Mortgage analogy

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Multiply everything by 1000, and this story sounds a lot like a certain Bridge...

You currently rent a somewhat ramshackle hut, which costs you $3000/year for utilities, upkeep and taxes. You'd like to build a big fancy house, but you don't have the $169,000 price and the bank won't give you a loan. But a house contractor offers to do a deal to build the house and rent it back to you for 35 years, for payments of $8-9000/year, plus inflation. You find a couple of nephews who you'll charge rent rooms too (hopefully $5000/year or more). So you take out a mortgage for that $169,000. Unfortunately, you and your homebuilder decide to start on the foundations before the final blueprints are complete, and it turns out there are big problems. You have to pay $16,000 and get a new builder and own it yourself, getting that bank loan after all. The new builder is okay, but there are more delays which cost you another $10,000. You pay for those out of savings and salary. Your spouse gives you a fishy look when you find out about these $26,000 in overruns and the new $192,000 construction cost, so you try not to remind each other the mortgage payments will actually be almost $300,000 by the time you pay it all off!

The delays are doubly bad because you have to start making the mortgage payments while still paying the costs of living in your ramshackle hut, so for the last year of construction you have to pay the $3000 on the hut plus $8000 to the bank. And you lose out on the first year's rent from the students, which turns out to be less than you expected - maybe $4000/year instead of $5000.

The new house will also cost you a few hundred a year for repairs and so on, so all told it costs you 3 times what your hut did. Even with the rent from your nephews, the difference is something like $2000/year - money you might have preferred to spend on other things. But the old hut really was ramshackle, and you had to move out for a month every spring because of flooding, and your grandkids will inherit a house. There's a chance your nephews will be able to pay more rent someday when they get better jobs (although they may get laid off and pay less).