|Re: Financing site purchase and construction||<– Date –> <– Thread –>|
|From: Denise Meier and/or Michael Jacob (dmmjwco.com)|
|Date: Wed, 20 May 1998 12:04:20 -0500|
Here's another story about how one group did it..... When we first identified the property, we figured that about $2000 per household would cover the costs involved in getting through the zoning process (mostly legal, archictectural, and engineering) and paying the refundable $5000 option. Eight households joined up at that level. Then when we succeeded in getting rezoned, we bought the property. At that point we had 11 of the 14 households on board, and we each put in 9% of our estimated house purchase price. Four households also lent the project a total of $80,000 at 9.25% interest (which is accruing and has not been paid out yet). Some households signed unsecured notes to the group for cash they couldn't find elsewhere and paid interest at the same rate. Then last spring, when we began the site work (still no bank-funded construction loan), we each brought our contributions (or notes) to 20% of the (now much higher) estimated house cost. Because of the appraisal-cost gap which Jim Snyder-Grant called "overage", we are now preparing to bring our capital contributions up to 35% of the estimated cost of the houses. The exact amount will depend on our project manager's success at getting the appraisal raised a bit - we found some glaring omissions, the sq footage has increased slightly, and the Sebastopol real estate market has been sizzling, so we should get some reduction of the "overage" from that. The thing we did not adequately address ahead of time, and which caused no small amount of upset was: When a member leaves who put money in early, what do they get back? Does a member joining later compensate the household that "held their place" in any way? Our operating agreement states quite clearly that no interest is earned on the investment. However, many leaving members (we lost 5 of 14 households over the fall and winter) felt that they had 1) taken significant risk early in the project; 2) either incurred costs by borrowing the money, or lost income on it since it was invested in the company 3) been mislead into believing they could afford these houses and then priced out by the price increases (not deliberatly mislead, obviously, but still.....) We had several long sessions about this as well as heated email exchanges and ended up returning no money to leaving members, and assessing no additional fee from new members. It was not a decision that many were happy with, but it was difficult to come up with a solution that didn't have significant arguments against it. We did decide that any household that comes in after we have the construction loan, when the risk will drop significantly, will pay a buy-in fee of $1500, which goes to the group, not to the household leaving. I really wish we had been clearer about this from the outset. We were afraid to charge more for the units later on because they are already well above market price. But it seems that there should be some reward for those who come in early, and especially those who take the risk, lose the income, and then don't end up with a home in the community, for whatever reason. Denise Meier Two Acre Wood, Sebastopol, California Where we may, just may, re-begin construction in 4-6 weeks. Someone asked us if we were going to have a "Second Annual Groundbreaking Party". Ha ha.
- Financing site purchase and construction Eleanor Chandler, May 19 1998
- Re: Financing site purchase and construction LouHarr, May 20 1998
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