are too expensive, there's no alternative business arrangement which will solve that problem.
- sunnyg9494 10y ago
  The beauty of owning tangible property is that banks will give you a loan for it, which makes the investment even better in an average economy. You get the dividends of a much higher investment, while only paying a fraction up front. I did some calculations here: https://medium.com/@sanchitgupta/investing-in-real-estate-7d72e762f5#.kqrur54nj https://medium.com/@sanchitgupta/investing-in-real-estate-7d...
seanp2k2 10y ago
I've had similar thoughts, and they usually conclude with me thinking that a perpetual license from the government to own land and pay taxes is a bad idea, because it encourages this predatory rental behavior where no equity is accrued on behalf of the renter. They're literally paying something (usually a very large something) on a recurring basis for something that the owner paid for on a one-time basis, except for the taxes (which are typically passed on to renters anyway). The endless payments for no equity to lease a thing which was paid for on a one-time basis is my biggest issue with private property ownership. There's no way in my mind to make it a fair system without some aspect of slowly gaining even partial ownership.

bane 10y ago

So....you've basically described how the property market works today for the most part. > What if we lived in world where real estate was not an illiquid investment, with extremely high barriers to entry? It's not, about 70% of all people (in the U.S. at least) "own" or are scheduled to own their home. There's not an enormous barrier to buying property, you can even finance 100% of the property value in various ways so very little money is even required up front. > What if the monies taken in rent actually accrued equity by some schedule? This is basically how mortgages work. In general, some of the money you pay goes to the title holder to pay interest on the loan...this is effectively like rent except better, since you get some tax benefits for it. The difference goes towards buying the loan principle, which is effectively buying you equity in the property. Once the principle is paid off, you own all of the equity in the property. > What if you could move at any point without losing your equity? You can, you sell the property -- this is exactly how it works. The new owners effectively pay off your loan in one lump sum, you get pretty much the portion of the principle you paid off as equity, the organization providing your loan gets paid the difference. When you buy a new home, you can use the equity towards buying the new house so you have to finance less. In effect you move around your equity as you move around your house ownership. If you manage things well (it's up to you) at some point, you will own 100% of the equity in the property, in which case you will become the title holder. Selling/buying a home is a bit more complicated than waiting for a lease to end and moving to a new rental property, but not by much -- it mostly just takes a bit of patience. Let's look at your idea: > Crazy ideas, I know ... but via example: >1. developer builds a house, has 100% equity. This is exactly what happens >2. new tenant moves in and starts paying "rent", building up equity. This is sorta what happens. When a person goes to "buy" a house, they typically engage a bank or some other finance organization who buys the home from the developer and then you pay your "rent" to the financial institution instead of the developer. This enables the developer to turn over inventory quickly and continue building more houses rather than having inventory locked up for decades. > 3. Costs for repairs and maintenance have to be paid per your equity percentage (so if I've accrued 20% equity, I have to pay 20% of the plumber's bill while I'm living there). That's an interesting idea. Not how it really works of course, but an idea of shared ownership. To riff on this, if you default on your loan and the bank reclaims the property, they assume 100% of the maintenance costs. You'd need to control for people who want Cadillac everything throughout their house: Spanish tiles on the roof, gold plated pipes, top of the line appliances, etc. > 4. When the tenant inevitably moves, they take their 20% equity, and are paid 20% of the next tenant's rent payments, while still paying 20% of maintenance costs ... this % of course decreases as the new tenant makes more payments. I'm not sure I follow, if they take their 20% equity (to put into the next property) they wouldn't be entitled to receive any rent from the next tenant. But if if a previous tenant leaves their equity with the property it sounds like then a person might end up with percentage ownership of tons of properties if they move around a lot. Effectively your scheme describes that every property operates like a business with shareholders. Except the current executive of the property is whoever happens to move in. So you might end up holding equity in a property that somebody else burns down to the ground or uses it as a meth lab. But you would have no rights or controls over how the new tenant uses the property. Furthermore, distribution of rents and collections and management of payments implies that there is a person who handles the overhead and management of the property, greatly depreciating the value of the property. Not saying this is all terrible, but as an idea it needs some work. In the least it would greatly inflate the property management industry without providing much benefit to owners/tenants. In the worst it would require an entire rethinking of tenant/owner rights to use a property.

CodeCube 10y ago
oh yeah ... the concept definitely has lots of unanswered questions :P > I'm not sure I follow, if they take their 20% equity (to put into the next property) they wouldn't be entitled to receive any rent from the next tenant. I think maybe I wasn't as clear as I could have been ... what I mean is 20% ownership here. So when they "leave", they're not removing that value from that property. They maintain ownership of that "20%", and reap the rewards until their share is ultimately bought out and dwindles to zero. The corollary to that, is that they wouldn't have to take the value in order to finance their next tenancy ... if they could find another place to enter into the same kind of agreement, they simply move in and start paying there.
- bane 10y ago
  Here's a crazy idea that actually exists. In a handful of countries tenants pay something colloquial called "key money". It's usually a lump sum, say $150k on up, to a landlord. The landlord invests the money and makes what they can off of it and the tenant lives rent free. When the lease is up the tenant gets back their key money to take elsewhere.
  - pkaye 10y ago
    Why not the tenant invest the lump sum themselves and give the interest to the landlord?
    - bane 10y ago
      If you fail to pay, the landlord gets your lump sum. It's a security deposit on the property in essence.
  - CodeCube 10y ago
    that's really interesting, thanks for posting about it I'll look up more info :) However, unfortunately in a scheme like this, the tenant would have to have 150k in the first place. I'm looking to find ways to lower barriers to entry so that one doesn't have to be rich.

mjevans 10y ago

I like the way that the 'rent' on the property encourages the builder to actually produce a product that will survive the purchase period.

xenihn 10y ago

I love this idea.

Shivetya 10y ago

There are many rent to own plans out there, even had a friend do that with all his rentals. He had one in all the time I knew him renting his "terms" I thought were just fine. However you also have to be very careful around this with regards to banking laws and even some local regulations will discourage it. The problem with taking your equity is that it likely is taxable an taxable on enough levels to make it not worth anyone's while. Now taking you idea further, you have a developer/startup/etc that owns units across the country with a form of interchangeable ownership. I think the logistics might sink it and if the company managing it all ever went bankrupt you would come out on the losing end. I guess it would end up being a more equitable time share?

deleted 10y ago

[deleted]

subway 10y ago

Tracking equity and liability on this sounds like an absolute nightmare. Once you've added an entity to abstract/simply the equity/liability situation, you end up with something that looks a heckuva lot like a bank and a mortgage on a condo/coop.

Kinnard 10y ago
I'm not sure, I wonder if a company like castle ( http://entercastle.com http://entercastle.com ) could do it programmatically.
dpark 10y ago
Islamic mortgages are exactly this. You have an incorporated entity (shares distributed between yourself and the bank) that owns the house and your "mortgage/rent" buys more equity from the bank. It's still just a mortgage structured to hide what it is. If you set this up with a "landlord" instead of the bank, it's the same thing and the landlord is still going to charge you a premium (aka interest) for assuming this risk, and assess your creditworthiness before entering into this kind of contact with you.

brightball 10y ago

That's basically a mortgage except the bank starts with almost 100% equity

Kinnard 10y ago
+ rapacious compound interest with the end-result of extracting 30yrs of labor?
- xrange 10y ago
  3.34% as of 2016Jun29 for a fixed 30 year mortgage. http://finance.yahoo.com/news/30-fixed-mortgage-rates-fall-180608774.html http://finance.yahoo.com/news/30-fixed-mortgage-rates-fall-1...
  - distances 10y ago
    Or 3 month Euribor is now -0.281%, so with say 1.2% margin for bank the current interest would be 0.92%. Obviously with no guarantee for it staying that low. http://www.euribor-rates.eu http://www.euribor-rates.eu
    - nimos 10y ago
      You can't compare 3 month term interbank loans to a 30 year term mortgage. 30 year tbills are around 2.25%.
      - distances 10y ago
        That wasn't a comparison to the 30 year fixed mortgage, just brought up an alternative. And this is not theoretical, the usual way to get a mortgage around here is Euribor with a margin for the bank added, practically no-one gets decades-long fixed mortgages.
        rmah 10y ago
        A 3mo interbank rate is not an alternative to a 30 yr consumer mortgage.

ryandrake 10y ago

It's a cool idea but it won't work in areas where housing supply is scarce (basically everywhere). Renters are already perfectly willing to pay thousands of dollars a month for zero equity. Landlords have little incentive to offer equity in the underlying real estate to get people to move in, so they don't! In places where housing is plentiful and there is competition you do every once in a while see "rent to own" terms where part of your rent payments can be credited towards a purchase, and typically the renter will need to buy an option to purchase up front. Unfortunately, housing supply would have to skyrocket in order for landlords to be desperate enough to have to use your idea to lure tenants.

Kinnard 10y ago
I think this could change the national dynamics. Try it in a place that people are not too keen to live in yet, like Detroit and lots of people would move to get equity. This would take pressure off of in-demand places, and perhaps force them to adopt this to keep up eventually. Every lower tier location would have to adopt this to compete, if that happens, middle tier locations will start to adopt it, and if that happens . . . It also incentivizes people being better renters. Why would you want to damage your own house, in fact, you'd want to invest in it.
- st3v3r 10y ago
  I really don't think so. People can already move to Detroit for pretty cheap if they want to. They're not. In demand places are in demand for a reason. San Francisco has palatable weather year round. Detroit gets pretty damn cold for about half the year. Would you get some people moving to lower tier places for this? Probably. Would it be enough to actually have an effect on things? Probably not.

jasonuhl 10y ago

If you want to buy real estate in small liquid increments, you can do that with REITs (essentially real estate trusts that trade like stocks). I live in an apartment owned by one of the big publicly traded trusts, and have amused myself in the past by calculating how many shares I'd have to buy for the dividends to cover my rent. On balance there are other ways I'd rather invest my money though.

Kinnard 10y ago

This is a great idea and you are not the first person to have it— Apply HN from several weeks ago: "Apply HN: reinvent ownership" https://news.ycombinator.com/item?id=11454138 https://news.ycombinator.com/item?id=11454138 I'm more than willing to work on it.

WalterBright 10y ago

Part of being a free market is people can set up a business any way they like. For example, there are neither legal nor regulatory barriers to setting up a commune (communes were popular in the US around 1900). People can set up workers' cooperatives. And your idea can be done if you can organize a bunch of like-minded individuals to try it. You don't need to change society to do it. Just do it.

Kinnard 10y ago
Where is this free market you refer to?!
- WalterBright 10y ago
  It's free enough in the US to do all these things. As I said, there have been many communes in the US.
- xrange 10y ago
  What would be the (say 3) biggest hurdles you see to kicking off that type of venture (and maybe give us hints as to how a freer market minimizes those)?
  - vacri 10y ago
    One would be the non-standard equity breakdown which might make getting a mortgage loan from a bank more difficult. Another would be keeping people 'in the system' long-term, otherwise it doesn't really work (if the original landlord tires of it, what stops them from 'just reverting' to the old system?) It's an interesting idea, but it'd be hard to test out.
    - WalterBright 10y ago
      > from a bank There are multitudes of banks with different policies. There are multitudes of other ways to get capital. In the D community, we used Kickstarter to fund the first D conference, for example. > what stops them That's what contracts are for. Contracts are a central feature of a free market.

MichaelBurge 10y ago

Just set up a corporation that issues shares according to these rules. You'll need to personally guarantee the loan for the bank, but otherwise they won't have a problem with it. You could also remove the bank, and say the builder has 100% equity at the start if you can get them to agree to it. It seems like it'd be a better idea to continue paying rent and just buy some shares in an REIT with the difference in cost with rent and rent+shares. And let's be clear: You would pay higher rent in your scheme, so said difference is nonzero.

natrius 10y ago
This is the right answer. As far as I can tell, the only reason to buy a home is to lock in a particular home for your family over time at a stable price, which this equity structure does not address. Otherwise, you can just invest in real estate in financial markets. (Tax incentives skew these incentives towards ownership.)
- st3v3r 10y ago
  There is also the ability to do what you want with it (more or less, within reason anyway) that you don't have while renting.
- billmalarky 10y ago
  >Otherwise, you can just invest in real estate in financial markets. Most of the gains from active REI don't come from RE appreciation (which generally tracks the inflation rate nationally). The growth from REI comes from using a TON of leverage to purchase the assets (ie a mortgage) then getting someone else to build your equity for you (the renter). Additionally real estate investors pursue extremely favorable deals, generally where the seller is motivated to use their built up equity to sell at a significant discount to what the remaining cost of their mortgage is. These distressed sellers are usually going through a divorce or potential bankruptcy (where getting a small amount of their equity value back is preferable to losing everything and destroying their credit via bankruptcy). As you alluded to, this of course relates to real estate as a business. Not to standard home ownership (where you buy a property because you want it as a home, not because it is a good business investment).

chris_va 10y ago

This will probably get buried deep in the thread, but... Lease to buy is a thing, more or less as you describe. However, it removes liquidity for both the buyer and seller (buyer cannot exit easily, seller cannot exit easily). As a result, mortgages are more popular and more-or-less functional identical.

itchyouch 10y ago
Except the way lease-to-buy is usually structured is in favor of the landlord where the landlord usually still gets to keep the payments when the tenant moves out instead of opting for the purchase option. The vast majority of the time, the tenant will usually move out due to life circumstances anyway. From what I've researched about Lease-to-buy, it is a strategy of charging higher rent.

nimos 10y ago

There are rent to own schemes, although less flexible than what you are describing. The amount of money renters would have to spend to get a relevant portion of the equity would be substantial. Landlords aren't just going to start giving away capital for free. The current Price-to-Rent ratio in SF is 45.88. So lets say your willing to pay an extra 50% of your rent to gain equity you would end up gaining about 1.1% of the units equity per year at market rates. This is somewhat unfair because SF has one of the highest price/rent ratios but 50% increase in rent is also very large. With an average tenancy around 2 years most people are going to own extremely little equity while the property accrues all sorts of minority owners which would be nontrivial to manage. The only real benefit I can think of is it provides some insulation against cost of housing increases but at the downside of exposing you to housing price decreases and trading cash for an extremely illiquid asset. Who is going to want to buy 2% of a house/apartment?

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meric 10y ago

That's a good idea. It's called "Musharaka al-Mutanaqisa" and is a form of Islamic banking and finance. "An innovative approach applied by some banks for home loans, called Musharaka al-Mutanaqisa, allows for a floating rate in the form of rental. The bank and borrower form a partnership entity, both providing capital at an agreed percentage to purchase the property. The partnership entity then rents out the property to the borrower and charges rent. The bank and the borrower will then share the proceeds from this rent based on the current equity share of the partnership." https://en.wikipedia.org/wiki/Islamic_banking_and_finance https://en.wikipedia.org/wiki/Islamic_banking_and_finance

jpatokal 10y ago
Why the downvotes? That sounds very much like the OP's idea.

ap3 10y ago

No one is going to "give up" anything - in a free transaction between two parties the terms are agreed by both sides. Rents are up because tenants can afford to pay the rate to live there - ask any landlord if they want to charge more, or ask any tenant if they want to pay less. Both parties end up settling in equilibrium. The price of rent is what the market can currently bear. In your plan there are always those that will settle for less yield, or will take on a larger risk, but it has to be out of free will, not mandated by law

Someone 10y ago

If this applies only to the first renter of a property, it is https://en.m.wikipedia.org/wiki/Hire_purchase https://en.m.wikipedia.org/wiki/Hire_purchase with the twist that maintenance risk slowly moves to the renter. That can go OK, but the wishes of you and the developer may not align perfectly (the developer may want to spend $20,000 on improvements, to be split 50-50 between him and you, but at the movement you have only $5,000) That gets worse once you move out. You effectively become a landlord, and your goals may no longer align with both those of the developer and the new renter. If you want to use hire purchase for the second, third, etc. renters, too, things would get complicated fast. Say, there's a maintenance job of $10,000 to do. The second tenant doesn't have the money, the third one died a week ago, the fifth one married and divorced, the seventh one wants to spend money on other improvements, etc. Now try to get all owners to give permission to spend any money. If you want to own something, I think it is easier to just buy one property or to invest in a developer that builds properties.

wccrawford 10y ago

If renters wanted to pay more, they could probably have this deal with any number of landlords. It's not common because renters aren't looking to own a part of that house/apartment, they're just looking to get by until they can actually own one themselves. How is it better for them to be forced to put money into that residence rather than in a savings account that'll go toward the residence they actually want to buy?

whack 10y ago

That's an interesting idea, but what you're describing basically sounds like a: A) 0% down-payment mortgage B) where you can stop making payments at any time, and get to keep your equity in the house anyway The above obviously sounds like a sweet deal for the buyer, but put yourself in the shoes of a developer/home-owner/bank: Why would you agree to a deal like that? Why not just sell the house to someone who is willing to commit to a traditional mortgage and buy it outright? You will only agree to the above terms if the buyer is offering you significantly more money. But as a buyer, are you willing to pay significantly more money than you would have to pay under a traditional mortgage? It sounds like what you really want is: A) The flexibility and mobility that comes with renting B) The ability to invest in real-estate in an incremental and liquid manner There is already a solution that accomplishes both of the above! Just continue renting your house, and invest the rest of your money into REITs. This way, you get all the flexibility and mobility of renting, together with the incremental and liquid nature of REIT investments. If the reason you're averse to the above, is that you don't want to "throw your money away in rent," that's a false misconception. When you buy a house and make mortgage payments, the fact that you get to "live in the house for free" is already baked into the price of the house. This is why mortgage payments (after amortizing the down-payment) is virtually always higher than renting the same house. Regardless of whether you choose to rent or buy, you're still "throwing away" the same amount of money regardless. Is what you suggested capable of "working"? Sure. Any arrangement can be made to work, with the appropriate numbers needed to attract a counter-party. But is it going to generate anything of value beyond what we currently have? I doubt it. If you want flexible living arrangements, rent a house. If you want to own real estate, buy REITs. If your complaint with this suggestion is that rent is too high and REITs are too expensive, there's no alternative business arrangement which will solve that problem.

sunnyg9494 10y ago
The beauty of owning tangible property is that banks will give you a loan for it, which makes the investment even better in an average economy. You get the dividends of a much higher investment, while only paying a fraction up front. I did some calculations here: https://medium.com/@sanchitgupta/investing-in-real-estate-7d72e762f5#.kqrur54nj https://medium.com/@sanchitgupta/investing-in-real-estate-7d...

seanp2k2 10y ago

I've had similar thoughts, and they usually conclude with me thinking that a perpetual license from the government to own land and pay taxes is a bad idea, because it encourages this predatory rental behavior where no equity is accrued on behalf of the renter. They're literally paying something (usually a very large something) on a recurring basis for something that the owner paid for on a one-time basis, except for the taxes (which are typically passed on to renters anyway). The endless payments for no equity to lease a thing which was paid for on a one-time basis is my biggest issue with private property ownership. There's no way in my mind to make it a fair system without some aspect of slowly gaining even partial ownership.