Securing investment risk in a communal housing project

Hello everyone,

we are a group of 7 people who would like to renovate an old house and live in it again. To make the house habitable again, quite a bit of work and money will probably have to be invested. We currently estimate material costs of around 40k - 50k € and about 8-12 months of work (weekends, holidays, evenings). In return, we can live in the house rent-free and only have to pay the ancillary costs, which will be very worthwhile in the long term.

Summary:
House project with 7 people. 2 people have ownership claims to the house, 5 people do not. Rent-free living is allowed, but initially some renovation work must be done. This requires advance payments in the form of money (material costs) and working hours.

If one of the 5 people without ownership claims moves out prematurely without the investments having been amortized, these are not secured and may not be recovered in case of doubt. Therefore, concepts are being sought to minimize the risk and to find contractual agreements for this.

Detailed question:
The house belongs to the family of 2 siblings in the group (Person G1 & Person G2). The other 5 people have no ownership claims to this house. We can live in the house rent-free, but have to advance both material costs and working hours.

It only pays off for the 5 people WITHOUT ownership claims in the house IF they live in this project long enough. The costs can then be amortized. There is the risk that due to personal reasons or conflicts in the group people leave the project prematurely and the previously invested costs and work time can no longer be amortized.

To minimize this risk, we are currently working on concepts to contractually secure the 5 people WITHOUT ownership claims to the house and enable them to recover their remaining investments (material costs + work time) even after moving out.

Objective:

[*]Contractual, legally binding security of investment costs (material costs and working hours) for persons WITHOUT ownership claims to the house

We would like to ask you for ideas and input.

Securing the material costs:
We have come up with the following concept to secure the material costs:

[IMG width="321px" alt="r/Hausbau - Investitionsrisiko in gemeinschaftlichem Hausprojekt absichern (Materialkosten und Arbeitszeit)"]https://preview.redd.it/088zan9dukdc1.png?width=1660&format=png&auto=webp&s=96b22a202dbcf79a295e501ccee8c81d7f9f5c02[/IMG]

To raise the material costs, Person A + Person B give private loans to the people with ownership claims (Person G1 + Person G2) (20,000 € + 30,000 €). With this money, Person G1 + Person G2 then pay for the materials and construction costs for the renovation of the house and receive a habitable house in return.
Person G1 and Person G2 rent this out to the group of 7 people (so theoretically also to themselves). With the rental income, Person G1 and Person G2 can then repay the private loans to Person A and B.

Important here: If Person A or Person B moves out before the investments for the material costs are amortized, they still have a legally effective claim to their investments due to the previously concluded private loans.

New tenants would then pay rent instead of Person A and Person B and thus contribute their part to the repayment of the investment costs.
Possible problems:

[*]Taxes: Are taxes due on the rental income? We would like to avoid that
[*]Interest: Is it enough to tax the loan at 0.01%? We have read somewhere that the interest should be adjusted to usual interest rates

Securing the working hours:

Unfortunately, we are not that far yet and would especially appreciate input:
One idea was to also regulate the working hours as private loans to Person G1 + G2. For example: Person C works 100 hours on the house for a previously agreed hourly rate in the group of 15 €, 100 hours x 15 € / hour = 1,500 €. Then Person C would give a private loan to Person G1 + G2. Here, however, the money would not actually be transferred as this concerns working hours. Maybe this could be solved by a cash loan and a privately issued receipt. The loan would be repaid with rent income as in the first example.

Another possibility would be to issue invoices to Person G1 + G2. However, this would be time-consuming for us. Also, theoretically, we would have to pay taxes on the "income" (or?), which would lead to even higher costs and which we do not really want.

Do you have any ideas?

Otherwise, thank you very much in advance and best regards from Person A, B, C, D, E, G1 and G2

Unfortunately, I can't contribute anything concrete right now, as I am not a lawyer or anything like that. In general, I see a high potential for conflict here. It is often difficult for two people to agree and get through the house (construction) peacefully. With seven, I see almost no chance. In my opinion, no contract in the world can compensate for that. My recommendation would be that the two owners pay for everything and also award the work as project wage work to whomever. For this, they take out a loan – this can also be a private loan. All tenants pay rent normally from the beginning.

In this constellation, effectively lost loans are given by the community members not involved in the assets to the sub-community of the two friends involved in the assets. Already from the perspective of the parties involved as tax subjects, I consider the construct to be urgently in need of competent advice. Spontaneously, SIEBEN Zwergen inevitably comes to mind to regulate the community and the common purpose pursued in an association's bylaws. Loans are given to the association and offset against a fictitious rent. Thus, on the "account" of a departing member, there is an outstanding loan as a credit. The association must have a minimum number of two members to avoid dissolution through the departure of individuals. The chairman and the deputy chairman should be the two asset-involved persons. As is usual in fairy tales, the thought experiment is of course not legal advice.

Spontaneously, what inevitably comes to mind about SEVEN dwarfs is regulating the community and the common purpose in a club's articles of association.

Definitely no club! We have just dissolved one. For those who have never done this, it should be said that in Germany it resembles a state ceremony. Everyone wants to take part, and for years afterwards too: notary, tax office, city, municipality, banks, and the like. The members are the easiest to satisfy. I really cannot recommend it.

Hello,

thank you very much in advance for the answers. There are some points to ponder.

Just no association! We have just dissolved one. For those who have never done this, it should be said that in Germany it is like a state act.

I was not talking about a registered association!

Everyone wants to participate, and for years afterward: notary, tax office, city, municipality, banks, and similar comrades. The members are the easiest to satisfy. I definitely cannot recommend it.

Only the members want to participate. Neither the existence nor the legal capacity requires registration. The association comes into being through the founding act, exists through the statutes, and dissolves when the number of members falls below two. The chairman informs the tax office of this.