Cohousing-L Mailing List: Investing in Cohousing

[Sharon Villines (sharon]

So a group of cohousing and intentional community people had a Zoom call on 
Thursday to begin gathering ideas about what an investment opportunity would 
have to offer to enable people to invest in building new cohousing communities. 
And protect the nature of cohousing. These are my thoughts on this issue along 
with some ideas that surfaced in the discussion.

Developing cohousing requires that someone at some level invest money in real 
estate. There are far more potential cohousers than there are communities. Too 
often the only people who can afford to live in cohousing are those who have 
rich parents who give them a lump of money or are old enough to have already 
accumulated surplus money in savings, pension funds, and homes. This tends to 
limit the market to those over the age of 60 or households with two 
professional salaries. Great swaths of the population are excluded.

There are many reasons why senior cohousing is very attractive now, but one is 
that that is where the money is. The young two-professional-salaries-households 
don’t have time to think about developing cohousing and will have no more time 
when they move in. Cohousing is so expensive that unit owners can’t scale back 
on the hours they work or reduce the load of responsibilities they are paid so 
much to assume. They can’t work short days in order to meet with the plumber or 
stay up all night tending to a flood in the common house and be at work when 
the market opens.

But with 100+ successful communities, it is time to begin thinking about 
turning our liability into an asset. We have 30 years of statistics on the 
financial performance of cohousing and we have a population of cohousers who 
are living on their investments. This means we have both proof-of-products and 
money floating around that could produce more of it.

Not billions of dollars but cohousing doesn’t need billions. We need loans for 
land acquisition, construction, and down payments. And bridge loans and other 
emergency short-term loans. 

Equally important we need to be comfortable with the concept of structuring 
investments in a way that prevents cohousing from attracting get-rich-quick 
schemers. We need to attract nurturing investors, not venture capitalists.

Cohousers living on the interest from invested savings will have to trust an 
investment fund that won’t be guaranteed by gigantic banks and pension funds. 
That trust will most likely develop from understanding how we can ensure that 
investors receive predictable returns and that investors can nourish cohousing, 
not feed on it.

I’ve been reading a very readable discussion of why ownership is important: 
Marjorie Kelly’s "Owning Our Future,” which explains the difference between a 
generative and an extractive economy.  The power of the 1% and the 10% is not 
that they have all the money, it’s that they use that money to control 
everything else. Ownership is the fundamental issue. How we structure ownership 
determines who is in control. But anything (almost) that can be used to 
dominate and control can also be used to strengthen and enrich—if it is 
properly structured. 

Why is it that we view investors so negatively? What has ever been developed 
without investments by others? How did the negativity focus so clearly on 
“investing” rather than on certain kinds of investing? Partly because we don’t 
know enough to make that distinction but there is more to this negativity.

I hit a gold mine this morning reading "The Chaos Machine" by Max Fisher which 
got me up at 5:30 to start writing. The subtitle is “The inside story of how 
social media rewired our minds and our world.” This topic is so relevant to 
everything digital and everything marketing that it has produced a fundamental 
change in society. A big statement but he makes his case very clearly. Fisher 
documents and explains how technology is used by social media to facilitate mob 
action, polarized thinking, conspiracy theories, and promoted misinformation. 
And how they make billions and billions of dollars doing that. 

The scale of technology is mind-bending. “Mind-bending” literally since that is 
what Facebook, Twitter, Google, and other “free” services are using it for. 
Their algorithms control what we see, hear, and think next — a huge statement 
but read the book. Social media is precisely designed to bend minds toward the 
negative.

How? The short answer is that humans engage longer with topics they are against 
than with topics they are for and social media has developed ways to make money 
on that. A negative argument revs up the motors. People want more. So if you 
search “voting machines” on Facebook or Google, for example, you will be 
intentionally sent to sources that vilify voting machines, not to sources that 
explain how they work, why they are safe, and how they enable millions of 
people to vote effectively and fairly. 

Informative, truthful sites are satisfying because they provide the info 
viewers need so viewers then move on. They don’t spend hours looking for the 
newest wrinkle in a conspiracy theory. Positive sources will be included in 
searches but negative sources will predominate and will appear first. The 
excuse given for this is that the most visited sites simply rank higher. Fair, 
right? It is if your goal is to make money from ads.

Ad money is based on how many times an ad is viewed on a computer screen. In 
2016, 70% of Americans used Facebook-owned platforms for an average of 50 
minutes a day. But people who are against something spend hours online every 
day. One screen view might easily load 2-5 ads. Each scroll or click to a new 
screen will show that many or more ads. Screen views are measured in seconds 
not even minutes. I can’t even guess how many ad views that would be in 4 hours 
or 6 hours. Or 12 hours. Produced by each viewer. It had 2.96 billion monthly 
active users in the third quarter of 2022. Ads begin paying at 1,000 views. (If 
you take a shot at calculating this let me know what you come up with).

I once had a program that blocked tracking activity, not just ads. I discovered 
that every time I visited a public site my browser would connect with 12-20 or 
more different services — advertising and marketing firms that count things and 
sell the numbers. There were so many connections to be blocked that I finally 
deleted the app because blocking all of them just took too much time.

Without producing any physical products or providing any human services, 
Facebook’s market value is larger than that of Wells Fargo, General Electric, 
JPMorgan Chase, and ExxonMobile. In 2017, Facebook's revenues exceeded $40 
billion. Its share price has increased by 70% in the last 3 years, and they 
haven’t been positive years for Facebook’s reputation. In 2022, 97.6% of its 
income was from selling ads.

Anyone with an investment account or pension fund is highly likely to be 
invested directly or indirectly in social media. And these funds have no 
interest in reducing income from social media so driving views to negative 
sites will continue for the foreseeable future.

Many of us, however, do have an interest in how our money is invested, but our 
income is also dependent on these investments. We probably don’t expect higher 
interest rates than we are receiving now but we would like safe income from 
investments we are proud of. People who are 70 or 80 can’t take the chance that 
they would suddenly have no income. (Yes, that one 82-year-old did go back to 
work at Walmart to supplement her social security income, but she also couldn’t 
live in cohousing. It is too expensive.)

The question is how can a person who is dependent on investment income — which 
includes everyone with a pension fund — invest in cohousing?

A group of people had a Zoom call on Thursday to begin gathering ideas about 
what an investment opportunity would have to offer to be safe and sound enough 
to enable those who live in cohousing to support the growth of new cohousing 
communities. 

Developing real estate is a very time-consuming endeavor. A huge lead time and 
then years in construction. When money is involved that time is expensive 
because it requires paying interest on the money being used. One suggestion was 
that finding a way to speed up the development time would make cohousing more 
affordable. 

At this point, so many cohousing professionals have worked on the process that 
community forming, design, and construction are now very efficient. 
Construction often has delays but that is the nature of construction. The next 
best way to shorten the development time—the length of time that a household 
has to pay for two households—would be to make money more available. Those who 
know cohousing would be more likely to make loans based on the cohousing 
market, not the traditional real estate market that banks use as a reference 
point. 

After reading a lot of economic history in the last few years and particularly 
reading “Owning Our Future” I’m more committed to the ownership model because 
it builds wealth and provides more security. Even if a community decides to 
build $100,000 units, there are many perfectly trustworthy and industrious 
people who don’t have the $20,000 for the downpayment. They live well and 
securely but they also live month to month. 

There is a large, long-standing rental cohousing community in Japan in a 
building owned by the government. Their model works because the residents have 
full control over the rental process and the participation expectations of 
residents. Even if that rental model could be available here, there would still 
be the need for upfront money so the same investment need is still there.

People have asked why the Cooperative Bank isn’t more active in supporting 
cohousing developments. The Cooperative Bank has and does give loans to 
communities but it requires that the individual members of the group personally 
guarantee the loans. If people are not able to deposit money on one home when 
they still have to pay for the home they are living in, it is unlikely that 
they would be able to guarantee loans. If only a few people guarantee the 
loans, they will have a larger investment in the project than others do. The 
risks will not be equal and that will influence decision-making. The initial 
inequity has worked often, but just as often it has created a dynamic that the 
community spent years overcoming or that contributed to its failure.

Having funds to secure land, a relatively safe investment, would be very 
stabilizing for a community and a big plus in getting construction loans.

Several successful communities have had investors. We need to document these in 
a format that impresses investors and banks.

One option would be for investors to be allowed to purchase a unit at a 
discount to rent or sell. Their return is then determined by their success in 
renting or selling.

Selling an abstraction to a buyer or to a bank is difficult but selling to an 
investor who knows cohousing means selling something that is known. There is 
enough historical data and experience to make it real for people who are able 
to evaluate it.

Some investors will be happy with an interest rate of 2-8%. I don’t remember 
the source of that information. Others consider 5% interest to be a charitable 
contribution. At least one community recently paid 15%. An investor will need a 
monthly interest payment as well as an improved final return. Perhaps 3% 
interest above the safe investment rate monthly and a +10% return when all the 
units are sold. 

Final words: "If you are going to live, leave a legacy. Make a lasting mark on 
the world.”

The group will continue to meet and collect information.

Sharon
———
Sharon Villines, Takoma Village Cohousing, Washington DC
Strong Neighborhoods, “We all have one and we can all make it better."

StrongNeighborhoods.info