Cohousing-L Mailing List: Re: Financial Structure Before Land Purchase

[Rich Lobdill (richardl]

>To: LPManiccia [at] aol.com
>From: richardl [at] callamer.com (Rich Lobdill)
>Subject: Re: Financial Structure Before Land Purchase
>Cc: 
>Bcc: 
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>
>>We are a newly formed cohousing group, Cascadia Cohousing.  We are just
>>starting to search for land, and before going much further, we want to set up
>>a partnership agreement between our members that determines how large sums of
>>money invested by our members will be handled.  We would like to know how
>>other communities have handled this. 
>
>In California, we became what is called a CA non-profit mutual benefit
corporation. This has some of the benefits of being non-profit but is not a
tax exempt (501c(3)) non-profit. We still have to pay the State Gov. for
simply being which is $800 a year whether we have taxable income or not.
However we don't pay Federal tax unless we have taxable income beyond
expenses. Our CPA firm has set up the our structure such that the 'dues'
from members are actually 'loans' to the corporation and hence we don't pay
'income' tax on it. If dues were not loans they would be considered UBITs
(unrelated business income tax) and would be taxed. 
>
>The flip side of that structure is that our corporation pays 7% interest on
the dues. We won't actually pay out the interest until the corp. is disolved
into a homeowners assoc. but at that time members will be paid their
interest and recieve 1099 forms and will have to pay personal income tax on
that interest. On the whole, this makes your house cheaper. [Proof left to
the reader :)]. We chose 7% because to be legit the % charged has to be
greater than a minimum set by something only a CPA would know (one of those
fifth distict cost of funds thangs).
>
>
> We have heard that some communities
>>paid interest to early investing members, and others have not.  If interest
>>was paid, we'd like to know how much?  Also, we're all members required to
>>make similar investments, such as $10,000 or 10% of the projected cost?
>
>We have dues of $100 month and to buy-in you have to pay in the amount of
principle all others have paid in (right now about $5200). Having said that
we also have an alternative which is to put in $1000 and then sign a note to
the group for the difference. This 'loan' from the group is charged
interest, also at a rate of 7%. Lest you might think that this would
encourage people to simply put in $1000 and borrow the rest (while putting
the $4200 in another investment), doing the math will show that if one were
to put their $4200 elsewere it would have to earn 14% simply to break even
compared to putting it all in coho and earning 7%.  So we think this is a
deterrent to holding back from doing a complete buy-in but gives those who
are cash poor the ability to buy-in. (One of our other requirements of
membership is that members can pre-qualify at our bank for the amount of the
proposed housing cost.)
>
>  Or
>>was each member allowed to invest as much as was feasible for them at the
>>time? 
>
>We also accept loans from members beyond the buy-in amounts. For amounts of
$5000 and above we offer 9%. Part of this agreement is that the money is
ours for one year after written request for it to be returned. We have
recieved a fair amout of working capital from this arrangement.
>
> Were the investments of each member made public to the group or were
>>they kept confidential?
>
>I specifically was concerned about this issue but I could not elicit any
concerns from any of the members and I felt I tried any number of
non-threatening approaches. All of us know who most of the lenders are and
we have burned through a significant portion of the bucks without issues
coming up surrounding a say, ' unbalanced' consensus due to those who have
more dollars at risk.
>
>Rich Lobdill
>Grell Coho
>Oceano, CA
>An active Cohousing group since Oct. 30 1988.
>
Rich Lobdill
Grell CoHousing Group
Oceano, CA