Transformation 2: Transaction Temporality

After removing some costs from the system, we're still left with a few costs we can't eliminate. What we can't eliminate, we account for. Following our assumptions again, after 10 years, we have a excess of cash from our investment. We can reimburse those costs before we payout any equity. Of the costs that are to be reimbursed, we have two separate accounts for each:

• Fixed Accounts - are fixed to the spender for the life of the home.

• Rollover Accounts - rollover accounts start with the initial spender, but then rollover to each subsequent co-owner.

Rollover Accounts

Rollover accounts are for expenditures that we view as unfair for any one person to hold for the life of the home, and especially if they're not the current occupant. What a rollover accounts is:

• Is a capital expenditure is made that get's classified in a rollover account (ex. down payment)

• That is a deficit that the holder of that account maintains until they move out

• Which to move in, the subsequent co-owner must pay in the current balance of all rollover accounts

• By which, the holder of the rollover account is reimbursed for their deficit; and then the rollover account and it's balance is transferred to the incoming co-owner.

An example of something that we account for in a rollover account would be the down payment (even though technically it's not a cost). Classifying it as a rollover account, they only maintain the deficit that comes with a down payment for just their duration in the home, and then it's handed off to whomever next lives in the home.

Fixed Accounts

Fixed accounts are for expenditures that are more often than not ad-hoc, optional, or for minor expenses. Examples of these are:

• Special Assessments - levied by county or by HOA to fund community repairs or improvements

• Maintenance - Pipe burst, rotting wood, or HVAC Failure as elements needing repair or replacement

• Home Improvements - New appliances, smart lights or blinds, new drywall, paint, or electrical wiring

Each of these is either optional or unpredictable. And because of this nature, they happen in real time, and are the responsibility of each co-owner as they are experienced. Record of such expense will be optional of each co-owner to make, and if made will stick with that co-owner until the final sale point is reached, regardless of if they're still an occupant at that time or not.

Account Adjustments

The value of the expense occurred doesn't always match the amount held in such an account, and to be credited for at the final sale point. If you pay to put in a fixture that is niche but not appealing to the general public, we have to make an adjustment for that. If you get money back for extra funds in an escrow, we need to make an adjustment for that. If you pay for the roof or HVAC to get replaced/repair when previous co-owners benefited from it, we need to adjust for that. Just because an expense has been made doesn't mean 100% of it will get reimbursed. We make adjustments to account for the nuiance of every transaction. This is in effort to make things as fair as possible between co-owners.

Adjustments for Fixed Accounts

Fixed accounts are where most the of discrepancies will come into play and will need a little more care in determining the appropriate adjustment. While we won't go into detail on how exactly we calculate our adjustments, we'll try to elaborate on how we assess them:

• Material or Intangible - Most Intangible expenses such as special assessments will get classified as equitable contributions as defined in the ESA; Material expenses on the other hand have a physical modification to the property, and the quality of that modification needs to be determined.

• Skill of Labor - Does the labor require specialized training, or could a lay person most likely do it? The higher the skill level, the more positive of an adjustment will be made.

• Severity of Improvement - Are we replacing a busted water line, or are we putting up newer and nicer crown molding?

Considering the guidelines above, what we can conclude is that is that replacing a busted water line that is urgent, and needs the help of a skilled plumber is going to most likely get a favorable adjustment. Compared to someone who is just replacing their crown molding with something they consider more pleasing to their eye, and is paying a contractor to do it, when they could reasonably do it themselves.

Adjustments for Rollover Accounts

Adjustments for Rollover Accounts are generally rarer, but there are a few cases that they could come into play. For the most part, Rollover accounts are holding intangible expenses, and are in effect for the life of the home, such as down payment, loan origination, and insurance fees etc. Because they play a factor through the life of the home and for each owner, we don't typically make adjustments. A couple adjustments that could be considered though are:

• Mortgage Refinancing - If there's an option to refinance the mortgage at a lower interest rate, and a co-owner elects to do this, we would make an adjustment for this

• Tax or Insurance Increase - If property taxes or insurance change we may need to make an adjustment for these as well

Implementing our Changes

Our new accounting system definitely changes things up. What was considered a startup cost, is now a rollover account. What is considered an exit cost, is now deferred until until the final sale point. And many more shifts like this have happened because of our transformations. To see the full swath of our changes at play, next we're going to look at our original investment pillars again, and remap them based on our transformations.