Compound Interest Anyone?

A neighbor recently sent a link from jetsetter.com to our local “chat” group asking if anyone was interested in buying an “affordable” island and moving there. Here are a few of them.

Gillis Island, Prince Edward Island, Canada: $79,999

Bocal Island, Nicaragua: $350,000

Motu Tohepuku, French Polynesia: $445,000

Unfortunately for our potential neighborhood “compound,” no one was interested in any listed location. It is important to note that we do not seek a COMMUNE, but a neighborhood compound … no touchy, feely stuff that the word commune may bring to mind. 👎😉

To further clarify, check out some of these existing compounds.

That is the Robson Compound, located in the private community of Kukui’ula on the South Shore of Kauai, and is being offered for sale at $4 million. Aloha neighbors!

That one on Trulia is in New Jersey! BUT, we’d all have to live under the same (massive) roof. I like my neighbors a lot, but, err, no thanks. I think I need my own roof.

But just MAYBE if the roof looked like that one, I could do it. Check it out on Southebys.

“Jupiter, Florida | Todd Peter, Sotheby’s International Realty – Palm Beach Brokerage

This tranquil parklike 50-acre estate in the gated Ranch Colony community is one of southern Florida’s most exceptional properties. It features a five-bedroom Mediterranean-inspired main residence with views of its own four-acre lake, a glass-enclosed saltwater pool, a guesthouse, and extensive equestrian facilities. The property can be divided into two lots, allowing for great versatility, and can accommodate a variety of activities and pursuits, offering space for tennis courts and space for art, music, or an auto enthusiast’s garage.”

Don’t scoff. As the US population ages and as millennials share their common interests and abilities, including the desire to “give back to” their community, there is a renewed movement towards compound living. Here are some of the specific “Why’s?”.

Cost. When run well, the cost of living in a compound is significantly less than living in a single family home. Often, food, medical care, maintenance, and other costs are shared equitably among members.

Connection. Compounds can automatically provide friendship, shared or complimentary skills, lack of isolation, and people to depend on for both young and older adults who may currently be missing those things.

Pooled resources. These communities can give people the chance to combine “money, creativity, skills, assets, ideas and resources.” You may even be able to grow and share your own food and limit the use of automobiles. Child care and home schooling may also be amicably shared.

Health concerns. Community members may be more able and likely to watch out for each other, notice health issues, suggest health solutions, etc. In addition, quarantining with compound friends might be better than doing that alone or with just the family.

Interested? Need some assistance or ideas? There’s plenty online to assist.

6 couples pool money to start compound with ‘built-in friends’

Want to Live on a [~~Commune]~~ Compound? Here’s What You Need to Know

Communal Living & Cohousing – Types & Benefits of Intentional Communities

Living in Senior Cohousing in the age of Covid-19

The Hot New Millennial Housing Trend Is a Repeat of the Middle Ages

This Family Ditched Their Conventional Home for a Tiny House Compound

4 Inspiring Rural Compounds & How to Create Your Own

So that leads us to the genre of this blog: mortgages! How does one finance a compound if pooled funds are insufficient?

I am reminded of one of my favorite MLOs who hailed from a different country. Many years ago, he submitted a mortgage for a 2 bedroom house in the name of 6 adults, none of whom were married to one another. You guessed it. They were starting a commune.

The underwriters were not convinced. They, instead, believed the 6 adults were buying a house to “flip” and had no intention of ever living in it, and doom, gloom, and other horrid things would happen. We eventually got the loan approved (VERY long story), but the issue remains.

In How To Buy A Multifamily Property With No Money, the given suggestions are:

Private Money: This involves finding someone in your network or at an investment firm to give or loan you money.

Equity Shares: If you find someone to invest in or contribute towards a compound, commune or multifamily property, that person may then have a share of the equity of the property. That investor might get a percentage share of any monthly cash flow from the property, and a percent of the proceeds from the eventual sale of the property.

Material Sales: This option only works if the property being purchased has some material resources that can be sold. For example, I had a friend who purchased multiple acres that had mineral rights being leased to a gas company. That income helped finance the compound build.

Hard Money: There are always people and/or companies willing to lend money at unusual rates or terms. That does not necessarily mean horrendous. It mainly just means different. It may be possible to find a hard money lender who will give a mortgage to X unrelated people to purchase XX acres and build XXX houses on it, provided those people document the ability to repay the loan.

Repair Allowance: This might be an option if a property that needs repairs is located, and the repairs needed and the associated costs are listed in advance. The seller of the property may allow the cost of those repairs to be considered the down payment as long as the buyers make (or arrange to have made) the necessary repairs.

House Hacking: This generates dollars by renting out part of where you already live. Think Airbnb or Uncle Fred got kicked out of the house he shared with Aunt Wilma and needs a place to sleep. 😆

Real Estate Crowdfunding: This option means asking a pool of investors for small amounts of capital, rather than one big investment. Think GoFundMe or Kickstarter.

Seller Financing: Whatever you choose to purchase to establish your compound, someone is selling it to you. Perhaps they’d prefer a long term income stream versus a large amount of cash at once.

One Owner: In some cases, one person (or couple) buys and owns everything. Other people who live there can pay rent, or buy a house and lease the land from the owner for 99 years, or purchase a portion of the property from the owner.

While financing a compound can be complicated, there are other topics that can make obtaining a mortgage look like child's play. For example, what are the rules? Who is in charge (and does anyone need to be in charge)? Are pets allowed (and what kind and how many and what if one of them is Barky von Schnauzer?). Can members be evicted? If yes, how, when, why, etc.? Are new members added and under what circumstances? Who (literally) pays the bills? Who negotiates with vendors (if vendors are used)? Who plows the snow and cuts the grass? And on and on and on ...

By the way, maybe the idea of building the compound on an island with no snow, and sand instead of grass, is what really does appeal to you. Now that you have ideas on how to finance it, dream big!

For example, from Sotheby's, we see:

Remember to count those zeros! Having fun now? Let’s continue that trend.

A ship, sailing past an island, finds a man there who had become stranded alone years earlier. The commander disembarks to rescue the man and sees three huts.

"What's that first hut there?", he asks.

"Oh, that's my house", replies the castaway.

"What about that second hut there?"

"That's my church."

"And what about the third one over there?"

"That?", replies the man, disdainfully. "That's the church I used to go to."

Two men crash a plane on a deserted island in the middle of the Pacific Ocean. They both survive the crash. Then just after their terrible ordeal one of the men walks all over the entire island and comes to the conclusion that there is no food or fresh water. He goes back to where his friend is to explain their predicament.

"I've searched this entire island and haven't found any food or water, we're going to die!"

The other man says, "Don't worry, I make $100,000 a week, we'll be fine."

"Yes, but don't you see, there's nothing to eat and without water we're doomed!"

"Like I said, I make a hundred grand each week. Don't worry, we'll be home in a day or two."

"Why in the world do you keep saying that! How is your money going to help us way out here?”

As the other guy sits there leaning back against the smashed plane he says with a smile "Every Sunday at church I put my tithe of 10% from the $100,000 in the offering plate like the good book instructs. My minister will find me."