Managing finances in a coliving house

Friendly advice from the daughter of an accountant

One of the great allures of coliving is the idea of getting more for your money. If you budget $2000/month to live in a one bedroom in Manhattan, you can expect a shoebox sized apartment somewhere the sun doesn’t shine. But team up with nine other people and start looking at $20,000/month apartments? You can live in a doorman building in SoHo with that ultimate New York luxury: a dishwasher in your very own apartment. 

Here’s the catch. You have to find nine other people with the same budget all ready to move at the exact same time as you. 

Who all have enough savings to put down first and last months’ rent, 1/10th of the security deposit and broker’s fee, plus whatever it costs to furnish the place.

That’s the dream. The reality is that there will almost certainly have to be people who step up and front a larger share of the money to secure the lease. 

If you want to lose a friend, loan them money. 

Too many group houses rely on good will when it comes to finances. I suggest relying on good accounting. Only one of the two runs out. 

Side note: I’m writing this from the perspective of a renter. All of this applies to buying or building your coliving space as well, but if you’re going that route you’ll have to add several more layers of complexity. Future posts will get into fun things like jointly managing loans, property titles, etc.

HOW TO MANAGE SHARED FINANCES

Here's the TL;DR version: 

• the leaseholder(s) will need to establish a fund to pay for setup costs, unforeseen circumstances, and cover any potential shortfall in rent

• anyone who is not willing or able to be on the lease can buy into this fund, or pay a premium over monthly costs

• the people who set up the house fund should get paid back over time for the money they fronted to make it all possible

• The housemates need to agree on what expenses are to be shared so people don’t get surprise bills

Surprise bills are no fun

Let’s break this down with a few examples.

WHEN THE CEILING FALLS IN

Twas a night in August and all through Gramercy House, 

not a creature was stirring, not even the friendly mouse. 

When all of a sudden the house felt a great thump

As the dining room’s ceiling fell down, making it look like a dump.

When people joke about the sky falling, you generally don’t think it will happen in your own home. Thankfully no one was hurt, but about $2000 worth of furniture was destroyed when 900 pounds of plaster fell thanks to water damage that had been accumulating for who knows how many years.

At the time, the house had five residents. In theory each could have chipped in $400 to buy new furniture. But that wouldn’t have been fair to Anand, who was only staying one month. Even housemates who were on year long leases weren’t excited about paying for furniture they wouldn’t own that was destroyed by unforeseen circumstances.

So who pays what for the new furniture? It's useful to break house expenses into three categories, which each have their own rules for how they should be divided among housemates. 

INFRASTRUCTURE COSTS: things that are critical to the house that have lasting value. Each housemate should pay for some share of these in proportion to how long they’ll benefit from them. Some things that fall into this category: 

• security deposit or down payment

• broker's fee

• necessary furniture

• necessary tools: vacuum cleaner, pots and pans

• necessary repairs to infrastructure, like replacing furniture destroyed by the ceiling caving in 

• Legal/administrative costs (accountant, manager?)

• insurance

• emergency fund to cover the balance of rent if rooms are not rented

• Loan repayment

• taxes

ONGOING COSTS: things that are vital to the house that are used up continuously and dependent on the consumption habits of people in the house. These should be divided by all current housemates on an ongoing basis. 

• rent 

• supplies: toilet paper, paper towels, cleaning supplies, lightbulbs

• utilities: electricity, internet, water

• cleaning/maintenance

DISCRETIONARY COSTS: these require buy-in from all the people who may end up paying for them. A great way to manage this is through Cobudget, which I’ll explain in more detail later in this post.

• any non-necessary house improvements (decorations, fancy kitchen equipment, etc)

• parties

• food share

• Charity/investment in the wider community

Lines can get blurred. Everyone might agree a vacuum cleaner is necessary, but do you need a $400 Dyson or will a used vacuum from Craigslist get the job done? Do you need cleaning once a month or once a week? Is food share a vital part of your house culture or discretionary?

A rule of thumb I’ve seen emerge at many community houses is that any necessary house supply under $50 can just be bought and billed to the house. Anything beyond that needs to be run past the rest of the group and agreed on in advance.

We suggest establishing at least* two accounts for any house:

• The Operating Fund, which pays for the infrastructure and ongoing costs, and includes a buffer for unforeseen expenses

• The FUN FUND, which captures any surplus generated and can be spent by the community on discretionary costs.

Because I worry this is already getting too detailed and boring, let’s talk about the FUN FUND first!

*there is no limit to how many accounts you can have! You might find it useful to create different accounts for different categories - e.g. separate out the operating fund into infrastructure and ongoing costs, and the fun fund into food and other discretionary expenses.

YAY FUN

Money is a terrible master but an excellent servant. --P.T. Barnum

Almost all houses have some variability in costs month to month: your utility bills are higher in the summer because of air conditioning, or you have to buy a new table to replace the one that was destroyed by your ceiling falling in.

Rather than trying to settle up exact expenses after the fact, I suggest structuring the house finances so that there is always a bit of surplus, then giving it back to residents to spend through the FUN FUND. 

Free money is always bound to put a smile on people’s faces. Yes, technically it’s money they paid that is being redistributed back to them, but let’s not make this sound like a tax refund.

You could simply take the surplus, divide by the number of residents, and send each their share. But lots of communities I’ve lived in have loved using Cobudget to spend the money together.

Cobudget is a simple tool that allows people to create ‘buckets’ for things they’d like to fund. You can allocate your own money and encourage housemates to contribute to your ideas.

If you’ve ever wondered what it’s like to break your penis, buy Broken Bananah, a memoir by a then-current Gramercy House dweller 

While by its nature the FUN FUND is optional, it encourages everyone to invest in making the house even better. If you really need the money for yourself, you could always create a bucket for ‘Gillian’s cashout’ and allocate all your money to it.

Here are a few examples of stuff we’ve seen funded through Cobudget:

• A glorious sauna

• Subsidized rent for a person in need

• Car repair for one person’s vehicle that she often lent to others in the house

GETTING IT ALL STARTED

Screw it, let’s do it! - Richard Branson

Choosing a property requires thousands of tradeoffs. Is it worth paying $200 more per person to have a home office? Is the burrito joint on the corner a bonus, or a danger to your health and fitness goals? 

Even if all the friends you want to live with are as flexible as a yoga teacher, each person probably has at least one dealbreaker. Thus, for every additional founding member, the choice of a property gets harder and harder. This can mean you never find the perfect property and your coliving setup never comes together.

For this reason, many houses tend to be started by a small, highly motivated group of people. These founders are willing to put a little more money down up front knowing that if they build it, others will come. 

And how much money should the founders expect to put down in advance? Securing a property will cost somewhere between 2-7x monthly rent. Yes that’s quite a range! 

• On the lower end: if you rent a furnished place where all you have to pay upfront is a security deposit and one month’s rent*

• Other things you may have to pay: 

  • Broker’s fee (in NYC, usually 15% of your yearly rent, so add 1.8x monthly rent)

  • Last month’s rent upfront (add 1x monthly rent)

  • Furnishing costs (maybe just the common spaces, maybe you want to furnish the bedrooms too): ymmv

  • It’s just wise to keep a rainy day fund in case of emergencies

*while your startup costs might be lower with a furnished place, you’ll likely be paying for it with higher monthly costs.

Unless they are rich and selfless, the founders will want to be repaid for these startup costs, and maybe be compensated for the risk they’re taking on by being responsible for rooms that may or may not get filled. This can be done if future roommates pay slightly higher rent, which is used to repay the founders.

An example: the founders of RGB put up an extra $4000 (split between 3 people) to get the house started. They were paid back $167/month over two years from the house operating fund. 

The founders can set whatever terms of repayment they want for the startup loan, based on what their ‘market’ of potential renters will bear. However, if the renters perceive the founders are trying to make money off of them, they may respond by treating the founders like professional landlords, expecting a higher level of service and working less collaboratively. 

Basically, if you target having high returns, you’re more running an Airbnb than a coliving community. That can be a great business in dollar terms. But it also means managing the place will be your job.

If you’re open to low or no financial returns, you’re more likely to have a community that feels like they’re all invested. You’ll probably end up with more time, since people will share the responsibility for addressing issues that arise, and a lot more good will. 

And an important consideration: if the founders are making financial returns, they need to pay tax on that income. This introduces a ton of additional paperwork and liability. If you’re aiming to simply repay a loan between friends, there’s an argument that you don’t need to involve the IRS. This is highly dependent on the scale of what you’re doing and you should 100% check with an accountant to see what’s right in your case.

Once you have your dream team of founders assembled, you open your operating fund*, sign a lease, and move in. Now the fun really begins!

*you could open a joint checking account, but there are better options out there, like Braid or an account specifically for an LLC management company for the property - read more about options in the Making Money Move(s) post.

I recommend having all transactions centralized in a house account or accounts for the following reasons:

• Disagreements about money are one of the primary reasons coliving projects die. Establishing a common account will ensure your group has had a conversation about how you plan to spend money. Why is this important? You’ll find out soon, in the section about making financial decisions as a group. 

• Anything else is an accounting nightmare.

• Really, such a nightmare. I am the daughter of an accountant, trust me on this one.

Quickbooks is your friend. If you don’t want to pay for a subscription, you can build a spreadsheet and load your monthly bank transactions into it, which only takes a bit more work. We’ll share templates in a future post. 

MANAGING DAY TO DAY FINANCES

Rule No. 1: Never lose money.

Rule No. 2: Never forget rule No. 1.

- Warren Buffett

In the simplest case, here’s what your finances will look like:

• Incoming: rent from the founders and renters

• Outgoing: rent to the landlord, common expenses (e.g. utilities, supplies), startup loan repayment

There are many ways this can become more complicated: if you generate income from things like events or short term rentals, choose to pay professionals to clean or manage any part of the house, etc - which will be covered in more depth in future posts.

Tip that should be obvious: set rents so that you have enough to cover all of your expenses by default, and don’t have to ask people for more money. 

At Gramercy House we didn’t set rents high enough to cover paying back the startup loan at first, thinking we’d just somehow generate money in the future. It was dumb, not only because it was stressful for us founders to have a giant liability, but also because it led to a constant tension between trying to make money (through things like events and short term rentals) and providing the best possible home for the community of people living in the house full time.

I’ve seen several other communities rely on Splitwise to settle up all ‘common expenses’ after the fact. Why is this usually a bad idea? We’ll get into that in the next section. 

MAKING FINANCIAL DECISIONS AS A GROUP

Out on the lawn the DJ made such a clatter

Red wine, in abundance, on the walls did splatter

Then what to my wondering eyes did appear, 

But a Splitwise charge for a party whose worth was not clear

When I moved into the Archive, a coliving house in San Francisco, we used Splitwise to track common expenses (like toilet paper, dishwasher tabs, etc) and settle up. The first month, my share of the bill was ~$40. 

The next month, a housemate threw a party, bought thousands of dollars worth of alcohol and sound equipment, and put it on Splitwise. Along with other household expenses, my share of the bill was $432. 

I hadn’t planned the party and only stopped by for a minute. It was fun, but not the type of event I would have spent my money on. I’m careful about my personal budget (you’re shocked, I know) and a 10x jump in house expenses was not in my plans. 

And I wasn’t the only one in the house that felt this way. Clearly, we needed to sort out who was allowed to spend ‘house money’. 

We ended up agreeing that things that clearly fit in the bucket of infrastructure or ongoing costs and under $50 could be bought automatically, and the buyer could request reimbursement from the house operating fund. Anything over that needed to be approved on Slack. Things like parties could not be charged to the house, but could be financed through the FUN FUND.

Different houses may have different preferences. Maybe you’re rolling in so much cash that you don’t really care to sweat the details. 

There’s no single right way to spend your money, just make sure everyone in your group is on the same page. 

IN CONCLUSION

The most common fear I hear from people who haven’t tried coliving is that a house will suffer from the tragedy of the commons. 

My experience has been the opposite. When reasonable adults get together and invest just a bit of time in planning, you end up with insane levels of abundance. 

Sometimes it’s the comfort of knowing someone else is taking care of the broken fridge and you don’t have to worry about it. Sometimes it means you have hundreds of dollars in Cobudget that can go to cooking a lavish dinner for 26 people who don’t have anywhere to go over the holidays.

In the words of Jessy Kate Schingler, cofounder of the Embassy Network, a collective of coliving houses around the world: 

“Collaborative finance is a pathway for us to get smart about how we spend more than our time. It’s a tool to up our game in the world around us, and take greater responsibility for supporting one another. Together, we can resource the world we want to see.”

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Curious about coliving? Find more case studies, how tos, and reflections at Supernuclear: a guide to coliving. Sign up to be notified as future articles are published here:

And you can find the directory of the articles we’ve written here and those we plan to write here.