Cohousing-L Mailing List: RE: Financing CH, shared facilities?

[Rob Sandelin (Exchange) (Robsan]

Louise Hunter
Jewell Hill Cohousing Community  Asked:

Failing that, is there any other creative way you know of to finance
the costs of all construction and development?

Well, we didn't intend to do this but at Sharingwood we used the increase 
in the value of our land in order to pay for our common elements.  We 
bought the land in 1982 and did our development in 2 phases, 17 units in 
the first phase and 12 in the second.  The costs of the land and 
infrastructure for developing the property were divided out into the first 
phase of development which meant that the first 17 units paid off all the 
land and phase 1 development costs in their lot payments and assessments. 
($39,000 for each lot).  We now have 12 more potential lots to sell and we 
have optioned 8 of them for $35,000, the reduced price encouraging option 
holders to commit an escrow amount of $5,000. Once we finalize the design 
and get survey and titles, we will convert the escrow funds into down 
payments.  The sale of the first 8 phase 2 lots ($280,000) will pay for our 
commonhouse (now under construction, paid for with private loans from 
members and friends) and the development costs for the second phase.

We then have to decide how to use the final four lots.  We can sell them 
and use the income to fund other common improvements, we can donate them 
for low income housing, we can sell two, keep two for the future, etc. etc.

Basically we have done what a developer does: take raw land and create lots 
out of it, assuming considerable capital risks.  Then we invested the 
return from the improved land into common elements. We did not intend to do 
this, it just happened, but it seems to be a good idea.  Banks assume 
developer profit and so unless lot prices were really too high, the banks 
just give loans for the total package - lot plus house. They do not care 
about the common elements, they only assess the house and the lot.  We did 
have to invest considerable capital to get the project to the state of 
loanability.  We had three major investors who at times were willing to 
loan the community significant funds with no guarantees of returns. 
 Without those investors, Sharingwood would not exist.  Even now, we have 
60K in personal loans for the commonhouse construction, backed by the 
assumption that we will have titled property to sell someday in the near 
future.

If your group has no assets, and you can not raise capital representing at 
least 20% of your project costs, then you are not in a very good position 
to be developing real estate, and should be considering for profit 
partners, if you can find one who will take the risk.  Development 
companies will charge you an arm and half of one leg, but will carry the 
costs and risks to the stage where the banks jump in.  They may also demand 
considerable control over the design process and product and you may find 
little place you can negotiate if they hold the purse strings.

One advantage of the lot development model is that you only have to pay for 
things as they come up, rather than everything at once.  The members paid 
for things as we had to, often able to get great deals from neighbors and 
friends, as well as our own labor.  The costs for development were then 
spread out over five years or so of development with individuals being 
responsible for their share of the development costs and their own homes.


Rob Sandelin
Sharingwood