Today’s Renters Are Worse Off Than Their Parents

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?

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.

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.

"Apply HN: reinvent ownership" https://news.ycombinator.com/item?id=11454138

I'm more than willing to work on 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.

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.

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?

"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

> 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.

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

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.

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?

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.

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.

Rent - or, rather, the inflation of real estate value in cities - is entirely about transferring money out of the productive part of society. If you make your living with "education" or "skills", you're on the losing end of it.

For Pittsburgh, a $29k takehome is roughly $40-45k a year. That is in the $20/hr range. I know at one point, my salary was $51k/year and I was brining home $36-37k annually. I was working a standard office job that was not particularly exciting, but all I needed was to have a bachelors degree. If you have one adult working full time and another part time for an extra ~15k a year, you can live relatively comfortably in Pittsburgh, and I am assuming other medium sized cities in the Midwest.

The big costal cities (SF, NYC, LA, DC) do make it difficult to own housing, but almost every country has cities where it is more expensive to live.

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