Developing an Asset base for your charity or social enterprise.
To survive and grow charities need a secure income base that stretches into the future. They also need cost effective offices and facilities to deliver a wide range of services. Property offers both an opportunity and a challenge. Cara can help and support you.
One option to acquire assets is via auctions. A small charity may not have the time or expertise to deal with auctions and Cara Community services would be happy to act as an agent in such circumstances. We can assist with both capital and revenue funding models whilst also seeking good opportunities removing most of the stress from the processes involved.
To support your charity for future generations purchasing property or sites at Auctions may be a feasible option. It can create a capital gain and a sustainable income. However be warned that property prices go up and down and the rental income can also rise and fall. There are also a number of other caveats some of which are outlined below.
Auctions however are attractive when compared to the traditional private treaty route used by the vast majority of homeowners. They can be cost effective depending on carrying out key checks (with costs & time) to de-risk .One major advantage is that once the hammer has fallen subject to fairly quick procedures and the necessary deposits the property is yours. However you have to be alert to opportunities and able to do research quickly. Speed is essential as Auction Catalogues give a few week`s notice and you need the experience to pick good opportunities and see potential.
There is no magical solution with any procurement choice. One fundamental remains -the capital cost of a building has to be paid (for the interest on capital at least 8% and rising) via rent / HB or from 2013 via Universal Credit. The income can be less requiring `topping up` from other income sources such as individual budgets or NHS payment etc. The property /services provided may fall under the `exempt accommodation` regime allowing rent/charges to be higher than Local Housing Allowances if a charity. The rental income stream including any service charge needs to be able to support the acquisition and long term management & maintenance requirements etc. From 2015 government are introducing `caps` on benefit levels and in the Social Housing Sector 1% rent reductions.
1) New construction is the most lucrative (circa 40% profit on capital invested and 10% net rental income stream return) due to economies of scale (EOS).There is no VAT payable. Planning is always critical; new build has low maintenance; banks are therefore more willing to lend.
2) Renovations /Refurbishments depending on purchase route/cost can be cost effective but run considerable risk of hidden costs and VAT
3) Existing homes via private treaty are initially cheaper than new build by circa 10% on `like for like` with exceptions (units where incidents occur etc.) but conditions /maintenance costs vary considerably with VAT and often add up to the 10% difference.
At Auctions all above opportunities can arise making the market for procurement akin to` throwing cards up in the air ` and whilst they are spinning you have to examine key issues and if clear proceed to bid.
The fundamental is to have a capital budget (with matching revenue budgets for each potential acquisition) and number of units sought in specific geographical area so that Auctioneers can be targeted.
Once catalogue is published immediate viewing is essential on likely prospects. The key is to spot what others do not unlocking the full potential of the asset. The basic things to look for are:-
1) Taking Measurements –so able to play with potential designs
2) Neighbouring properties on style, ridge height and building line
3) Land issues on slopes, drainage, trees, views, access, car parking ,contamination etc.
4) The area and the local facilities –could you live here if you were the resident?
If still interested then ask the Auction house for the legal pack (circa £25) which contains the title deeds,land survey,and other relevant papers. If still interested instruct a local solicitor to provide the legal searches and legal checks as a matter of urgency. There would be nothing worse than purchasing a property with a range of avoidable issues.
There are local and regional auctions. The big Auction houses mainly focus upon `Investment ` property with limited scope for development. The Essential Information Group (eigroup .co.uk) gathers all the UK auction properties into one place and alerts you if one relevant property becomes available. It holds data on all results and annual subscription is £400. Local Estate Agents advertise via local press.
Assessing potential and value.
You can access a range of website to check the value of adjecent similar properties. These include www.ourproperty.co.uk or www.rightmove.co.uk but there are many more.Look for the latest data as auction property frequently sells for 10% -20% above the asking price.
You need to make sure the price paid is a true reflection of market value and not just an auction premium. The key is to work back from a potential end value. That value is determined by what type of unit required (1 or 2 bed flats or room in residential home etc) and local area market for such units. The quality of the build works also directly impacts upon costs/value.
The selling agent might be able to give us a figure called the `saleable area value`. This is a range from :
-Risk (basic price assumes simple conversion development spec)
-Typical (what most properties might fetch)
-Top (good quality )
that they use to value existing properties for example £185/ft 2 to £240/ft sq (or sq m multiply above by 10.76) and based on measurement taken at viewing /type of property you can get guess-estimates of value. To cross reference you can look at values of similar units in the area.
If new build option we can use the HB & R Build Cost Calculator or other Building Cost Estimating Services but you need detailed plans to make worthwhile and often impractical in timescales. The friendly local builders and contacts are unlikely to be very accurate either. A surveyor accustomed to dealing with build costs often prove to be the more accurate.
Once we have the end value and the estimated costs of works add 10% plus `wriggle` room so a typical assessment might be a `risk ` value of £900K set against build costs of £300-£400K. Take 15% (£75k) off and values the property at £425K-which is what the bid would be.
Once a bid is accepted a 10% deposit (by Bankers Draft arranged beforehand) is required with full settlement within 28 days. The auction house may accept a cheque with letter from bank as proof of funds but arrangements need to be made beforehand. For mortgage purposes most lenders use `valuations firms` such as Direct valuations or Countrywide which we can commission directly – simple `valuation for mortgage purposes`. £200 report emailed in 7 days. A key problem with buying at auction is that for lenders the `mortgageable value` is likely to be marginal and much prefer new build with equity gain and low future maintenance costs.
Planning permission (if required)
As there will not be time for planning the problem is de-risking the process. A pre-planning application meeting is not normally possible in timescale and is non-binding- they always want an actual drawn application. Some steps can be taken to de-risk as follows:-
-Search local Authority website planning pages. What happened to previous applications if refused for what reasons?
Is the property in a conservation area or even listed? Many LA`s introduce local lists of buildings of `architectural value` which are difficult to demolish /change.
-Speak to a Planning Consultant at rtpicconsultants.co.uk
Local solicitors with experience of dealing with auction properties can do a quick turnaround within a week.They need to be briefed to ensure commission is on basis of being able to check that nothing in the legal pack (from auction house old deeds, conveyances, searches etc) hinders proposals(covenants etc) The cost is circa £500.Sometimes the solicitors can accompany you to auction for any last minute hitches or announcements by auctioneer.
– You can make a pre-auction bid at circa asking price.This puts the sellers on the spot and you have nothing to loose.
-Check the property is still available on the day as frequently there can be pre-sale negotiations
-Pick position in room if biding & get to know other bidders by sight and possibly who they work for
-Keep out of any early biding. Auctioneers always start high and if no-one enters they dramatically reduce to `gain –interest`.
-If few bidders -keep out and let them eliminate each other
-When biding enter late and aggressively to give impression that you will not be out bid forcing other to withdraw.
-If you hold your nerve no one may bid or property fails to reach `reserve price` -then golden opportunity to reach a deal with vendor outside the auction `if price is right`.
-At the end of auction exchange details with vendors solicitor and pay 10 % deposit (full settlement within 28 days)
At Cara Community Services we would be happy to help- so why not call us today ?
It costs nothing to talk to us. Our conversations are in the strictest confidence and covered by both our confidentiality agreement & Terms of Business as displayed on this website.
Please call John Brennan on 01803852270 or email email@example.com.
Please note we accept no responsibility for anyone relying upon the above (which is subject to changing circumstances & markets) and proceed to purchase at auctions. To do so is entirely at your own risk .The above is simply given as a guide to the process and some of the detail involved. We recommend that readers obtain further professional advice & assistence prior to proceding on any purchase.