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.

LAND.

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.

COSTS.

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.

DISPUTES.

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.

LAND.

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.

PAYMENTS.

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.

Grenville Phillips II is a Chartered Structural Engineer. He can be reached at NextParty246@gmail.com

A home mortgage is the price people pay for having a house before it is fully paid for. The price the unfortunate homeowners must pay is very high indeed – they must repay more than twice what they borrowed.

Why would people choose to repay so much, in an uncertain economy, for 30-years? Why would people agree to risk losing their house, and all the payments they made, if they missed paying their monthly payments? The simple answer is that new homeowners are normally desperate, uninformed, and easily taken advantage of.

NO-INTEREST OPTION.
Potential homeowners should know that they have a better financing option. Couples can pay for their house in six years, instead of 30, and pay no interest whatsoever. To do this, a group of 12 couples must agree to form a company to build 12 starter houses.

Each person in the group must agree to pay the monthly amount that they would normally pay on a 30-year mortgage for a starter house, for six years. Two strong and durable starter houses (1,000 sq ft, 3 bedroom, 2 bathroom, 1 pantry/laundry room, open concept), that can withstand Category 5 hurricanes and magnitude 7 earthquakes, should be built each year, with the final two being built in year six.

REDUCING RISKS.
There are several methods of reducing the risks of persons not paying their monthly amounts. First, the time is reduced to 6 years, by having each of the 24 persons make the payments. Second, it is for couples, where a person’s spouse can assist if there is a temporary financial challenge. Third, it is for a starter house, where the payments should be affordable for all participants.

To further reduce repayment risks, all twelve properties (houses and lands) should be owned by a company, that is owned by all the homeowners. After all houses have been built, the ownership of each property should be transferred to the respective couple.

In the event of death or disability, each couple should have term-insurance for six years, where the company is the beneficiary.

To address temporary financial challenges, each couple should have an emergency credit card, with a credit limit of six monthly payments. This card should only be used to make emergency monthly payments. To keep persons accountable, the credit card’s monthly statements should be copied to the company.

TERMINATION.
If a couple’s financial situation is so dire, that their only option is to use their emergency credit card to make payments for three consecutive months, then they will likely put the program at risk. The other persons will have to decide whether to increase their monthly amounts to assist the couple in need, or terminate the agreement with the couple. If a couple’s agreement with the company is terminated, then the company should take a short-term loan of the total amount that the couple contributed, for a duration of the remainder of the 6 years. The couple in need should receive the total amount that they paid, less the interest on the loan. A new couple should then be invited to take their place.
At the end of six years, the 12 couples can agree to either close the company, or build one house each year to sell and generate wealth.

BAD ADVICE.
The question is, if a couple can own a comfortable, strong and durable starter house in six years, and pay no interest, then why don’t they do this? Why would anyone pay more than twice the value of their house, and risk losing it if monthly payments are missed over the uncertainty of 30 years?

The simple answer is that they received bad advice, and should dissuade others from doing the same. However, if 12 couples cannot be found in Barbados, to demonstrate how wealth may be created, then we are doing the next generation of Barbadians a grave disservice.

Grenville Phillips II is a Chartered Structural Engineer. He can be reached at NextParty246@gmail.com