Difficult Conversations – Paying for your house in six years – Part 2
Last week, I described the concept of a couple owning their house in 6 years, without paying more than twice the cost of the property in a 30-year mortgage. This article provides further details.
The house should be designed as both a starter and retirement house. This would be a 1,000 sq ft, 3-bedroom, 2-bathroom, open concept styled house, with a laundry/storage room. The house should be designed for comfortable wheelchair access, which includes 12’x12’ bedrooms, 6’x10’ bathrooms and laundry/storage room, and 40” wide corridors.
STRONG AND DURABLE.
The house should be designed and constructed to survive the recent Category 5 hurricanes that struck the Caribbean in the past 4 years, and a magnitude 7 earthquake (that struck Haiti in 2010). The Barbados building code’s standard is a Category 2 hurricane – but that is not enough.
The cost of additional materials to resist the Category 5 hurricane, is approximately a mortgage payment for one month – so it is easily affordable. The additional cost for earthquake resistance is $0.00. You just have to know how to assemble the existing building materials.
Retired and disabled persons may not have the funds and mobility to repair and maintain their houses. Therefore, the house should not only be designed to survive natural hazards, but be extremely low maintenance.
The lot size should have a 10 ft distance to the side and rear boundaries (instead of the minimum 6 ft Town Planning requirement). This minimizes the risk of fire jumps, and provides more privacy.
It should also have approximately 20 ft distance to the road for the option of planting a tree and parking a car. This results in a minimum 3,000 sq ft lot.
The cost of the house should not exceed $150,000. An individual can save approximately $1,000 each month for 12 years, and build the house in year 12, with no interest payments. A couple can save twice that amount and build their house in year six, without paying interest.
The main risk of saving now and building later, is that the costs of construction may increase over 12 years. If twelve couples engaged a contractor to build two houses each year, 12 houses can be built in 6 years. The unit cost of the houses should be less expensive than if the contractor was engaged to build only one. Excess materials purchased for one house can be used on another, to the benefit of all couples.
To reduce the risk of disputes, the quantity and quality of work to be done must be clearly and accurately defined, and disputes independently adjudicated. To further reduce the risks of disputes, the contractor should prepare samples of the quality of finishing work for approval, prior to starting that work.
For example, the contractor should prepare a 3 ft x 3 ft sample of wall painting and floor tiling for approval, before painting or tiling the house. If the contractor is unable to achieve the required quality o the sample, then specialist finishers should be engaged.
With this method, the contractor will have an incentive to do quality work, and repair all defects. Also, couples building after year one can see the quality of what they are getting, and the issues that are arising, and make improvements before the other houses are built.
Each participating couple should either own, or plan to own land within five years. Since it is a starter house, they do not need look for their ideal lot at this time.
Two couples need to own land, and have town planning approval for their house, during the first year. If a couple does not own land in six years, then they would simply have saved $150,000, and can do what they want with it. Couples are encouraged to own their land before building on it.
Two methods are proposed for managing payments to the contractor. One is for each group of 12 couples to form a company, which will own the land and houses for six years, and then transfer ownership of each house and land to the respective couple at the end of six years.
Since we seem to have a challenge trusting each-other, banks and credit unions get to benefit. However, to get into into decades long debt at this uncertain time is extremely bad advice.
Couples may negotiate a 7-year mortgage, but start saving immediately to minimize the amount borrowed. By getting a mortgage, a couple can build their house whenever they want, and pay off the loan within seven years. To get some group construction benefits, two couples can engage a contractor to build two houses in one year.
I am currently designing the starter house described in this article, with full construction details to guide contractors. The drawings should be available for anyone to download, free of cost, around July this year.