Cohousing-L Mailing List: Financing site purchase and construction

[Eleanor Chandler (ejc]

I would very much like to know how different cohousing communities
financed their site purchase and construction.  I imagine that one
would want to raise as much capital as possible from within the group
and borrow as little as possible as a group from banks etc.  For one
thing banks and mortgage lenders require a higher rate of interest if
they are lending a high proportion of the total value of the site and
buildings.

What formula do you use to value each person's contribution taking into
account the amount put in,when they put it in, and any other factors?

I don't know if my question is clear.  So to give an example:  If a
founder member puts in initially 100,000 towards site purchase, and a
year later a newer member puts in 100,000 towards building costs, would
you consider at that stage the first person's contribution to be valued
at the initial 100,000 plus the interest they might have had to pay on
the amount e.g. they may have paid interest of 8,000 to borrow it for
that year.  Or would you take into account the risk they're taking by
putting capital upfront at an early stage, and would you therefore
calculate the value of their contribution in a different way?  And then
if another year later an even newer member puts in 100,000 towards an
almost-completed home, how would their contribution compare to the
previous two?

Banks set their rate of interest according to the amount of risk they
consider they are exposing themselves to.  If they lend 100,000 on what
they perceive to be a risky proposition they will not only charge a
higher rate of interest than normal but insist on having the first
charge on the property, so if the project does fail they get their
100,000 back before anybody else.  Which puts everyone else's
loan/contribution at a much higher risk.

And time is money - any delay in getting planning permission, or delay
in the building work, represents  a cash drain in terms of interest
being paid on loans, and could I suppose increase the overall cost to
more than the development is finally worth when completed.  So in that
case, who would bear the loss?  Would you make the selling price of the
units reflect the cost price of building them even if that is above
'market value' for a comparable home on the open market?

I'd be very grateful for input on all this!

Many thanks!
Eleanor
Devon Cohousing, UK