This is really awesome. Radish seems like an awesome (and delicious) place to live.
I have a question about sweat equity: specifically, it seems that a lot of it went into the project in the first year (finding the property, the great build, etc). I imagine that this sweat equity was unequally distributed, and I'm wondering if it was explicitly accounted for or compensated in any way. I know from your other post that "fairness is overrated". But still...
Totally! Sweat equity is a big part of this. And you are totally right that its always unequally distributed (and that's fine...). We do not compensate sweat equity. This is about love of the game for us. It's a pleasure to work on a project like this.
But we also don't think its unreasonable to compensate sweat equity. You just have to be VERY careful not to make your community a transactional environment where everyone is looking for compensation for any work they put in. That reduces the amount of contribution and makes everyone into a scorekeeper looking for fairness and injustice in every nook and cranny. Not what you want.
I'd limit sweat equity compensation to a) truly excessive instances - for example if someone builds a house or manages an entire construction project or b) things that happen one-time upfront but not routine community tasks. You don't want people demanding compensation for doing the dishes more!
Great Q's! (sorry for only seeing this now... our notifications were wonky on comments)
1) If shares chance hands, we leave it to the buyer and seller to work out a price. We froze the price in the first 2 years while the initial group of people were buying in. We also do occasional appraisals to help guide buyers and sellers.
2) Nope. Dividends are based on rental income, which targets a fixed investor return as a % of capital they put in (doesn't change when property value changes).
3) Nope, they can sell to other members of the community. But we don't guarantee liquidity. So there are no guaranteed buyers if you want to get out at a particular moment.
I'm looking into finding a similar arrangement so this is great!
Question: did you run into any issues with the multi-unit building and tenancy laws and having the existing residents vacate to make room for your community?
We ended up with a construction loan (where they give you some money to buy the property and more to develop/renovate it after purchase) from a big bank. Pretty conventional terms. Kristen and I needed to personally guarantee the loan, but they are okay having us hold in an LLC (bc of the personal guarantee).
In a way it's like there's a minimum threshold for the transaction cost of figuring out how to compensate someone for sweat equity. Because it's not directly numeric, one has to value both the time and skill of the the sweat. If it's below the threshold the complexity of valuation is not worth it. Therefore instead a subtext of casual gift giving is expected - a sweat do-ocracy.
We live nearby and dream of some kind of co-housing (though to be honest, my dream would be a bunch of friends buying houses next to each other — but who can afford that anymore in the Bay Area?) — and I'd never heard of this. Just came across it in another Substack. What you all have created is so cool. Is it truly multigenerational, or is everyone there in their 20s or 30s?
This is really awesome. Radish seems like an awesome (and delicious) place to live.
I have a question about sweat equity: specifically, it seems that a lot of it went into the project in the first year (finding the property, the great build, etc). I imagine that this sweat equity was unequally distributed, and I'm wondering if it was explicitly accounted for or compensated in any way. I know from your other post that "fairness is overrated". But still...
Thanks Phil!
Totally! Sweat equity is a big part of this. And you are totally right that its always unequally distributed (and that's fine...). We do not compensate sweat equity. This is about love of the game for us. It's a pleasure to work on a project like this.
But we also don't think its unreasonable to compensate sweat equity. You just have to be VERY careful not to make your community a transactional environment where everyone is looking for compensation for any work they put in. That reduces the amount of contribution and makes everyone into a scorekeeper looking for fairness and injustice in every nook and cranny. Not what you want.
I'd limit sweat equity compensation to a) truly excessive instances - for example if someone builds a house or manages an entire construction project or b) things that happen one-time upfront but not routine community tasks. You don't want people demanding compensation for doing the dishes more!
Thank you so much for sharing this story. It's inspirational. I have a couple of questions:
1. How are the shares valued? Are the reevaluated every year based on the worth of the home?
2. Do dividends change based on the valuation of the home annually?
3. Do you require owners to stay owners for the entire 5 year period?
Great Q's! (sorry for only seeing this now... our notifications were wonky on comments)
1) If shares chance hands, we leave it to the buyer and seller to work out a price. We froze the price in the first 2 years while the initial group of people were buying in. We also do occasional appraisals to help guide buyers and sellers.
2) Nope. Dividends are based on rental income, which targets a fixed investor return as a % of capital they put in (doesn't change when property value changes).
3) Nope, they can sell to other members of the community. But we don't guarantee liquidity. So there are no guaranteed buyers if you want to get out at a particular moment.
I'm looking into finding a similar arrangement so this is great!
Question: did you run into any issues with the multi-unit building and tenancy laws and having the existing residents vacate to make room for your community?
oh my! this is so cool!
If its not too prying to ask, what type of mortgage are you using, what are the terms, and was it difficult to find a lender for this kind of project?
We ended up with a construction loan (where they give you some money to buy the property and more to develop/renovate it after purchase) from a big bank. Pretty conventional terms. Kristen and I needed to personally guarantee the loan, but they are okay having us hold in an LLC (bc of the personal guarantee).
Bottom line: Someone usually has to be on the hook for a loan. We write more about this here: https://supernuclear.substack.com/p/5-ways-to-get-a-loan-when-co-buying
In a way it's like there's a minimum threshold for the transaction cost of figuring out how to compensate someone for sweat equity. Because it's not directly numeric, one has to value both the time and skill of the the sweat. If it's below the threshold the complexity of valuation is not worth it. Therefore instead a subtext of casual gift giving is expected - a sweat do-ocracy.
We live nearby and dream of some kind of co-housing (though to be honest, my dream would be a bunch of friends buying houses next to each other — but who can afford that anymore in the Bay Area?) — and I'd never heard of this. Just came across it in another Substack. What you all have created is so cool. Is it truly multigenerational, or is everyone there in their 20s or 30s?