“How do we get a house?”

“How do we get a house?”

-Developing a House Acquisition Business Plan-

1. Objectives

What is the reason for providing a chapter facility? Before beginning the process, ask yourself two questions: Is chapter housing a necessity on my campus and is chapter housing a feasible option at this time. Once you determine the answers to those questions, there are some guidelines and specific courses of action to follow.

2. Save Money

Even without a house, there should be an assessment for a chapter housing fund. Even a small assessment of $50.00 per man per term can grow significantly over time. As a general rule, you should have at 20%-30% of the project cost, in cash, before conducting a review of other financing options.
If you have not begun to save money, then you are encouraged to stop at this step before moving on. You can certainly move through the other steps in this process, but without cash, you may be wasting your time.

3. Form House Corporation

The House Corporation, a not-for-profit corporation formed under state law, supervises the physical plant or chapter house. It is a legal entity that holds the title to all real property and through which all loans are negotiated. This group, through an annual meeting or through mailed ballots, elects a Board of Directors . The board usually includes a president, vice president, secretary, treasurer, members-at-large (three or more). The chapter offices of Treasurer, Graduate Relations Chairman, and President frequently hold one seat on the board, though all three are a resource to the board. The chapter president may serve as ex-officio members of the board.

The basic functions of the House Corporation Board are listed below.

•    Provide general advice and guidance to undergraduate officers in managing the property.
•    Supervision of long-term housing, authority for financial details related to housing, and direction of planning for future housing needs, including management of the chapter's reserve fund.
•    Coordination of general graduate activities, communications, and reunions to encourage the graduates to continue their interest and support of the chapter and the Fraternity.
•    Meet regularly to review the rent, finances, upkeep on the physical plant, insurance coverage, and to provide input to the bylaws of the chapter that relate to the realty corporation (capacity, room charges, reserve fund allowance, etc.).
A chapter house must be operated as any other commercial property and at its best provides a home away from home for students to learn and develop leadership skills throughout their college years. Many chapter houses are currently suffering from deferred maintenance and a lack of savings for future repairs. By managing the property as a business venture, you will ensure that the property is enjoyed for generations to come.

4.  Identify Needs and Capabilities

•    Chapter's five year average membership size.
•    Campus five year average membership size.
•    Chapter's recruitment trend.
•    Campus recruitment trend.
•    Average fraternity house capacities on campus.
•    Average fraternity occupancy rates on campus.
•    Typical fraternity housing type on campus.
•    Amount of annual income possible. Compare to university housing.
•    Amount of typically expenses in comparable chapter houses (i.e. utilities, trash, taxes, insurance)

5. Begin a Persistent and Patient Search for Suitable Property

There are four different properties to research:
•    Vacant land in a prime location
•    Existing buildings to be demolished,
•    Existing structures
•    Existing structures with needed improvements.

6. Zoning (Determining whether the house is eligible for Fraternity use)

Some cities and towns have specific zoning for fraternity and sorority use. Check with your local planning and zoning office to determine if the property you are interested in is properly zoned. Before singing anything, be sure every agreement states that the zoning allows fraternity use. Avoid, if possible, conditional use permits that tie ownership and sometimes occupant behavior to the right to use the property as a fraternity house. You should seek the permanent right to use the house for a fraternity.

7. Identify Property and Make a Game Plan

After researching your options and making sure of zoning requirements, determine which property is ideal of your situation by placing heavy emphasis on location, occupancy, and feasibility.

8. If Buying, “Tie Up” the property using one of the following methods:

NOTE: It is recommended at this point to use the expertise of a real estate professional.
I.    Purchase agreement (offer) contract with contingencies
II.    Option by itself ($ paid to have the right to buy at a certain price by a certain time)
III.    Right of first refusal ($ paid to have the right to match any other legitimate offer made within a certain time frame of offer being received)
IV.    If you don't have enough equity on hand, consider a lease with an option to buy
a.    Pre-negotiate purchase price
b.    Cost of repairs to preexisting conditions applied to purchase price
c.    Portion of lease payments applied to purchase price
V.    Ground Lease (common on university property where school doesn't want to own the building)
a.    Enables financing (long term and rights that enable you to get a loan)
b.    Recognition of equity (provides value in your rights in the lease)
c.    What happens if chapter closes? (Should allow you the right to lease to another acceptable entity, based upon use, or sell or assign your rights in the lease to other acceptable entity, based upon use)

9. Obtain Financing

Lending Sources:
Largest portion, if not all needed, from local lender.
•    Seller financing (see if the seller will supply any of the financing)
•    Qualify for a loan
Considered a commercial loan, therefore interest rates are higher than residential loans.
Usually 20%-30% down payment is required.
Must cash flow (income greater than expenses) comfortably with 10%-20% vacancy rates expected and 5%-10% contingency for uncollected accounts, and 5%-10% contingency in your variable expenses.
Many lenders may require some form of personal guarantee from graduate brothers.
Establish a good track record and credit record. Lenders will want to know the chapter's five-year average size (understand this fact: a new house will have little long term effect on the chapter's size.)