Actjon Learning for Community-led Housing Introducing Financial Planning ● Nathan Brown ● Co-op Culture ● nathan@cooperantjcs.coop ● www.culture.coop ● 07884 312573 1
Introducing Financial Planning ● Why community-led housing groups need fjnancial plans ● What is fjnancial planning? ● Difgerent fjnancial planning tools ● The range of types of projects and the types of fjnancial plans they need to have ● What does it mean if a project is ‘fjnancially viable’? 2
Why groups need fjnancial plans ● Viability – will it work ● Credibility – beyond blue sky ● Identjfy the variables – provoke discussions ● Identjfy size of the fjnancial gap(s) ● Identjfy Critjcal Success Factors ● Inform the group’s prioritjes and future plans ● Type and sources of support needed ● Member/ community understanding 3
What does ‘fjnancially viable’ mean? ● It will make enough surplus/profjt ● It can pay the costs of fjnance ● The ofger to residents is competjtjve In theory ● We can access enough money at the right tjme 4
What is fjnancial planning? ● A way to test our ideas ● Committjng to paper/sofuware what we will do ● Simple calculatjons – Ballpark outline – Investment requirement – Profjtability ● Projectjons – Cashfmow – Profjt & Loss (Income & Expenditure) – Balance Sheet 5
Ballpark outline ● X people paying £Y rent will generate £Z income ● Total cost of development is £X, planned equity investment by leaseholders is £Y ● Total cost of property is £X, mortgage available for 80%, means we have to raise £X x 20% to access the mortgage ● Mortgage repayment is £X per month, management costs are £Y, means we have to raise at least £X+£Y in rent each month 6
Investment requirement ● What is needed to get you to the fjrst day of income fmowing in? e.g. – site purchase or property purchase – development or refurbishment – professional fees, surveys, Stamp Duty Land Tax ● What other extra-ordinary expenditure is required and when? ● Are there stages? ● Sources and the cost of fjnance 7
Difgerent forms of fjnance ● Grants ● Loanstock ● Mortgage ● Private Loans and Bonds ● Equity – community shares ● Deferred payment ● Reinvested surplus/reserves 8
Investment requirement - example Purchase of nine homes for affordable rental £265,824 Legal costs relating to purchase, rental and resale – £24,798 including valuation fees, drawing up of sale and rental agreements, affordability in perpetuity clauses, Land Registry fees, and conveyancing Stamp duty £8,471 ‐ Marketing of properties for rental and re sale £7,324 ‐ E ngagement of a Project Manager on a part time basis to £10,165 oversee completion of the acquisition of 16 homes Service charges payable during the period between £858 ‐ purchasing and re selling intermediate flats Council Tax payable during period between purchasing and £1,200 reselling intermediate flats Landlord insurance £1,400 Total £320,040 9
Example Simple Calculatjon 30 tenants @£300 pcm Repairs/ £300 £9000 maintenance Management costs £2230 Insurance £500 Voids – 5% £450 Broadband £30 Remaining for lease/ £6320 Electricity + gas £800 mortgage Book-keeping/ £30 accountancy 30 yr mortgage @ 6% £5756 Consumables £90 80% LTV £1.2 Million Bank charges £30 240k loanstock interest £600 @ 3% p.a Misc/contingency £450 £6356 5% 10 Total £2230
Financial planning - variables ● For each variable: – What is your target? – What is the Maximum or Minimum your Members will accept? – How much wiggle room is there? 11
Financial planning - variables ● Number of people ● Tenure - Number of lets, sales, leases ● Income – rents, service charges, lease payments, investment ● Expenditure – purchases, developments, associated costs, leases, fjnance costs, maintenance & repairs, voids, management costs, taxes, insurance ● Time 12
Financial planning – cash fmow forecast ● A cash fmow forecast looks at the balance of all money fmowing into and out of your society at regular intervals. ● Time period ● Produce a spreadsheet with all cash in and out per week/month. ● Pay special atuentjon to investment repayments 13
Financial planning – cash fmow forecast ● Consider infmatjon increases (expenditure) ● Consider rent & service charge increases (income) ● Include future developments & improvements, cyclical maintenance, replacements ● Running total at the botuom (opening & closing balance) ● Identjfy pinch points ● Test for scenarios 14
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Income & Expenditure 16
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Balance Sheet 18
Difgerent fjnancial planning tools ● Bespoke spreadsheet ● Radical Routes Model spreadsheet ● Community Land Trust Appraisal Tool ● Only as good as the data ● Not a replacement for management decisions 19
Radical Routes Model Spreadsheet ● Based on wide experience ● Open source, ongoing improvements ● “Idiot proof” ● Suitable for mortgage and/or loan stock purchase of property to rent ● Cashfmow, Income & Expenditure ● Could be adapted ● htup://www.radicalroutes.org.uk/ publicatjons-and-resources.html 20
Bespoke spreadsheet ● Designed to fjt your partjcular needs ● Requires expertjse – fjnance and sofuware ● Does it produce the right reports? ● Errors (check all the formulae) 21
Community Land Trust Appraisal Tool ● Result of experience, tested ● Suitable for range of tenures ● More complicated ● Cashfmow, Income & Expenditure, Balance Sheet ● htup://www.communitylandtrusts.org.uk/ 22
Types of projects & types of fjnancial plans Finance Tenure Grants Social rent Loans Afgordable rent Mortgage Market rent Loanstock Shared equity Community Sale (covenant) Shares Outright Sale Bonds 23
Questjons 24
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