Cohousing-L Mailing List: Re: Financial structure advice needed for forming group

[Mac Thomson (mac]

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!

Cheers,
Mac

--
Mac Thomson

Heartwood Cohousing
Southwest Colorado
http://www.heartwoodcohousing.com


"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] yahoo.com> wrote:
> Date: Sun, 19 Nov 2006 17:14:17 -0800 (PST)
> From: Tom Hammer <thammer302 [at] yahoo.com>
> Subject: [C-L]_ Financial structure advice needed for forming group
> To: cohousing-l [at] cohousing.org
> Message-ID: <20061120011417.28517.qmail [at] web56110.mail.re3.yahoo.com>
> 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