04031 Geography, Renting, Ownership

Many a family who pays rent all their lives owns their own home; and many a family has successfully saved for a home only to find itself at last with nothing but a house. — Bruce Barton

For some of us, one of the early questions about shelter is — “rent or own?”

The second question is — “where?” (See Section 8 for more discussion of geography and its importance in permaculture design.)

Don’t buy until you find the sweet spot among the geographic destinations of your life — a place to live well-situated for access to the places of your life — where you work, shop, worship, entertain, etc. If you buy early, before you have found that spot, it may be harder to move later when something more advantageous comes up. Ignore the propaganda that suggests buying a house is strictly a financial decision. It is much more than that. See section 6 for more details about these issues.

A third question is whether you want to rent or own by yourself or in cooperation with others.

Since home ownership in the modern world requires substantial assets, or credit for a mortgage and income to make payments, ownership may not be an actual option for many people. In this unsustainable world of injustice, our financial circumstances often constrain our choices.

Renting provides mobility. If you don’t like your location, you can change it relatively easily and without the major expense and hassle that selling your old home and purchasing another home can be.

The landlord is responsible (generally) for repairs. This can have its good and bad sides, as some landlords are not as prompt in making repairs as they should be.

You are limited as to what improvements you can do to the property. You can’t add extra insulation to the attic or walls, because it’s not your property and it wouldn’t make economic sense to make such a large investment in a place where you will be a temporary resident. The landlord might not permit you to do this even if you wanted to spend the money.

If you don’t pay your rent, you can be evicted with short notice. Even if you pay your rent, your landlord may decide to evict you anyway once your rental agreement has expired, because of a decision to do something else with the property, although in such cases your rental agreement will give you some protections.

If you buy a home with a mortgage and don’t make your house payment, your property can be foreclosed. That takes a longer time than a rental eviction. It is just as inevitable.

In most states your home can’t be taken to pay for any debt other than taxes or a mortgage guaranteed by the property. That provides a tremendous amount of security in view of the economic irrationality that is so popular these days. Well, it’s yours as long as someone more powerful than you doesn’t decide he wants your neighborhood for an economic development scheme. In that case, you may find yourself being forced to sell your property at a cheap below market price.

When you own your dwelling you are responsible for repairs. If the furnace goes out, you don’t have a landlord to call. Other expenses include property taxes and insurance. Property taxes vary greatly from area to area, depending on the decisions that have been made about the way that government services will be financed.

As you will see as you work your way through this design process, permaculture design is as applicable to your situation as a renter as it is to your situation as a home owner. It works in the suburbs, rural areas, and in dense cities with high rise apartment buildings.

Your approach toward shelter will evolve over the years. When you are younger, you may want a more mobile lifestyle. You may want to migrate and move around a bit before you settle down in one locality for long enough that owning a dwelling makes sense. You may need time to develop the resources necessary to purchase a home, whether that be improving your credit so you can get a mortgage or saving so you can pay cash for your home (the better option).

The conventional wisdom is that borrowing money to buy a home is the only practical way to buy a home. However, a mortgage significantly adds to the cost of the home. The general rule of thumb is that if you borrow money for 30 years, you will pay back two times the original cost of the house. So your $100,000 home with a mortgage will cost you more than $200,000.

The payment on a $100,000 loan at 6% interest is $600/month. Over 30 years, you will pay $216,000 for the home. If instead of getting a loan, you made payments to yourself of $600/month for 166 months (14 years), you could pay cash for the home and save $115,000. Actually, it will be less than 166 months because you will get a little interest on the money in the bank.

How could you save $600/month while paying rent?

That’s a question that can only be answered by looking at your household size, your income, and how you spend your money. This is a situation where joining together with others could make economic sense. For example, four families could save their money, buy a four-plex, and own it as a housing cooperative.

If you do decide to go with a mortgage (which derives from a Latin word meaning “death grip”), make sure you understand all the details of the loan. Get a copy of all of the loan papers in advance of the closing and go over them carefully. Don’t sign a mortgage that includes a “prepayment penalty” if you pay off the loan in advance of its due date.

“The borrower is the slave of the lender.” Once you have the mortgage, always make extra principle payments if at all possible, even if the payments are small, so you can pay off the loan faster. To show the impact of even a small extra payment, looking at our hypothetical $100,000 mortgage at 6% interest and a $600/month payment . . . If you pay —

$10/month extra principle starting with the first payment, you save yourself a total of $3,500 in interest payments and you pay the loan off 15 months early.
$20/month extra saves you $7,000 in interest and pays the loan off 30 months — 3-1/2 years — early.
$100/month extra principle cuts your interest bill by $24,500 and you would pay the loan off in 21 years instead of 30.
A $150/extra payment/month would save you $33,000 in interest and you would pay the loan off in 18 years.
An extra principle payment of $225 would save you $42,000 in interest payments and you would pay the loan off in 15 years and a few months.

I hope the point is made about the advantage of making extra principle payments if you have a mortgage.

Questions to ponder:

Are you already settled in a locality where you want to live for several years, or are you in the mobile/migratory/still looking for a place to settle down phase?

Do you want to rent or own? Is ownership a realistic possibility for your financial situation?

Will you own or rent by yourself (your own household) or in cooperation with others?

If in company with others, your options are co-housing, housing cooperative, casual roommate situation, intentional community, legal partnership (such as a limited liability company).

If ownership is the goal, whatever the legal arrangements, will you pay cash or get a mortgage?

If you get a mortgage, can you make extra principle payments to clear the loan early and reduce your interest cost?