All and all, there are a LOT of considerations when pooling funds to buy land. Before we purchased the Wells Gray Golf & RV property, we had to go through all of these steps and processes, have many discussions with stakeholders, develop new systems, and we are still continuing to develop new models and speak with experts to improve our existing systems. Almost 2 years have passed since purchasing the land, and only now are we beginning to feel ready to put some of these ideas and collaborative opportunities out there, and and open up the land use to the extended community.
Lots of fund pooling platforms exist, but we believed that we needed to gain real, hands-on experience funding, purchasing, and operating a piece of land before we felt even remotely qualified to talk about and focus on the network aspect of the PortalDAO network of villages project. In this article, we’re going to talk about many of the benefits, risks, and legal, financial, and management considerations that come into play when funding and operating a land-based project.
Benefits of Pooling Funds to Buy Land
- Access to larger, more desirable properties: Pooling funds with other individuals or investors allows you to purchase larger and more valuable properties that may not have been possible to acquire individually.
- Spread the financial burden: By pooling funds, you can reduce the individual financial burden of purchasing property and minimize the risk of overextending yourself financially.
- Diversify your investment portfolio: By pooling funds with others, you can spread your investment across multiple properties, providing greater diversification and reducing risk.
- Reduce the impact of market fluctuations: By spreading the investment over multiple properties, fluctuations in the market have a reduced impact on your overall investment portfolio.
- Gain knowledge and expertise: Pooling funds with experienced investors can provide an opportunity to learn about the land-buying process and gain knowledge and expertise that can be applied to future investments.
- Shared responsibilities: Pooling funds with others means sharing responsibilities such as property management and maintenance, reducing the workload and stress of being a sole property owner.
- Increased buying power: Pooling funds gives you greater purchasing power and leverage when negotiating with sellers, which can result in better deals and lower costs.
Risks of Pooling Funds to Buy Land
- Disputes among group members: When multiple people pool their funds to buy land, there is a risk that disagreements may arise over the terms of the investment, the distribution of profits, or the future use of the land. A good way to mitigate this risk is to center people around a set of values (or plant a flag on a set of values to filter out investors that might not be the right fit). In the case of PortalDAO those values are resilience and regeneration.
- Default on financial obligations: There is also a risk that one or more members may default on their financial obligations, which can put the entire investment at risk.
- Lack of control: By pooling funds to buy land, each member may have less control over the investment and the decisions related to it. This can lead to conflicts and disagreements over important decisions, such as the sale or development of the land. Again, this risk can be mitigated with a higher level of value alignment.
- Dependence on group cooperation: The success of a land pooling investment is largely dependent on the cooperation and coordination among the group members. If the group members are not able to work together effectively, the investment may fail. Once again, this risk is mitigated with value alignment.
- Lack of diversification: By pooling funds to buy a single piece of land, the investment becomes heavily concentrated in one asset. This lack of diversification can increase the risk of financial losses if the value of the land decreases. If the network is focused on multiple locations across a wide array of jurisdictions, rather than a single piece of land, then risk and investment can be more diversified and resilient. This is the approach that PortalDAO will be taking.
- Complex legal and financial arrangements: Pooling funds to buy land often involves complex legal and financial arrangements, which can be difficult to navigate and enforce. This can increase the risk of disputes, misunderstandings, and financial losses. This is probably the most difficult challenge that PortalDAO faces, and is looking for support from the community and the network to solve this issue.
Legal and Financial Considerations Involved in Pooling Funds to Buy Land
- Drafting a legally binding agreement to govern the group’s decision-making and financial contributions. This is somewhat eased if NFTs can be used to represent contracts, ownership, and voting power.
- Defining the terms and conditions of the agreement, including the responsibilities of each member and the process for resolving disputes. With a large enough scale of land projects in the network, management and agreements can be standardized and outsourced to specialized groups for management.
- Determining the ownership structure of the land, including the allocation of rights, responsibilities, and profits among the group members. We’re aiming to at least partially address this problem by representing some of ownership structure in the form of NFTs.
- Ensuring that all members have the necessary financial resources to make their contributions to the purchase.
- Obtaining financing for the purchase of the land, including securing a mortgage or other loan, if necessary.
- Consideration of tax implications and the need for tax planning and preparation.
- Conducting a thorough due diligence of the property, including review of the title and other relevant documents, and ensuring that the property is free from any liens or encumbrances.
- Determining the ongoing costs of ownership, including property taxes, insurance, maintenance, and other expenses.
- Taking measures to protect the group’s investment, including the use of title insurance, establishing a fund to cover unexpected expenses, and regularly monitoring the property’s value.
Considerations for Finding and Evaluating Potential Properties to Purchase
- Researching the local real estate market for potential properties that meet the group’s criteria and budget.
- Evaluating each potential property based on factors such as location, size, zoning, and potential uses.
- Conducting property inspections to assess the physical condition of the property and identify any potential issues or repairs that need to be addressed.
- Reviewing the property’s title history, zoning regulations, and any other relevant legal documents to ensure that the property is suitable for the group’s intended use.
- Negotiating with sellers to obtain the best possible purchase price and terms.
- Working with real estate professionals such as agents, lawyers, and surveyors to assist in the property evaluation and purchase process.
- Determining the best financing options for the purchase, such as obtaining a mortgage, using funds from group members, or a combination of both.
- Establishing a budget for any necessary renovations or improvements to the property.
Property Management Considerations
- Developing a clear plan for the use of the property, such as for farming, recreation, or conservation.
- Regular meetings with all members involved to discuss and make decisions regarding the property, such as addressing maintenance needs or making changes to the property use plan.
- Ensuring the property is properly maintained, including keeping up with landscaping, making repairs, and addressing any issues with infrastructure or utilities.
- Allocating responsibilities for tasks such as mowing the lawn, cleaning, and security.
- Budgeting for ongoing expenses, such as property taxes, utilities, and maintenance costs.
- Addressing any legal issues that may arise, such as disputes with neighbors or compliance with local regulations.
- Determining a plan for managing and distributing any income generated from the property, such as from renting out land for farming or selling crops.
- Developing a process for adding new members or removing members who are no longer interested in participating in the land pool.
- Considering succession planning for the future, such as transfer of ownership to new members or a plan for selling the property.
