Cohousing-L Mailing List: RE: cost division: individual v. household

[Rob Sandelin (robsan]

Stephen Farley  From Tucson cohousing asked:

>Singles feel that multiple-adult households are getting more for their
>money if costs are per household; multi-adults feel like they are paying
>twice as much for little extra. I fear this could all dissolve into
>bitter infighting between special interests and destroy the idea of consensus.

This seems sort of odd to me.  One big thing you are going to be doing 
is real estate development.  Are there real estate developments in 
Tucson where homes cost less based on family size?  Are there other 
places where a family of four pays more for the same home than a family 
of one?  Unit sizes will determine price no matter how many people are 
in the family that buys the unit.  IMHO it is very dubious to try and 
break out cost of common elements based on family size.

All of the costs you pay in for everything, lawyers, architects, 
planning permits, feasibility studies, etc. all get credited to your 
A&D loan (and eventually your mortgage) and so it doesn't matter. The 
way funding works is that the banks will give you and A&D loan to cover 
the costs of the land and all the development infrastructure including 
all planning and permits and even some road and utility work. The bank 
will  require you or your contractor to come up with 30-50% of the 
budget for the projects infrastructure which includes all common 
elements and all pre-development costs including the land cost. The 
bank loans the remainder to pay off the land, etc but you have to come 
up with 30-50%.  For example at Nyland they had to raise over $300,000. 
  After all the infrastructure is done, all the permits are in hand and 
the land is paid off, the builder gets a construction loan to cover the 
costs of the construction of the homes.  Then every unit holder gets a 
mortgage, the mortgages pay off the A&D loan and the construction loans .

So,  every penny you pay in, whether you are single or a family or nine 
goes towards your personal down payment eventually.  If one family 
contributes $200,000 and another only $5,000 it doesn't matter except 
at the end the family with the $200,000 gets money back at closing and 
the $5,000 has to pay more for their downpayment.

If one person paid all the costs for everything, that would still work 
out fine in the end, just everyone else would have to come up with 
their own 10% downpayment.  So getting hung up on cost apportionment at 
this stage of your group is really a huge waste of time and energy and 
can potentially send your whole project into the sink.  If you try and 
equalize costs on the lowest economic denominator of your group you 
will not be able to raise the substantial capital you will need for 
your share of the 30-50% of the A&D loan.  Now maybe you can find a 
developer with deep pockets who will take your project on for say 20% 
profit.  In that case, the developer pays most those costs, takes most 
the risks and gets a handsome profit, which is charged to the whole 
group in the form of higher unit costs.  Good luck trying to find one 
who will not demand to be in the drivers seat.

If people are leaving over this issue, it may not be the issue at hand 
why they are leaving but some other fear or unhappiness.  There is a 
lot of risk in the game of real estate development and most groups lose 
people when they begin to start expending real money.  It is very 
common for groups to muddle along with the ideal, never understanding 
the real costs involved, and then realizing that no one has the $10,000 
and up to commit to put on contract for a site.  If developing real 
estate was cheap and risk free, everyone would be doing it.  You will 
need to raise somewhere between $25,000 and $60,000 just to get started 
in the reality of putting an option on a site.  Could be more depending 
on what 20% of a site cost is in your area.  If your site costs 
$500,000 then your group will need $50,000-$100,000 to place an option 
on it.  If there are ten people in your group that is $5-$10 each just 
for the land option.  Then comes lots more money for all the rest of 
the costs, all of which have to be carried by the group.  The bank 
won't talk to you until you have an approved plan and a contractor.

This initial capital requirement is a large burden and a huge huge risk.

So maybe the strong feelings about this in your group reflect fear at 
the risk of real money, and also fear about having to commit more money 
than people can afford.  I have seen this fear, understand it, and 
maybe talking about it would help alleviate it.  If you do not have a 
site secured, then maybe a good approach would be to figure out how 
much 20% of a site would cost, and talk about ways to raise that money. 
 Coming up with the funds and securing an option on a site is what 
differentiates groups that are real  from those who are just dreaming.  
You can sustain the dream and hope for quite awhile, but the longer it 
goes on, the more you may find that all who are left are dreamers.

Rob Sandelin
Puget Sound Cohousing Network