Cohousing-L Mailing List: Re: community financing

[David Mandel (dlmandel]

I'm glad it worked out for Eileen and her friend/investor, but I would be very
wary of such arrangements and enter into them only with someone who is a very
close and trusted friend. There is too much that can go wrong.
David Mandel

Eileen McCourt wrote:

> When I purchased my condominium, I was having difficulty pulling together
> the down payment.  A friend of mine who wanted to help became an equity
> partner with me.  He invested what amounted to 2.5% of the purchase cost.
> This was not filed as a subordinate loan or second on my home.  The bank was
> not involved.  It was a simple arrangement between friends.  We were not
> partners in any way other than this business arrangement.  We had a one page
> legal agreement drawn up by an attorney that was basically this:  He owned
> 2.5% of the property.  After 3 years, either person was entitled to retire
> the investment, with an appraisal of the home at that time to determine the
> value of the 2.5%.  If he needed the money sooner, and I was unable to pay
> the full amount, I could pay back half of the investment up front, and we
> would enter into good faith negotiations for repayment of the balance of the
> value of his investment.
>
> As it turned out, we were both ready to retire the investment after 3 years.
> My home had increased significantly in value, and he made about 44% in his
> original capital investment.  Of course I live in the Bay Area, and real
> estate was going wild at that time, but I think similar arrangements can
> work in cohousing.  I have suggested a plan in our community to either
> develop a fund or have individuals enter into individual arrangements to
> invest a small capital sum in another cohousing member's home in our
> community, as an equity investor, with a 5 year term, expecting that
> homebuyer will be able to refinance in 5 years to pay back the investment.
> These would be "silent seconds" and the investor will not be on the title,
> so it requires trust that this recipient will follow through, and the
> ultimate willingness to lose that amount of capital, and/or accept a small
> return.  The underlying assumption is that the home will increase in value
> over 5 years, and that the homebuyer will continue to have earnings
> increases to cover the cost of the refinanced mortgage or home equity loan
> needed to pay off the investor at the 5 year term.
>
> The Cohousing Conference session on Affordable Housing also had much
> information on institutional resources for moderate and low income buyers,
> as well as non-profit developers.  I suggest getting the tape of that
> session from the conference.
>
> --eileen
>
> Eileen McCourt
> Oak Creek Commons
> Cohousing in Paso Robles, CA
> emccourt [at] mindspring.com
> http://oakcreekcommons.org/
>
>  -----Original Message-----
> From:   cohousing-l-admin [at] cohousing.org
> [mailto:cohousing-l-admin [at] cohousing.org]  On Behalf Of Rob Sandelin
> Sent:   Saturday, July 28, 2001 8:24 AM
> To:     cohousing-l [at] cohousing.org
> Subject:        RE: [C-L]_community financing
>
> I have not heard of a cohousing  group  using co-investing before. I think
> its an interesting idea but might not be realistic because it assumes that
> their are community members investors with enough capital to not only secure
> their  own mortgage but to invest in  another. Also how would this
> investment pay dividends? Current conservative investment portfolios are
> drawing 5-8 percent a year. What financial return would an investor get from
> such a scheme? Real estate  appreciation only is collectable upon the sale
> of the unit, not a very secure or steady income potential.
>
> I am assuming such an idea would put all the investors on the title? Or
> would they draw up some sort of other legal arrangement? I would be sure to
> consult with the bank giving the mortgage  before doing this to be sure they
> will fund such a mortgage situation.
>
> Rob Sandelin
>
> -----Original Message-----
> From: cohousing-l-admin [at] cohousing.org
> [mailto:cohousing-l-admin [at] cohousing.org]On Behalf Of Debbi Schaubman
> Sent: Thursday, July 26, 2001 11:42 AM
> To: cohousing-l [at] cohousing.org
> Subject: [C-L]_community financing
>
> Greetings!
>
> Great Oak Cohousing (Ann Arbor, MI), currently in the programming phase, has
> been exploring ways to address affordability issues.  Our Affordability
> Committee has gone through the cohousing-l archives, read the materials on
> the TCN www site (and other related sites), and haven't been able to find
> very much information on the specific topic we've begun to consider:
> co-investment.   (Sorry if we simply missed the information!)
>
> We're interested in learning about other communities' experiences with this
> model (or ones similar to it): a group of community members invest money and
> buy 10% to 30% of a few units.  Those units would then need a smaller
> mortgage, have a smaller monthly mortgage payment, and require a smaller
> down payment.   Our sense is that, assuming some appreciation in the real
> estate, the investor, the household and the community would all benefit from
> this approach.
>
> Thanks for any information, suggestions, horror stories, etc. you can share.
>
> Debbi Schaubman
> (who is eagerly awaiting a Spring/Fall 2003 move-in!)
>
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