Notes from Windward: #67
Passing a Major Milestone
May and June of this year will see Windward past an important milestone in its quest for sustainability. Back in August of '87 we signed the first of a series of contracts that covered the purchase of the land that Windward now calls home--I'm delighted to report that in May we paid off our longest running contract, and next month we're scheduled to pay off the last contract.
Initially we purchased 60 acres, and gradually added more acreage as adjoining parcels came on the market. With each addition came another contract obligating us to yet another monthly payment. As a result, we've long been "land poor" as we used a significant portion of our revenues to pay down that debt.
Most people finance their home--and the land under it--with a thirty year mortgage; they stretch out the duration of their loan in order to lower their monthly payments, but from a sustainability standpoint, that lower payment comes at a heavy price.
Let's say that someone takes out a loan for one hundred thousand dollars at six percent interest. If the term of the loan is fifteen years, the monthly payment would be $843, but if the term was thirty years, the monthly payment would drop to $600. Sounds like a better deal until you look at the long-term cost, and achieving sustainability requires that you always look at the long-term implications of the choices you make.
For the 15 year loan, the total cost to pay off a $100K loan adds up to $151K--the original $100K plus $51K in interest; but, for a thirty year loan, the total payments come to $215K. In other words, that drop of $243 per month--so very nice early on--comes at the price of more than doubling the total interest paid over the course of the loan. There are lots of reasons why intentional communities fail, and poor management of capital debt is one of the key reasons.
One way to deal with this is to go ahead with the 30 year loan, but to also make sure that there's no penalty for making payments ahead of time. That way, while you're only committed to making the lower payment each month, there's nothing preventing you from making the higher payment each month and thereby whittling the loan balance down. By paying the loan off at the 15 year schedule, you'll save more that $64K in interest, money which will go a long way towards funding sustainability. And, if you get into financial straights at some point during the loan, you can always fall back to the lower payment amount without going into foreclosure.
In our case, we felt so strongly about the need to get our secured land debt paid off that we were willing to focus the majority of our cash flow on satifying those secured loans. It's been a long time coming, and a lot of sacrifices were made along the way to accomplish that goal, but the effort has paid off and it's very sweet to see those obligations satisfied.In the months ahead, we'll begin the process of using our cash flow to fund the construction of sustainable housing on a pay-as-you-go basis.
One of the sacrifices we made in order to not go any further into debt than was necessary involved the initial use of old trailers and RVs. While we were paying down the land contracts, we used that time to work on the projects that involved considerable amounts of "sweat equity" such as installing the septic systems, water lines and electrical service.
For example, the dining hall is earth sheltered, and the concrete for the dining hall's northern retaining wall was mixed by hand over a period of two years.
By way of contrast, the concrete for the earth sheltered retaining walls that will form the first floor of our permanent cabins will be delivered in a commercial truck and pumped into the Amazon Grid Wall forms, a task which will be completed in a single day.
Sustainability is capital intensive; while passive systems are cheaper in the long run, they involve a considerable, up-front investment. We took the route of delaying housing construction while we paid off the land in part because when we reached this point in our organizational life, we wanted to be able to create precisely what we wanted using state-of-the-art materials without having to run those designs by a lending agency in order to secure financing.
From this point on we'll be able to finance the construction of our permanent housing needs ourselves, and the building of the first intern yurt last summer marked the start of the process of replacing our temporary housing stock with sustainable construction. Now that we're "over the hump," we're looking forward to seeing that process accelerate over the next few years as Windward "molts" into it's new form. Laying a solid foundation for future growth isn't sexy, but it's necessary if we're going to embody sustainable principles.
Notes From Windward - Index - Vol. 67