Actjon Learning for Community-led Housing Introducing Financial - - PowerPoint PPT Presentation

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Actjon Learning for Community-led Housing Introducing Financial Planning

• Nathan Brown
• Co-op Culture
• nathan@cooperantjcs.coop
• www.culture.coop
• 07884 312573

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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’?

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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

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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

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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

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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

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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

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Difgerent forms of fjnance

• Grants
• Loanstock
• Mortgage
• Private Loans and Bonds
• Equity – community shares
• Deferred payment
• Reinvested surplus/reserves

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Investment requirement - example

Purchase of nine homes for affordable rental

£265,824

Legal costs relating to purchase, rental and resale – including valuation fees, drawing up of sale and rental agreements, affordability in perpetuity clauses, Land Registry fees, and conveyancing

£24,798

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 ‐

• versee completion of the acquisition of 16 homes

£10,165

Service charges payable during the period between purchasing and re selling intermediate flats ‐

£858

Council Tax payable during period between purchasing and reselling intermediate flats

£1,200

Landlord insurance

£1,400

Total

£320,040

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Example Simple Calculatjon

Repairs/ maintenance £300 Insurance £500 Broadband £30 Electricity + gas £800 Book-keeping/ accountancy £30 Consumables £90 Bank charges £30 Misc/contingency 5% £450 Total £2230

30 tenants @£300 pcm £9000 Management costs £2230 Voids – 5% £450 Remaining for lease/ mortgage £6320 30 yr mortgage @ 6% 80% LTV £1.2 Million £5756 240k loanstock interest @ 3% p.a £600 £6356

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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?

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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

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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

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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

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Income & Expenditure

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Balance Sheet

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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

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Radical Routes Model Spreadsheet

• Based on wide experience
• Open source, ongoing improvements
• “Idiot proof”
• Suitable for mortgage and/or loan stock purchase
• f property to rent
• Cashfmow, Income & Expenditure
• Could be adapted
• htup://www.radicalroutes.org.uk/

publicatjons-and-resources.html

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Bespoke spreadsheet

• Designed to fjt your partjcular needs
• Requires expertjse – fjnance and sofuware
• Does it produce the right reports?
• Errors (check all the formulae)

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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/

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Types of projects & types of fjnancial plans

Tenure Social rent Afgordable rent Market rent Shared equity Sale (covenant) Outright Sale Finance Grants Loans Mortgage Loanstock Community Shares Bonds

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Questjons