RE: Co-Purchasing for Affordability and Investment
From: Fleck (foam4uworldnet.att.net)
Date: Fri, 5 Mar 2004 11:26:46 -0700 (MST)
At Jackson Place Coho in Seattle (nice to see another JPC) we formed an LLC
for our construction. If people are buying real estate together this is
often the best way to set it up. It keeps things on a business footing,
spells out procedure ahead of time and helps avoid interpersonal problems
down the road. We still have the bylaws we put together and I might be able
to find those for people who'd be interested. Rules vary from state to state
so check with an accoutant. There also some good books about opening and
closing LLCs that you could check.

We had to come up with 20% down for our construction loan ($1.2m) and
although people could qualify for the eventual mortgages they didn't have
the cash up front for their percentage of the construction loan. so, some of
our individual members made internal loans to less liquid members who
couldn't pay them back until they got their mortgages. This type of resource
sharing created a lot of goodwill and was completely confidential within the
Finance Team.

The individual loaning members got 6% return on those loans - different
times then! The bank allowed us to close out sections of the constrcution
loan as sections of the project got done. That saved us a lot of money in
interest but the bookkeeping got tricky when people couldn't move in "on
time" - like their old house didn't sell. We got thru it and are glad it's
done.

Hope this helps,
Anne


-----Original Message-----
From: cohousing-l-bounces+foam4u=worldnet.att.net [at] cohousing.org
[mailto:cohousing-l-bounces+foam4u=worldnet.att.net [at] cohousing.org]On
Behalf Of Phil Lynes
Sent: Thursday, March 04, 2004 9:23 PM
To: cohousing-l [at] cohousing.org
Subject: [C-L]_ Co-Purchasing for Affordability and Investment


(My first posting)  I am heading up our Affordability Task Force and would
like to find out how other cohousers have addressed the subject of
co-purchasing.

I understand that many communities have individual households which have
entered into mutual agreements where the purchase price of one unit is
shared between two or more parties in such a way that when the unit resells
the equity growth is shared out to the owners in proportion to their initial
shares of the original purchase.

What we are considering is a larger pooled fund into which any of our
members who want to invest can do so and from which we can establish
copurchase investments in other members units.  The fund investors will
normally not be able to get their money out until a unit which has been
invested in ("co-purchased") is sold.  Then the proportional gains from that
sale which is realized by the fund can be returned to our investors in
proportion to their share of the fund (minus expenses and a percentage for
the fund itself so it can grow over time).

While the concept of co-purchasing seems simple, the more we think about it
the more questions seem to arise.  We want to allow a household to
"buy-back" some or all of the co-purchase when/if they are able but to be
fair that should probably only be done after a proper real estate appraisal
is done so that we can figure out what the new proportion of ownership is.
Have any of you had to deal with this issue?

What should happen if/when one of the fund's investors needs to liquidate?
It seems we should have some "early withdrawal" penalty but would only be
able to do that if we could replace the lost funds with a bank loan or
something.  It would be preferrable if the investor could sell his "shares"
to someone else but then how can they work out a fair price?  It is a bit
like buying and selling futures.  Do any of you have experience with dealing
with that issue?

Finally we have begun talking with an outside financing source which would
charge us interest for a variable line of credit based on no collateral
other than the fact that our own investors would put up nearly half the fund
and take the first risk if a borrower defaults (or real estate prices fall).
Have any of you tried to do something like this?  How has it worked out?

Thanks for giving me the benefit of your combined experience on this.
Phil Lynes
Jamaica Plain CoHousing Affordability Task Force
Jamaica Plain, Boston, MA
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