Saturday, October 06, 2007

Building loans from individuals

I hope it's not a trend, but in the last two years, at least a couple of times people from the US have offered local people loans to construct rental units at their homes. The loans appear to be offered in return for long-term rights to stay in those new units, apparently for unspecified periods of times and at unspecified rates.

In the two cases of that I know of, my understanding is that there are no written loan agreements, and that the loan terms (choice of length and dates of stay and the rental credit amount) seem to be dictated by the lender. I hope I have misunderstood these arrangements, but I don't think I have.

It seems that the lender stays in the unit during the "high" rental times (about five plus months, including Christmas through Easter), and then deducts a minimal rent amount against the loan balance. This rent credit appears to be way under market value. The Chacalaen borrower would otherwise typically be earning more than $1200 USD a month with weekly/nightly rentals during that four/five month period.

In my opinion this equates to charging very high rates of interest for those building loans. Instead of taking two or three years to repay the loan based on true market value rentals, it will take the borrowers possibly twice as long to repay the loan, and then be able to rent the units at market rates.

In my opinion, this is a usury. Especially when the loan is described by the lenders as a kind of a social action, helping people, project.

And I am not saying the borrowers are complaining, because I don't know if they are or not. Actually, I don't think they are. It just seems wrong to me. In my mind, here is an example of educated/sophisticated people, with resources, taking advantage of people recently moving out of severe poverty, with little or no education, and no other access to construction loans.

Anyway. That's my view of things.

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