Re: Financial structure advice needed for forming group
From: Mac Thomson (
Date: Mon, 20 Nov 2006 07:47:08 -0800 (PST)
We went through all of this about 8 years ago so hopefully my memory isn't too faulty. We had the same requirements of all Members and all got to participate equally in decision making. Anyone not ready to make the commitment and meet the requirements could remain Associate Members and not participate in decision making.

Our membership requirement was a $6000 (mostly) non-refundable investment. That amount was later increased to 10% of the approximate cost of their future home when it was time for us to get our construction loan. These amounts were still not enough for us to meet our loan to equity ratio requirements so we also offered members the opportunity to make loans to the development corp (us). We structured the loans such that we eliminated the risk to the development corp of paying extra interest in the event of construction delays and eliminated tax consequences for the members. I can probably dig up copies of the loan agreements and send them to you if you're interested. The big advantages of these loans were that they allowed us to raise more money from members, without overly taxing members with more limited finances (while eliminating delay risks and taxes).

There are two main reasons for the member investments: 1) raise money for the project; 2) get rock solid commitment from members. I felt that overall our various financial strategies were very successful, but if I had to do one thing differently, I would have made the $6000 completely non-refundable. That's because, despite folks' best intentions, many of them will leave the project before move-in and when they do leave, they cause disruptions that cost the project money. For example, the Andersons leave and the Millers take their place, but the Andersons were the ones that lobbied so strongly for some special feature in their model, which all owners of that model are now saddled with and besides, the Millers don't even want that model so changes have to be made to accommodate them. I don't know if this example is too clear, but the point is that when people come and go during the heat of design and construction, it costs the project money so the non-refundable investment they made will pay those costs.

I don't think your $2000 investment from some members is enough. I will be developing a Phase 2 here at Heartwood and I'm anticipating requiring a $10,000 absolutely non-refundable investment. People mean well, but sometimes their life pulls them in a different direction away from your project and if their investment is small, it's easier for them to follow that pull. This may all sound a bit Machiavellian and maybe it is. I guess you just need to pick a financial strategy that fits your group. My philosophy with the project finances is that they should be driven by the head and not the heart and in the long run, that will actually lead to much less anguish of the heart.

Good luck!


Mac Thomson

Heartwood Cohousing
Southwest Colorado

"Security is mostly superstition. It does not exist in Nature. Nor do the children of men as a whole experience it. Avoiding danger is no safer in the long run than outright exposure. Life is either a daring adventure or nothing."
     - Helen Keller

On Nov 20, 2006, Tom Hammer <thammer302 [at]> wrote:

Date: Sun, 19 Nov 2006 17:14:17 -0800 (PST)
From: Tom Hammer <thammer302 [at]>
Subject: [C-L]_ Financial structure advice needed for forming group
To: cohousing-l [at]
Message-ID: <20061120011417.28517.qmail [at]>
Content-Type: text/plain; charset=iso-8859-1

Our forming cohousing group is looking for land,  and
we are in negotiation with a motivated seller.  We are
presently financially structured this way:

We have 8 "equity households."  Some of the households
are "full equity members" and pledge to meet future
calls for capital up to a limit of 10% of the
approximate cost of their future home.

The other households are less able or willing to take
the risk associated with the project and have stopped
meeting cash calls after committing $2000. Our present
agreement allows this and classifies this group as
equity members with full input on decisions but with
no ability to block consensus on "critical issues" as
defined by the full equity members.  Several of the
2nd group say they are fully committed to the project
but cannot take more risk at present, but members of
this group would like to have a full say in all
consensus decisions.  We all recognize a need for more
capital in the near future, and the limited equity
members recognize that their status puts more of a
financial burden on the full equity members.

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.

We have incentives in place for early full cash
commitments and site selection priority for full
equity households  as well as offers of high interest
on loans by early lenders.

We very much need advice from successful communities.
Did you allow large differences in financial
commitment such as we presently have, or did you have
a fairly large basic financial commitment that was
required of all to be a full decision maker?

Could you please inform us how you structure(d) your
membership and membership contribution? Please let us
know what worked and what you would have done
differently. Thank you.

Tom Hammer
for Concord Village

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