Transferring Ownership of Productive Assets Over Time

An Example

Property of value $100,000. The property earns a rent of 5% a year. The buyer goes to a bank and borrows money at 4% a year to buy the property and repays it over twenty years. The interest paid over twenty years is $60,485 or $3024 per year.

A Pre Paid Rent Scheme for Co-operatives

The model of sharing the risk between buyers and sellers takes many forms. The following is one flexible example.

Different Buyers

Assume a household has a disposable income of $24,000 then 30% is $8,000 per year. This would rent a place of value $160,000 if the home was purchased in 25 years. The same amount per year would rent a place of value $320,000 if the home was purchased over 50 years.

Different Sellers

Sellers can get their money in one lump sum or they may wish to get their money as PrePayments and use the Prepayments to pay to rent the property in which they live (like a reverse mortgage) or receive payments as an annuity over 25 years.

Investors

Investors may be accumulating assets or they may have lump sums. What they purchase are Rental PrePayments and they get twice as many PrePayments back over 25 years. Investors can sell their Prepayments for their face value to another member.

Examples

An investor looking for a secure income stream for their retirement

An investor has $1,000,000 and wants an investment that returns $80,000 each year for 25 years. They achieve that if they join a Rent to Buy not for profit Co-op and purchase $1,000,000 Rent Pre Payments. Each year $40,000 is a return of capital and $40,000 is returned as a Capital Gain.

Home Buyer with a deposit

A person has a deposit of $200,000 and wishes to buy a home for $1,000,000. They put in $200,000 as prepayments on rent and purchase $200,000 of their home. They can then pay rent on $800,000. The rent is the maximum of 30% of their disposable income or 5% of $800,000 or $40,000.

Home Buyer with a partially paid off mortgage.

The Home Buyer sells their home to the Co-op and the Co-op pays off the mortgage. The home is valued at the price of the mortgage. The Home Buyer pays rent at a maximum of 5% of the home value or 30% of their disposable income.

A Renter who wishes to get equity

An owner of a rental property can sell their dwelling to the Cooperative and collect an annuity instead of rent. The owner can contract with the Cooperative to operate the property and get paid for their services. Fifty per cent of each dollar a renter pays becomes a pre-payment credit that the renter can use for future rent payments or as a deposit on a home.

Down Sizer moves to a new home

Home Buyer sells their home to the Co-op for $1,000,000 and receives that value in rent prepayments. They move into a home owned by the Co-op of value $600,000 and they receive $400,000 in prepayments which gives an inflation-adjusted annuity of $32,000.

Home Owner Sells Part of their Equity in their Home

Sometimes people need extra income but they want to remain living in their home. They can become a member of the Co-op and obtain prepayments for part of the value of their home and sell those prepayments. They then have to pay rent on the equity they do not have or pay 30% of their disposable income in rent.

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