[I’m capturing this from a chat session with a friend. I mostly edited out my friend’s words for privacy reasons, so it might sound a little disjointed.]
Here’s an interesting math+social problem I have been thinking about on and off. There’s no practical application for it (for me, right now anyway) but it’s something interesting to think about.
Let’s say N people decide to own a house together. Based on how much each person puts down, and how much they pay per month toward the “household” bills, how would you determine what fraction of property belongs to each person? (The situation could be roommates who want to quit renting and buy a house together, or someone who already owns a house and wants to share the house while actually giving the other person a chance to earn equity instead of just paying rent.)
The formula would have to cover how much each person “owns” at any given time, in case they leave or someone else joins. In the simplest case, let’s say N=4, each person puts in the same amount toward a down payment, and each person pays the same amount per month into the household account, they would each own 25%.
My current thinking is that the total amount contributed by all four of them (down pmt, mortgage, bills) is the base, and each person should “own” a percentage corresponding to the total amount they deposited. The house would hopefully go up in value over time, but because of the bills, the total value of the “household” is not equal to what each person put in. Like a corporation operating at a loss.
Then to that you add questions like, what if 3 people work and one stays home, do you count “sweat equity”, at the going rate of professional child care and house cleaning? Perhaps there’s an agreement that if the stay-at-home person does substantially more chores than the others, that would be counted as a contribution at an agreed-on value.
Then you have the case where someone outside the household helps out by paying some of the down payment. That person might own a fraction of the property but doesn’t get the benefit of living in it. Similarly, the two people in the master bedroom get more benefit from the house than the two in the smaller bedroom. Also similar, maybe two people share a room and the other two people each get one room of their own.
Perhaps there’s a “baseline” value that they’re receiving (and paying for) — something like the going rate for a share rental of that size and configuration, and the “investor” who is contributing but not living in the house has a 0 baseline. The “baseline” amount represents the value you’re getting out of living there, and if you’re just paying the “baseline” amount you’re pretty much just a renter, and not building equity. (In fact, I would probably want to keep new people as “you’re just renting here” until like 6 or even 12 months.)
As the final wrinkle, in the Heinlein model, a child who comes of age automaticaly “owns” a share, so everything would be padded a bit to allow for that. (A child who comes of age has presumably been providing value to the household, so would have earned a stake, which confers upon majority. Do your chores every week :)
Hopefully, if done correctly, if someone were out of a job they could just not pay anything for a couple months and their previous investment would just get eroded a bit. At the same time, if someone buys (or brings with them) a new appliance for the house, they would get credit for it as a contribution and their share would go up a little.
OK. time for bed. Will think about this more later.