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A Real Estate Co-op - Dollar Hedge Or Lifestyle - Or Both

by paul spencer Thu Dec 6th, 2007 at 10:25:37 PM EST

More than 100 years ago, somebody (J.S. Mill? Henry George? Ricardo?) stated or implied that land is the only real (tangible) value. Far as I'm concerned, that's pretty close to true (except that love and honor count for at least as much, even if less tangible). Land gives us the best opportunity to earn a living on our own terms. On the other hand, if we have dollars, we are participants in a system that relies on the large-scale interaction of the self-interests of untrustworthy gamesters. Now - if you can have land in concert with peer stakeholders, you have the potential advantage of larger-scale action, and your partners should be natural allies in the pursuit of added value.

[One caveat - this is not a solicitation or a prospectus. This is a discussion of hypothetical business/personal relationships and arrangements. If some individuals express an interest in actual development of some of the concepts developed, then we will get together on another channel to discuss specific proposals.]

[Second caveat - when I bring up an example to illustrate some suggestion, you can assume that the example represents my personal preference in the matter.]

Over time, and since the inception of capitalism, land is the one inflation, deflation, stagnation, bust, you-name-it hedge. In 'boom' times land-price appreciation may not keep up with other investments. In 'bust' periods land "values" may fall in terms of some particular currency. But the value of the land is inherent: home, food source, aesthetic, psychological grounding, work site.

Co-operatives - in this case, probably registered as a Limited Liability Company or a Limited Liablity Partnership - give the stakeholders a scale of buying power that lone individuals of similar means cannot match. In other words there is an immediate financial advantage in terms of our means. After that, it's all about the membership: what do they want to accomplish? What do they bring to the task?

So - what does a co-op do? What are the relationships of the members to each other? To the land? How is it funded? How are funds channeled? Protections? Duties? These are all questions that can be resolved by articles of incorporation and by bylaws. Here are a few possible answers:
    It is legally registered in one corporate form or another, which form automatically defines some constraints and responsibilities. I have a copy of the Washington state LLC regulation, for instance; and, based on two readings, it appears to cover every concern that a member might have. However, it allows the membership - advised in a sense by the provisions of the regulation - to construct their own, majority-defined rules for operation and control of the organization.
    The co-op can have a fiduciary function. It can be the 'bank' for transactions or construction loans; it can hold a fund for maintenance or for common-use construction projects; it can serve as a company for intra-cooperative distribution or for outside sales of products produced by common-ownership areas - e.g., solar- or wind-generated electrical power, agricultural produce, timber.
    Members can own individual lots and the 'improvements' thereon.  Or the co-op can own the land, and members can rent the land for purposes of - whatever the co-op registration articles allow (e.g., building a house {presumably for the member to inhabit or let}, gardening, raising llamas {they're quiet}).
    They can participate in economic activities that are generated on common-owned (co-op owned) property (e.g., growing hops and barley to brew beer, timber harvest, solar-based generation of electricity).
Members can collectively decide (in my opinion based on some kind of super-majority) what kinds of activities are appropriate to the commons. They can collectively decide on restrictions or covenants on activities and standards appropriate to the member-owned properties (again, my position would be to require some kind of super-majority basis).
    There could be classes of membership, including ownership, worker, investor, renter. But the essential principle for me would be that they are essentially equitable. For instance, a long-term worker - say, a Utilities technician (for common water projects, solar generation station, common 'geothermal' pipe beds, wind turbines) - would be paid some standard wage, but could also gain some dollar-equivalent share of the commons value of the co-op. (This is because labor creates/adds value to the organization.) A renter might have some kind of equity relationship to the property where he/she resides, arising from all or some portion of rents paid within a formula that incorporates some measure of the owner's prior equity - perhaps a market appraisal performed at the commencement of the renter's occupation of the property.
    An important matter - I strongly recommend that some elements of such an LLC contract should be set in perpetuity. They should not be subject to amendment or dilution by addition. For instance, if the Purpose is to create a fully democratic device to purchase, hold, and improve property in pursuit of an appropriate balance of sustainability, sustenance, and social health - well, this should not be subject to modification in my opinion.

Those are some suggestions for some elements of an organizational scheme. There are many elements to be covered in the creation of such an entity; I am just trying to demonstrate some of the considerations in order to encourage discussion.

Concretely - speaking for myself - I want to buy land in Klickitat County between Goldendale and WA Route 141 (preferably with others in an LLC). It is mostly high-prairie land with arboreal remnants from the eastern edges of the Cascades mountain range. There is water, good soil, substantial sunlight, plenty of wind, four seasons, clean air - all of the best stuff. Down the road we - or you and your friends - can talk about doing this in Umbria, New Zealand, South Africa, Romania (Bulgaria?), Viet Nam, Tasmania, Costa Rica, Wales, or ??. But we need to prove something first; we need to model this idea in some form. And western Klickitat County has everything needed to do that - plus good prices for large chunks of land.

The region of interest for me is mostly Rural Residence with a 5 acre minimum lot size (RR5). There is a subcategory that allows cluster development, as long as the lot plus the lot's share of the commons equals 5 acres minimum. Generally, 200 to 1,000 + acres range from $2,000 to 5,000 per acre in this area, counter-respectively. So the base investment is $10,000 to 25,000 per lot. To develop water, roads, utilities - and to get started on common solar- and wind-generation systems would about double the investment. For example, if an LLC buys 300 acres total for $1 million U.S, leaves 50 acres in common ownership, then it will need 50 investor/owners @ approximately $40,000 each. The extra million would be used for infrastructure, but best practice would be to leave some part in a contingency fund, too.

[Quick aside - property of this sort goes for about $70,000 for bare land currently in this area. The infrastructure raises this to a minimum of $100,000 per 5-acre lot.]

[Second aside - look up Bend, OR to see the probable future of this area. Most people like or love Bend and the surrounding resort developments. This area is essentially the same, except closer to Portland, OR. Why hasn't it been similarly developed? I'd say that, first, Bend is closer to California, and the phenomenon has a certain cycle of discovery and cautious growth; then a threshold is reached at which point the whole boom mentality takes over, until the area is overgrown and over-developed, and 'smart money' looks to the next cycle. Secondly, there is a town named Hood River, OR (located about 30 miles to the southwest of Goldendale, WA) that is the current `darling' for development. It is reaching geographical saturation in several senses of the phrase. Klickitat's time is coming, and there's two ways to look at it from our viewpoint: 1) take the money and run, or 2) create the new paradigm, enjoy your home and community, and thumb your nose at the 'smart money'. I'm for the second option.]

I'm posting this here at ET, as well as at other sites where the members appreciate the underlying concerns and can propose solutions. Plus, I will be discussing these ideas with some of my friends and relations.

One question that might arise is: What's in it for paul spencer? The answer would be: the same share as yours at the same price. If enough people indicate interest, then I would want to charge, say, $40 per hour to draft an agreement, to coordinate the creation of the details, and to register the LLC. The invoice for this could be credited against my share of some eventual membership' purchase price.

If we were to get some such organization going, there would also be the matter of how to draw the subdivision and how to allot the lots. Actually, there would be many details of this sort. By the end of the process, it might behoove all participants to agree quickly, or you could be buying my share for me, after all.

Just for fun, here are some samples of possible parcels from Klickitat County, Washington, U.S.A.

Last items: I have been discussing these concepts with Chris Cook and a friend, Steve Nieman (who is a Founding Member of an aircraft-owning co-op called Downwind Corp.). They have several strong opinions about the how-tos and what-fors, which they will probably discuss in the Comments thread. One particular matter is that they both think that all of any land that might be involved should be commonly held. A second matter is that they look more to a Founders' group - or a Sustaining Members class - in ultimate control of any such potential LLC or LLP. I'm probably in disagreement with both points, as I am inclined to: 1) vest property rights in the owner/members, keeping some agreed portion of the total parcel for common purposes and ownership; and 2) rely on some level of full-membership supermajority assent for any changes to rules and relationships to best preserve the individual rights of members.

The second and third parcels look great--I like trees!  I'm guessing that if there is interest here the possible entry amounts might be more in the region of, say, $1,000 (£500?) or divisions or multiples thereof...(heh...which means: maybe a minimum amount would be...what, £100?  $200?)  How would that work out?  Do you need heftier chunks of cash-money or else it all becomes over-complicated?

For me, I'd like to be able to visit (and stay) on the land I invested in so I'm hoping it all works out--I'm interested to know what Drew thinks of this idea, also ATinNM (who may be doing something similar, but on a smaller scale--I'm not sure), nearlynormal, DeAnanander.

You've described various possible uses for the land, which comes parcelled in 5 acre lots...but individuals don't have to buy 5 acres, right?  That's just the minimum "seller size", so a pool has to buy in 5 acre segments.  If I said you could have 100 investors at $200 per investor, so that would be $20,000, let's say that's 8 acres...hmmm...are you looking for larger investment monies?  (Do we have any larger investors around ET?)....triple hmmm....The energy idea seems up front to be the easiest "return on investment"; put up some turbines or solar panels, large geothermal, connect to grid...what would that look like?  And then the land can be used (lived on?  Farmed?  Coppiced?  All of those and others?) as and when...it all sounds good to me, though I think I'd be...hmmm...I like the sound of the Umbria "mirror"....(this idea in fact sounds like the sort of place where ETopia might like to build its research buildings)...

(OT--Paul, could you e-mail me?  I have something to send you but I cannae find an e-mail address for you.)

Don't fight forces, use them R. Buckminster Fuller.

by rg (leopold dot lepster at google mail dot com) on Fri Dec 7th, 2007 at 04:42:30 AM EST
A second matter is that they look more to a Founders' group - or a Sustaining Members class - in ultimate control of any such potential LLC or LLP.

Actually I don't: not sure about Steve.

I'm probably in disagreement with both points, as I am inclined to: 1) vest property rights in the owner/members, keeping some agreed portion of the total parcel for common purposes and ownership;

There are two elements to property value.

Firstly: the value of the location.

At least part of this - if not most - derives from the infrastructure provided by the community collectively. As things stand private owners of land typically enjoy a virtually  "free ride" from public expenditure (eg new roads, a local station, utlities) or a collective decision (eg zoning; planning permission) which increases the value of their land without any effort or contribution on their part.

Secondly: the value of the Capital (ie "Money's Worth") invested in the land eg materials, goods, services and labour.

The "Community Land Partnership" I advocate - using a consensual partnership-based agreement like that of a US LLC or UK LLP - puts the absolute ownership of the land into the hands of the Community collectively through the use of a "Community Corporate" entity, of whatever form.

This entity will own the land in perpetuity. Exactly this approach is taken:

(a) in the US with a "Community Land Trust";

(b) in Scotland with community "right to buy" in rural areas.

In both cases, the land owning "Custodian" will typically grant a lease (which must have a fixed period eg 99 years) to (say) a farmer or potential home-owner, who will then have to bring in investment as best he can, and typically by borrowing against the security of the lease.

Having put the land into Trust, we then look to the rights of use and "occupation". In the proposed "Community-sized" parcels (say 1500 acres), we would have segments which do not have any rights of exclusive private use - ie "Commons".

We will also have parcels (5 acres or less) where individuals have certain exclusive rights of use, in return for which they will pay a "Community Land Rental" into the collective pot.

Note that other rights - such as fishing rights, rights to renewable energy or a "right to roam" (cf Norway) - may still remain with the Community on land otherwise in exclusive private use.

That "pot" or Land Rental Pool is what will be available/utilised to invest in infrastructure. Those who benefit most from such expenditure (through increases in their location value) would pay more into the pot than others.

There would therefore be a net transfer as between those with above average land use, and better locations, to those with below average land use/location value.

So much for Land, and "Land Rental Pooling"

Capital, on the other hand is Capital is Capital and it will have a market price - a "Capital Rental".

Investors in what is essentially a quasi REIT (Real Estate Investment Trust) pool of future land/property rentals will do so (by buying "units" in the Pool) at a rate which would probably be between (say) 1 and 2% for the simple reason that it would be a rental that rises with an agreed measure of inflation.

So the outcome is that an Occupier of a property would pay a "Land Rental" to the community entity in respect of his exclusive use of land, and a "Capital Rental" to the investors in respect of his use of Capital.

rely on some level of full-membership supermajority assent for any changes to rules and relationships to best preserve the individual rights of members.

In order for changes to take place to the LLC agreement ie the inter member relationships between stakeholders, it would be necessary for consensus between all stakeholder groups.

Within stakeholder groups ie intra member, there will be matters that concern only that group, and these will be laid out either informally ("Club Rules") or formally (eg a Management LLC)

Note that the CLP as proposed is not the conventional Co-operative "Organisation" you have in mind: it is a a Cooperative Framework within which the stakeholders "self organise".

"The future is already here -- it's just not very evenly distributed" William Gibson

by ChrisCook (cojockathotmaildotcom) on Fri Dec 7th, 2007 at 12:57:29 PM EST
etopia rears its pretty head!

i will be following this thread closely, being very curious how such a numerate and socially conscious group plots the course of this enterprise.

the days of great deals have been and gone here in umbria, i bought in '93, and paid triple what i would have 2 years prior, and it's just kept going up and up, though not at that speed.

i do have connections with a property company http://www.europropertynet.com/italys.htm through which i bought this cottage, i know many satisfied customers who live in the area.

what people are paying for here that puts the price higher than other regions in italy is the proximity to cultural landmarks that are internationally known.

cortona has become all the rage since frances mayes best seller, (it's under half the tourists' arms!).

florence, siena, all the usual suspects...

next door in le marche prices are already much lower.

i'd be happy to answer any questions about the area, and if anyone seriously points to somewhere not too far, would also be willing to do some footwork and take pix.

my brother is trying to set up a community where prices are lower, in goa and bali, but what would be ET about that?

i'm following his plans closely too, and if i learn anything that might have more bearing on our needs, will be happy to pass it on.

if the prices around here are within reach, i can recommend the area for the kindness of the people and relative peace and quiet.

most properties are old tumbledown farmhouses, however it is sometimes possible sometimes to buy raw land with permission to build.

there are places in italy much more 'italian', but the downside is you might not find the wheels on your car when you come back from eating at a restaurant, here the crime rate is very low.

we're not north, and we're not south, we're central, but a bit off the main spine of italy's infrastructure, the A1 autostrada and main train line..

this is why it's stayed a bit of a backwater, though ryan air has flights from stanstead now to perugia, so we are starting to see influx of a more 'sunday times' crowd.

not too stoked about this, having lived in chiantishire for three years, and happy to leave...

occasionally i think of selling up and starting again, but the network one builds over the years is what makes me want to stick in this zone.

starting from scratch again would be ok, but there'd have to be a strong upside...like maybe what is emerging here.

i have 5 acres, mixed woods and fields, and i think it's enough if your not keeping horses, or if all the land is flat.

if there's common grazing areas, or one could move the animals around the community's fallow fields, then it would be enough.

llamas thrive here, i see a few here and there.  weaving, ceramics and carpentry have copious raw materials around, and a good plumber or electrician will have work to spare....

i wish i had more space, but i think that's the ol' human condition at work, and basically i am content and grateful to have anything at all, and especially where my stone has rolled to gather more moss!

just my 2c

good luck paul, i get the feeling you'd be a great neighbour!

ps, the yurts are still in my imagination only, but if peeps want to come camp here in the fields and use it as a jumping off point for exploration next spring/summer, i'd be into sharing facilities, in exchange for a hand with chores.

the pv system should be up and running by then.

'The history of public debt is full of irony. It rarely follows our ideas of order and justice.' Thomas Piketty

by melo (melometa4(at)gmail.com) on Fri Dec 7th, 2007 at 03:19:54 PM EST
Hey, I've been meaning to ask you about that.  My folks are going to Italy next spring/summer.  I thought you had yurts.  You don't have yurts?  Rental properties, anything like that?

Because I know you are just dying to meet my parents. ;)

"Pretending that you already know the answer when you don't is not actually very helpful." ~Migeru.

by poemless on Fri Dec 7th, 2007 at 03:23:08 PM EST
[ Parent ]
hi poemless, yurts are an intelligent fantasy, at this point.

as my cottage is small, and the land is there, it makes sense to put some yurts up and offer hospitality that way.

they need platforms built, and smart siting, possibly some more tree-clearing.

i do have some friends who bail to india for winters, but live near here in a yurt the rest of the year, and it's inspired me. they have a couple of pv panels, a solar pump. and grow nice gardens, she does stained glass, they both write for money, and live very lightly on the land.

this land could support 4-5 yurts, but to cluster them, or spread them the most apart possible?

i believe there could be good potential for hosting people who want a quiet stay in the country, with vegetarian cooking, music, massage etc, but the infrastructure here is still pretty raw, not ready for prime time!

or old folks or young children.

i dream of a niche market of say a painter in one yurt, a writer in another, a weaver, a whittler, a coppicer... couples ok, paying modest amounts to stay a week, a month? and chill from whatever stress they're failing to balance or endure in their own 'real world', get on with their novel, paint their masterpiece, learn to meditate, take long country hikes, bike rides, architecture and museum visits, o yeah and catch up on ET on the wifi connection, currently low speed.

all in keeping with 'powering down', lol!

i know one guy who runs walking tours in the area and does ok, http://www.tuscanyumbriawalks.com/aboutus.html.

many italians run well appointed agriturismos which are an increasingly popular choice for italians and foreigners alike.

google umbria tuscany walking tours and you get 12500 hits umbria tuscany walking tours - Google Search, so a lot of folks mining that vein, though i must say it's not like they're that obvious on the ground, there are miles and miles of great, not too strenuous hiking around here.

for an Etopia type deal, you'd need accommodation for 15-20 people, a nice big gathering space, and meaningful things to do, so everyone could feel part of the permaculturisation of the land.

a couple of hours hard work in the mornings, siesta the afternoons, and socialise/brainstorm/party the evenings and nights, around an open fire, a communal meal,or cozy in yer yurt.

it looks good on paper anyway...

might be a while in the making, then it would be good for anyone, young, old, or in between.

problem is i spend too much time blogging, or it would be ready by now!!

'The history of public debt is full of irony. It rarely follows our ideas of order and justice.' Thomas Piketty

by melo (melometa4(at)gmail.com) on Sat Dec 8th, 2007 at 06:18:52 AM EST
[ Parent ]
I should be in your neighborhood. I'd like to look over your arrangement and talk ideas.

paul spencer
by paul spencer (spencerinthegorge AT yahoo DOT com) on Sun Dec 9th, 2007 at 10:19:52 PM EST
[ Parent ]
i think i'll be here late april, and sure, swing by

'The history of public debt is full of irony. It rarely follows our ideas of order and justice.' Thomas Piketty
by melo (melometa4(at)gmail.com) on Mon Dec 10th, 2007 at 03:17:17 AM EST
[ Parent ]
I'm leisurely looking at Bolivia, 100-150 hectares, also the Paraguayan Chaco.

Cattle, horses, garden, more or less self-sufficient retirement place for me, relatives, cats and dogs, whatever--pooled money.

Haven't gone down yet, as Bolivia is land-reform unsettled, and freakin Santa Cruz Province wants to secede from the nation.

Will follow this thread also.

"When the abyss stares at me, it wets its pants." Brian Hopkins

by EricC on Fri Dec 7th, 2007 at 07:16:12 PM EST
Based on the diary, it seems you are starting two contradictory entities:

  1.  A Land Investment Company
  2.  A Intentional Community

or you're pitching the project that way.

Assuming your goal is 2:

a.)  What is the economic basis?  The area is 60-100 miles from Portland which is too far for a daily commute without some car pooling or 'mass' transit system.  Is it to be (primarily) a retirement home?  If so, what is the medical/hospital infrastructure of the area?  

b.)  What is the projected land-use policy?  Are you planning on high or low density housing/residence?  A high density area lows the cost of creating the physical infrastructure: homes, lighting, water, sewerage, & etc at the risk of increase social tension(s).  

c.)  I observe a half an acre in the Willamette valley is more productive than 5 in the rain-shadow of the Cascades.   Have you sat down and done a cost/benefit analysis?  Sometimes the higher land cost is cheaper in the long run when everything is included: fencing, irrigation costs, taxes, power lines, water lines, & so forth and so on.  

d.)  Do not depend on agriculture as a income-producer.  

e.)  Where's the water coming from?  Did you check for pollution, contaminates, & all that?  Wells in New Mexico are being affected by (naturally occurring) radioactive particles, sulphates, salts, and a general lowering of the water table.  Who is upstream, what are their plans, and what happens if IBP, Tyson, or ADM tries to put one of their 50,000 unit Confinement Operations there?  

f.)  Who runs the county?  How many evangelical/conservative/assholes per acre are we talking?  Is 'Jesus Lord over Goldendale?'  Who owns the neighboring properties and are they evangelical/conservative/assholes?  

g.)  Why is the current owner selling?

h.)  Remember: a Real Estate agent gets paid by the property owners when the property sells.  They neither work for the buyer nor have any incentive to work for the buyer.  

i.)  "Over time, and since the inception of capitalism, land is the one inflation, deflation, stagnation, bust, you-name-it hedge."  Not true.  Land prices follow demographic trends.  There are towns scattered through-out the short grass prairie that could be purchased for $1 million, or so.  Of course there is bugger-all to do there -- which is why they can be had so cheap.

She believed in nothing; only her skepticism kept her from being an atheist. -- Jean-Paul Sartre

by ATinNM on Sun Dec 9th, 2007 at 08:46:57 AM EST
The title lays out your two alternatives and then says, "... Or Both". How are they contradictory?

a.) Retirement, crafts, logging, consultancies, house construction, trucking, medical personnel - the usual situations/jobs. We would certainly set up WiFi, which might be the basis of employment for certain individuals. Hospitals are in Goldendale, The Dalles (15 miles), Hood River (35 miles), White Salmon (32 miles). Goldendale has an airport, too.

b.) Moderate density housing - one to two acres per actual homesite. Three to four acres per site would accumulate into the common land pool - owned by the co-op, controlled by the co-op's members.

c.) Land in Klickitat County is not as productive as land in the Willamette River valley. However, as you say in your following point (d.), "Do not depend on agriculture as a income-producer." Agreed. The land and climate in Klickitat are suited for gardens, orchards, hay, cereal grains, though.

e.) Water is always an issue, no matter where. There's plenty out there for now. One of the best parts about owning large chunks of the place is that: 1) internal systems can be run with conservation in mind, and 2) we can have more local political impact by virtue of numbers.

f.) There are Evangelicals everywhere in the U.S. Klickitat is not run by such, but it is part of Doc Hastings' district - all the more reason to increase the progressives' presence. Getting Doc out of the House of Representatives would be a positive step.

g.) and h.) - Points understood.

i.) I think that you're saying that markets have a local character. True enough. A hedge can have a local character. If you want to preserve some kind of international level of relative strength in a currency or any kind of liquid asset, then you play The Game. The Game favors The House. Rarely does anyone not associated with The House win for any substantial length of time. Land has intrinsic value, as well as market value. In the short run you may do better in The Game. In the long run land appreciates at a level that is very commensurate with other costs of living.

paul spencer

by paul spencer (spencerinthegorge AT yahoo DOT com) on Sun Dec 9th, 2007 at 11:00:20 PM EST
[ Parent ]

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