For those contemplating forming a cohousing community as well as for groups well along the way to achieving this goal, the relationship between the sale prices of the homes and the mixed composition of the development budget can be confusing. This graphic is one you can use to understand this concept and to communicate with prospective members.
At the simplest level, the sale prices of the homes accumulate into the total revenue of the project. This is the full amount of cash your group has to work with. Total revenue is driven by sellable square footage, so you need to keep your eye on this figure. There needs to be some space between that upper limit and the expected costs to be sure you do not end up upside down. You also want to ensure that if you must carry a unit or two, it won’t break you. This part of the budget is the most at risk.
What is left at the end of the day is called “distributable cash.” It is common in cohousing for this amount to be apportioned under the development agreement to the developer/investors (if you have those partners) and the community.
Each of these costs has variability based on a lot of factors. As you move through the project timeline, your goal is to nail down these costs to the greatest extent possible for the moment that you’re in, reducing uncertainty as you go.
For example, while you’re searching for land, you will get a good idea of land cost, but at the same time you should be developing a full budget that anticipates realistic ranges for soft costs and construction costs and includes projected distributable cash amounts, so you can validate the price you are willing to pay for the land. Once you’ve tied up land or passed through the early phases of the design process, you will know exactly what the land acquisition cost was, have detailed information on soft costs, and have a more refined understanding of construction costs.
As you continue to move through the development process, your level of certainty about home sale prices increases and your risk as a group is reduced. It’s important to avoid being overly optimistic about any of these costs or home sale prices. It can be painful for a community to endure increases in home prices in response to every unforeseen expense, which can be a real risk when your professional team doesn’t have relevant development experience.
At the end of the day, you want to deliver your community in a predictable fashion – on time and on budget. The development and construction processes are full of pitfalls but creating a solid development budget can help you stay out of them.
Click here for a PDF of the “Cohousing Development Budget”
