Re: Financial structure advice needed for forming group
From: Sharon Villines (
Date: Mon, 20 Nov 2006 04:52:20 -0800 (PST)

On Nov 19, 2006, at 8:14 PM, Tom Hammer wrote:

Some folks reason that we will attract more equity
members if we maintain our different levels of
financial commitment to encourage more to join,
especially families with young children. Others say
that we would be better served if all equity
households made equal financial commitments and all
answered cash calls up to some pre-determined cap.

The reality is that not everyone will be able to meet cash calls. Households with young children, particularly, do not often have money just sitting around to invest. All their available funds are probably invested in the homes they now have -- if they own. If not, they probably have only what they afford for down payments. This will be very dear money and not something they can risk at any level. Certainly not for unpredictable amounts of time.

Even when you have a construction loan and very clear timelines for construction, some households may not be able to afford more than the minimum to hold a contract until they actually sell the house they are living in and are ready to move into the new home. Many people just do not have float money.

I would suggest that you think of your problem in a different way. Instead of putting all decisions into one pot, divide them.

Developers are people who make the upfront investment in the land and develop it and earn an income (called profit) for doing so. The subgroup that is taking the financial risk should also profit. You build this into the business plan.

The land can usually be sold at a profit and once it is improved and rezoned, it certainly is more valuable so the developers are not sacrificing their money to the will of the rest of the group. They are making wise business investments in addition to developing a community they want to live in.

Form a second group that includes anyone who plans to live in the community (including the developing members) and makes a different class of decision like those that involve the ins and outs of living together. Planning the community layout and features, etc. But nothing that would put the developing group's money at risk.

The two tiers of risk may remain, but with different membership, once you are moved in. At Takoma Village we have Class One and Class Two decisions. Class One are decisions that determine financial commitments and Class Two are all others. Only home owners can make Class One decisions because the homeowners are the only people who are required to pay the monthly association fees to support common elements.

A person who is renting or is a significant other thus cannot decide that I as a homeowner have to invest in a water slide for the green. They can participate in the decision that we want or do not want a water slide and they can contribute to purchasing one, but they can't decide that I have to pay for it.

It is possible to be fair and inclusive at the same time.

Sharon Villines

Results generated by Tiger Technologies Web hosting using MHonArc.