Investors and Renters -
Two models for Ownership of Merri Cohousing (MCEVI):

Option A

A property trust, or similar legal entity owns all buildings and land designated on the site as Merri Cohousing. The trust issues "units" to investors (similar to shares).

Option B

Individual investors or owner/occupiers own residences. Land and buildings that are shared (eg the cohouse) are owned in common using a property trust, or similar legal entity.

Some important questions, which explore the two options, are answered below

1. Who can invest in Merri Cohousing?

Option A
Anyone who has a belief in the value of the project. Individuals and organisations can invest from $100 to $2 million (or more). Investors can be residents or non residents. Residents who can't afford to buy the equivalent of a whole dwelling could invest small amounts of money and acquire a meaningful sense of ownership in their dwelling and the cohousing village. Individuals and organisations with large amounts of money could invest up to their maximum and not be limited to investing the equivalent of one, two or three dwellings eg. Invest the equivalent of 2.8 dwellings rather than be limited to 2 dwellings.

Option B
Any person or organisation who can raise sufficient capital to purchase one or more complete dwellings.

2. Who manages the debt associated with the project?

Option A
The debt is organised as one loan for the whole project. It is professionally managed so that it carries the lowest possible cost ( interest rate and other lending institution charges). The income from the dwellings must service this loan. Income is from the rent that residents pay. Rent is calculated from the size of the dwelling and is offset by the investment that individual households have made. The tax implications of this arrangement need to be explored. It is likely that rent will be close to market rent for similar dwellings in the area. It is expected that people will be attracted to cohousing not because it provides cheaper rent, but because of other perceived benefits eg the social aspects.

Option B
Individual owners manage their own debt as is usual for a mortgage. It would be the responsibility of the individual to minimise the costs associated with the debt. Because individuals are not experts it would be expected they would be as effective in reducing costs as a professional manager. Economies of scale would not apply ie 30 mortgages = 30 lots of monthly administration charges.

3. What is the financial return from investing? How do I sell?

The return from real estate is lower than other forms of investments such as the stock market. Investors looking for the highest possible return would be ill advised to invest in a Merri Cohousing project. However, real estate is a secure form of investment and investors who are attracted to the Merri Cohousing vision should be encouraged to invest.

Option A
The property trust could guarantee a return of 5 to 7% to attract investors. Annual valuations of the property would be used to set the sale price of the "units" eg. an investor buys $100,000 worth of "units" when the project is first completed and Merri Cohousing is valued at $5 million. In three years time the investor wants to sell, Merri Cohousing is now valued at $5.5 milllion (a 10% increase) so the investor receives $110,00 for the "units" (a 10% increase).

Option B
Individual investors who don't occupy their dwelling would determine the rent to be paid by investors. If they want to sell they would follow the usual process, engage a real estate agent, advertising, inspections etc. The cost of selling would be higher than option A.

4. What if my current dwelling was too large ( or too small) but I wanted to stay in Merri Cohousing?

Option A
Rent is linked to the size of the dwelling. If other residents have a dwelling that is too small (or too large) then it will be just a matter of swapping and adjusting the amount of rent paid or waiting until a more appropriately sized dwelling becomes available eg someone moves out.

Option B
Owner occupiers could retain their dwelling, rent it out and rent from someone else or sell their dwelling and buy another (very expensive because of sale costs, stamp duty etc) Renters would wait for another dwelling to become available.

5. Who manages the residents?

Option A
All residents have equal rights and responsibilities. This option minimises the owner/renter divide. MCEVI is the landlord and the tenancy manager (eg residents management working group). MCEVI has waiting lists for prospective residents, makes sure rent is paid and manages conflict in accordance with the residential tenancy act and conflict resolution policies.

Option B
For owner occupiers, a covenant specifies the conditions for being part of MCEVI. Enforcement of the covenant could be quite expensive and litigious (eg forcing owners to sell or move out). For other investors, properties could be managed in the same way as Option A or private arrangements could be made.

Any questions not covered?

The authors of this discussion paper recommend option A as the preferred option, it offers the greatest flexibility for investors, potential cost savings and management of residents is closer to cohousing ideals and principles. We welcome your comments.

Please email Hamish with your thoughts.