Cohousing-L Mailing List: Re: Financing site purchase and construction

[Denise Meier and/or Michael Jacob (dmmj]

Here's another story about how one group did it..... 

When we first identified the property, we figured that about $2000 per
household would cover the costs involved in getting through the zoning
process (mostly legal, archictectural, and engineering) and paying the
refundable $5000 option. Eight households joined up at that level. Then
when we succeeded in getting rezoned, we bought the property. At that
point we had 11 of the 14 households on board, and we each put in 9% of
our estimated house purchase price. Four households also lent the project
a total of $80,000 at 9.25% interest (which is accruing and has not been
paid out yet).

Some households signed unsecured notes to the group for cash they couldn't
find elsewhere and paid interest at the same rate.

Then last spring, when we began the site work (still no bank-funded
construction loan), we each brought our contributions (or notes) to 20% of
the (now much higher) estimated house cost. 

Because of the appraisal-cost gap which Jim Snyder-Grant called "overage",
we are now preparing to bring our capital contributions up to 35% of the
estimated cost of the houses. The exact amount will depend on our project
manager's success at getting the appraisal raised a bit - we found some
glaring omissions, the sq footage has increased slightly, and the
Sebastopol real estate market has been sizzling, so we should get some
reduction of the "overage" from that. 

The thing we did not adequately address ahead of time, and which caused no
small amount of upset was: When a member leaves who put money in early,
what do they get back? Does a member joining later compensate the
household that "held their place" in any way? 

Our operating agreement states quite clearly that no interest is earned on
the investment. However, many leaving members (we lost 5 of 14 households
over the fall and winter) felt that they had 

1) taken significant risk early in the project; 

2) either incurred costs by borrowing the money, or lost income on it
since it was invested in the company

3) been mislead into believing they could afford these houses and then
priced out by the price increases (not deliberatly mislead, obviously, but
still.....)

We had several long sessions about this as well as heated email exchanges
and ended up returning no money to leaving members, and assessing no
additional fee from new members. It was not a decision that many were
happy with, but it was difficult to come up with a solution that didn't
have significant arguments against it. We did decide that any household
that comes in after we have the construction loan, when the risk will drop
significantly, will pay a buy-in fee of $1500, which goes to the group,
not to the household leaving.

I really wish we had been clearer about this from the outset. We were
afraid to charge more for the units later on because they are already well
above market price. But it seems that there should be some reward for
those who come in early, and especially those who take the risk, lose the
income, and then don't end up with a home in the community, for whatever
reason. 

Denise Meier 
Two Acre Wood,
Sebastopol, California 

Where we may, just may, re-begin construction in 4-6 weeks. Someone asked
us if we were going to have a "Second Annual Groundbreaking Party". Ha ha.