Re: Rewarding Early Adoption
From: Mac Thomson (macheartwoodcohousing.com)
Date: Tue, 21 Apr 2009 05:35:26 -0700 (PDT)
Hi Charles,

Digging way back into the archives, here's our old agreement on this. I think this worked very well for us.

MEMBERSHIP INCENTIVES

PHILOSOPHY
Membership Incentives are offered for a number of reasons:
To reward Members that join early for the high level of risk inherent in the development project during the initial phases. To reward Members that join early for the use of their money for a longer period of time. If it wasn’t paid to HC, it could be earning interest somewhere else. To reward Members that join early for the extra work that they put in at the beginning. To encourage Members to sign up early, especially at critical points in the development process. Our Membership Threshold Goals must be met for us to move ahead with development.

CHOICE OF LOT
The order in which households become Members is the order in which they will get to choose lots.

To avoid any misunderstanding, it should be understood that lots will be priced differently depending on their relative market values (views, trees, topography, etc.). These prices will be determined before lots are chosen.

EQUITY CREDITS
Equity Credits are awarded to Members based on when they join during the development project. A Member household that joins before the following development milestones and is current in their stock purchase payments receives the following Equity Credit:
Site Control (under contract for land)  May 22, 1997    $5000
Land Purchase   May 22, 1998    $3000
Preliminary Plat Approval       December 21, 1998       $2000
Beginning of Construction       August 12, 1999 $1000

So a Member household that joined after May 22, 1997, but before May 22, 1998 and is current with its payments would receive a $3000 discount off the price of their lot. If that Member selects a $54,000 lot, they would only pay $51,000 for the lot. The credits are used at the time of final lot purchase.

Our initial stock purchase requirement was $6000 (actually $100 for stock in our development corp and a $5900 lot purchase deposit). We later required additional deposits as we got closer to construction.

We also raised additional money from members as we got closer to construction through additional *voluntary* lot and home purchase deposit loans. These were also very effective and structured in a pretty unusual way which I think served both the members and the development corp well. The loan earned a fixed amount of interest based on when we expected the lot/home purchase would happen. The interest rate was based on competitive rates at the time plus a little extra in recognition of the extra risk being passed from the development corp to the member. That risk was that even if construction got delayed for 9 months, the member would still get the same amount of interest on their loan -- it was a fixed amount regardless of any delays. Transferring that risk to the member made it much easier for the development corp to budget interest expense and therefore set lot and home prices. The other thing that made these loans unique was that the member didn't actually receive interest, but instead received a discount on their home/lot purchase so it wasn't considered as immediate taxable income, but instead lowered the basis of their lot/home purchase and would be most likely not ever taxed because of the special tax rules about not paying taxes on gains on sale of a primary residence. I'm not sure if the IRS would interpret it just like this, but as far as I know, no members ever had any problem with it. Check with a CPA if this makes you nervous. We had several rounds of these additional member loans depending on when we needed money.

Cheers,
Mac

--
Mac Thomson

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


"Not all those who wander are lost."
       - J.R.R. Tolkien
**********************************************************



On Apr 20, 2009, at 7:12 PM, cohousing-l-request [at] cohousing.org wrote:

Message: 8
Date: Mon, 20 Apr 2009 19:12:53 -0600 (MDT)
From: balaji [at] ouraynet.com
Subject: [C-L]_ Rewarding Early Adoption
To: "Cohousing-L" <cohousing-l [at] cohousing.org>
Message-ID:
        <50378.69.169.140.146.1240276373.squirrel [at] squirrel.ouraynet.com>
Content-Type: text/plain;charset=iso-8859-1

We are in the process of setting up a series of financial agreements. The question arises, how much return on their original investment do we pay early adopters? Their risk is much higher, of course. Surely they should
be compensated accordingly?

What rates of return do you recommend, and according to what schedule?

Any advice appreciated,

Charles W. Nuckolls
Utah Valley Commons
www.utahvalleycommons.com



  • (no other messages in thread)

Results generated by Tiger Technologies Web hosting using MHonArc.