making offer on property, meeting bank, need advice

[tansy]

Sorry I was a bit flippant earlier.

As I have mentioned before I was in Hotel & Catering for over 15 years... as Front of House Manager & another time Corporate Sales Manager my job lived and breathed room occupancy... you can get the figures to do what you want.

I mean we here are running at 98.9% during the 'season' but if I count winter I'm then 50% - 6 months full 6 months closed.

When we started out 7 years ago a wise old bird told us (we have no mortgages) to only rely on 12 weeks per year - anything above that is a bonus... to base all our calculations on that income.

As it is I'm easey peasey doing 26 plus weeks each in the 3 units - so that in effect is 78 weeks - so what is that % 150%

You just have to calculate it on the worst possible senario... and take into account it is very hard work.

[Cath]

Hi
Just wanted to share our recent experience- we are also in Snowdonia and bank with HSBC both privately and for our other (non tourism) business. When I contacted them for funding for our project (we are buying barns to convert) I was told immmediately that we needed a minimum of 40% deposit for a commercial mortgage. Loan is through now and we have been offered 4% over base with one year interest free. Alongside our negotiations with HSBC I was also making applications through a broker but when we got this offer she advised us to accept it as we would not get a better offer in todays market place.
Best of luck on Tuesday
Cath

[paolo]

As has been said, 51% in year 1 is very optimistic, but note that for your 75% in year 5 you have simply increased your income on a pro rata basis. This is incorrect, even allowing for inflation. The difference between 50% and 75% occupancy would come from additional bookings in off-season weeks, which will earn much less than peak season.

There was a growing UK market for large houses before the recession, perhaps there still is. When I look for one I go first to www.thebigdomain.com - worth checking out for advertising.

[enid]

bookings in off-season weeks, which will earn much less than peak season.

I always think this is why talking about # of weeks isn't always helpful. We set a financial minimum objective as suggested by Tansy above and then everything else is a bonus. So now I will set yup a spreadsheet for 2010 - every booking I get goes on there and I can see how actual income compares to projected income.

So odd weekends add up and when the annexe of our second gite is booked that adds up.

We don't have a mortgage so we don't have to rent out as much as some of you.

[Marie-Ann & Paul]

Hello again,

Regarding point highlighted by Normandy Cow:

…...If you are only doing this for investment reasons, I'm sure there must be better ways…..

It is not simply a financial investment. In the crunch I have the option to leave my current work and benefit from a pay-off, not as much as needed but a one-off opportunity. The holiday business would have to provide a new full-time job for myself and change of life for family (eventually). It does not have to make a fortune and I accept it would generate a relatively low income but as long as reasonably above water, I believe I could grow it and the property would be a reasonable long term investment.

Regarding comment from Paolo:

….but note that for your 75% in year 5 you have simply increased your income on a pro rata basis. This is incorrect, even allowing for inflation. The difference between 50% and 75% occupancy would come from additional bookings in off-season weeks, which will earn much less than peak season……..

You are right, I had tried to simply calculate an "average" income per ocupancy %. I am not sure if the terminology is right but I have now tried to distinguish between two different occupancy measures, firstly measuring the proportion of nights booked out of the total possible (365!!) and secondly measuring the amount of income achieved from the nights booked as proportion of the maximum income possible (taking account of the different rent for different weeks). See the my revised estimates below, including both types of occupancy estimates. I think the initial years are probably closer to reality but think the later years are probably too cautious. I doubt the bank will lend what is needed against it (my deposit ~20% of sale) particularly to cobver the very significant loss in 1st year. Does anyone know situation regarding tax, can I claim against that startup/loss somehow?

I have tried to estimate the mix of number of full week versus part-week bookings. Lease comment if you think is not typical/realistic..





Thanks for any further advise, particulary to question any of the cost/outgoing estimates and to suggest any uimprovements to the year-on-year growth.

For guidance, the closest property in terms of build/style/standard/features/locality to the one I wish to make an offer on is Noddfa., I hope the owners don't mind my giving their link but is a fine fine house. Theirs is larger (ours is 5 large double bedrooms with option for additional two.

http://www.cottages4you.co.uk/sites/cot ... ~N~N~N~N~N

Any further advise welcome. Thanks for everything so far.
Paul.

PS. I have also attached below the calendar occupancy on which the 1st year is based. Have studied a number of similar proprties to get occupancy and associated rent levels.I would attach it as a file but don't know how! Green indicated booked.

[Marie-Ann & Paul]

I find for some reaosn you need to select the Noddfa link 3 times in order to get to it.
Paul.

[greenbarn]

Paul
We've been in recent talks with our accountant, and he tells us that a lot of our start up costs are allowable. Structural work mostly isn't, fitting out is.
As with any business, running costs essential to the business are allowable, so that will include loan interest payments, marketing, computer, maintenance and so on. Find an accountant that you like, and who knows the business - there must be quite a few in your area. Your prospective lender will also be happier if they know you have an accountant, or are in the process of finding a suitable one.

[Marie-Ann & Paul]

Thanks for the advice Greenbarn, I will engage an accountant.
I have managed to shuffle things a bit and get the deposit up to 30% but that assumes the bank will separately loan the purchase and start-up costs. A bit short of the 40% that Cath found was needed by at least the bank she dealt with. We'll see.
Cheers
Paul.

[A-two]

Quick look - your cleaning materials/ products per changeover are seriously under-estimated at GBP10. You're going to spend that on toiletries for two bathrooms alone, and that's without the toilet paper. I would add a zero onto that number and make it GBP100 per changeover. Added to that, you need to budget for minor breakages, repairs and annual replacements of supplies such as bed-linens, towels, pillows and throw rugs which wear out.

Don't let the accountant tell you expenses can only be claimed from the date of the first rental. Start claiming expenses from the date your first ad is published, well before you secure any rental. This applies to both the UK and the US. I'm out of date with how CGT works in the UK.

[olive]

GBP100 for materials/ products per changeover??
I would love to see how you get this, A2.
Chanel soap? Dior air spray?

[Normandy Cow]

Yes, I too believe that this is vastly over the top. Are you sure you meant £100 or was this a typo?

A2, have you been to the UK recently? All the supermarkets are falling over themselves discounting things like washing powder, dishwasher tablets etc. We've started buying ours in the UK and taking them to France!

Paul, take a look at this company - www.outofeden.co.uk to give you some idea of costs. Their products are all good quality and priced for the hospitality industry. Their bedlinen is good value.

[greenbarn]

Don't let the accountant tell you expenses can only be claimed from the date of the first rental. Start claiming expenses from the date your first ad is published, well before you secure any rental. This applies to both the UK and the US. I'm out of date with how CGT works in the UK.

Even better, you should find that most start up costs directly related to the business are allowable, well before you actually start trading or advertising. That'll include your beds, furniture, washing machine etc etc. Most building costs don't seem to be allowable, but if you had to install say emergency lighting, it should be.

As for CGT...... that's what a lot of fuss is about in the UK at the moment, with an impending change in the tax laws for FHL. Unless you're looking to be in and out of the business within a relatively short timescale of a few years (and it doesn't sound like it), it's pretty much a non-issue until you come to sell up. Our accountant's advice - don't let the tax tail wag the dog.

[A-two]

GBP100 for materials/ products per changeover??
I would love to see how you get this, A2.
Chanel soap? Dior air spray?

I'm including in that calculation all the guest toiletries, household basics (dish soap, toilet tissue, kitchen roll, cling film, laundry detergent, dishwasher tabs, kitchen sponges, trash bags blah, blah) as well as complimentaries (welcome basket, bottle of wine, toilettries or whatever you leave). Yes, I was thinking in $, not GBP, but given the size of house, you're not going to get all that for GBP 10 a week even with supermarkets on the floor with their offers. C'mon - 12 people in a 6 bedroom house? You'll probably get through $10 a week in toilet tissue alone without all the rest. If those costs appear somewhere else on the spreadsheet, then I missed it, but I read it as including ALL supplies used by the household, not just what the cleaners use to do a few hours cleaning on a changeover. I always bulk those costs together as it doesn't make any sense to me to start apportioning half a bottle of household cleaner between what the cleaners use on the changeover and what the guests themselves use. Hope that makes more sense.

[Marie-Ann & Paul]

Good advise regarding cleaning material costs etc and pointer to site I will update my cost estimates accordingly.

FYI, I had the bank meeting on Tuesday, seemed to go very well and were genuinely helpful but will judge when we get result. They will come back within a week. We have provided them with a lot of financial information, basically an outline business plan. we'll see! Will let you know how it goes.

Thanks again for your input. When I look at the summary financial plan at the start of this thread to what we ended up with I feel it is now a lot more realistic largely due to advise quite freely given. Will still change further. Bank also changed it, particularly to help in 1st year (interest free....)
Paul.