In the beginning….
The Open House Project started with no great experience in financial or legal expertise. We researched possible ways to make the scheme work through free consultations with financial advisors, bank managers, accountants and friends with related financial experience. We have been able to get our ideas and costings seen by a variety of people, one of whom works for a property development company in London. Mostly we have had positive responses and plenty of new lines of enquiry have emerged.
We could have paid for professional advice from the outset but the instinctive need to avoid spending and the challenge of seeing if we could do it ourselves provided the motivation.
We identified buildings at the Barnes Hall Farm site as a real possibility for our relatively small scheme (the site already had existing planning permission, however not ideal for co-housing) and worked out what we could afford to offer. We estimated how much it might cost in total to develop seven units and a community room.
Forming the company, buying the site
Meeting with solicitors with co-housing experience, we talked through our plans and strategy and listened to their advice as to what we needed to do in legal terms. The Open House Project Ltd was eventually formed providing us with the platform to purchase the site as a company. To secure buildings at Barnes Hall Farm the solicitors suggested we negotiate a call option – a device which was new to us. This would give us a six month period during which we could get planning permission and carry out surveys to check the property had no hidden pitfalls. They also advised us to employ a negotiator. We would not then be as involved and could be more objective in our decisions. He would also calculate the value of the site relative to our project and in doing so the value of the completed project in property terms. We were very pleased when our negotiators valuation was greater than ours.
Our call option was agreed in November and recently we have been organising accurate estimates for utilities, making final surveys and commissioning a quantity survey.
The next steps
The Open House Project company will develop the whole site including all infrastructure, communal facilities and the seven dwellings. The dwellings will be sold leasehold to members of the Open House Project. The finance for the acquisition of the site is being raised from the existing members. We have divided the costs by seven so that each household will contribute equally. With four families in our group so far, the company will need to raise a further three sevenths of the costs from new members. Currently a personal loan to cover the three sevenths remaining is being arranged from one of the members. The loan will be repaid as new members join. New members will be admitted to the project by a payment of an equal seventh share of the site acquisition and on signing a pre purchase agreement to buy a dwelling unit on its completion. The purchase price of each dwelling unit will include a share of the communal facilities and reflect the size of the dwelling. We have yet to formulate exactly how the total cost of the development and the individual units can be fairly calculated.
There is no doubt that knowing the rules of the road is the key to making good decisions but many legal and financial professionals are unfamiliar with the co housing model. We have learned a lot but mostly that our strategy, to try to avoid borrowing money by traditional routes, will allow us to have full control over our development.
Extra costs have accrued due mostly to complications in the property transfer but we are still within our budget for the acquisition of a property.
Time now to revise our estimates and plan the build. We are hoping to complete the deal within the call option period and are currently waiting for a response to our planning application. The lease conditions have to be agreed. These will include buying, selling and a final distribution of development costs.
With three dwellings remaining we hope to recruit new members to consolidate our financial position and add strength to our group. We have many more decisions to make but with a strong group and a solid decision making process we have made a good start.
Having crossed the bridges of purchasing the site and getting our plans approved we are getting to grips with finalising a financial strategy which will see us through the completion of the project. The conditions to our planning approval have a large bearing on how we progress. The good news is that we have permission to complete the build in four phases which will allow us to raise the capital for each phase. The bad news is that an extra cost has emerged through the need to investigate the archaeology that potentially is in the site.
We have enough capital to complete the first phase of building and our financial strategy thereafter is based on using the payments for completed units to subsidise the following phase and so on. This strategy seemed logical but discussing it with our accountants and their mortgage specialist we find that a phased co-housing development like ours does not fit in with either Commercial property development or self-build financial models when it comes to arranging mortgages. We will need to find a mortgage lender who will be prepared to accommodate the phased development. The search is on…..