Starting Sustainable Home Development Company - Catch 22!

whattheduck

I'm working with a couple of seasoned pro's starting a sustainable home development company, and we've designed what we think will be the UK's most efficient and sustainable home. 

The problem is, we don't have a huge amount of funds (maybe 100-150K) most lenders want lots of experience (team has built 500+ houses, but this company is a start-up, so it doesn't count for much!)

We can get developer finance through Homes England, but the requirement is to build at least 5, and we need to own the land. Land for 5 units is not cheap..! 

We approach land owners stating we can put down our limited funds as a deposit, and pay the rest on completion, and some people are happy with this - except...

Here comes the catch 22! 
- Land owners want to keep first charge on the land
- Homes England / any lender, also wants first charge (or even Sole charge) 


So with this in mind - and the fact the Gov wants people like us to be building homes like ours - how exactly are we supposed to get started helping to solve these problems, when our extensive track record is worth diddly squat, so it seems. 

Any ideas or suggestions gratefully received.
Thanks!

user1977

whattheduck said:

We approach land owners stating we can put down our limited funds as a deposit, and pay the rest on completion

"Completion" of what? Are you suggesting to the sellers that they complete the sale of the land to you with a further instalment of the price to be paid at a later date, secured by a charge to them? The norm would be for a developer to pay the full price at completion (possibly funded by a lender) and the sellers are no longer in the picture.

k12479

whattheduck said:

...how exactly are we supposed to get started helping to solve these problems, when our extensive track record is worth diddly squat, so it seems.

Options would seem to be:
a) Put your ideas & expertise to work at, or in partnership with, an established company that has the financial wherewithal to take on such a project.
b) Attract outside investment, typically in return for equity or possibly convertible loans, from angel investors, venture capital firms or friends/family
c) Put more skin in the game by selling or borrowing against your own assets.

As laid out, you are expecting others to bear the risks while you and your partners will get the rewards. With respect, £100-150k is not a lot to cushion against cashflow issues or cost overruns.

Land owners willing to sell to you on that basis sound rather naive, risking being lumbered with an unfinished project, rectifying things that may have gone wrong or losing out on potentially rising land values.

k12479

Another option could be to persuade a landowner to become part of the project contributing their land, likely with some protection like a second charge, and in return receiving the value of their land + percentage of the profit.

SarahB16

It is normal for a lender to want to have first charge over the land (so yes I understand that Homes England wish to have first charge). 

Lenders wish to see you taking some of the risk and this is usually in the form of you buying the land and offering a first legal charge over it.  You contributing funds of £100k-£150k is not much.  Do you have any equity in your house so you could remortgage and release additional funds?  I really do agree with everything k12479 has says. 

Another option might be to go to a funder who does not require you to build five homes, e.g. I believe Ecology Building Society is supportive of your type of schemes (not sure if they have a lower limit) but I have heard good reports of how extremely supportive Homes England are at supporting people like yourselves to build up the delivery record to then enable them to get mainstream funding.  

If you are confident you have got the experience to deliver a scheme of 5 homes then really try to raise the finance yourself and own the land outright and go to Homes England.    

Any further questions please just tag me.     

anselld

How have your colleagues managed to build 500+ homes and retained very few profits?

artyboy

anselld said:

How have your colleagues managed to build 500+ homes and retained very few profits?

If I had to guess, by working as employees of another house builder...

Section62

whattheduck said:

I'm working with a couple of seasoned pro's starting a sustainable home development company, and we've designed what we think will be the UK's most efficient and sustainable home. 
...

In seeking cash or partnerships you may need to rely less on this as your selling point.  If you market the properties with that badge you are likely to be asked to substantiate the claim.  Moreover, there is little stopping other people copying your design and making a little tweak which makes their version fractionally more efficient/sustainable... at which point your claim can be invalidated.

You'll probably be advised to use wording like "...some of the UK's most....", at which point you'll be swimming in a very large pool.

"Sustainable" means a lot of different things to different people, and has been used to label things which are very far from real sustainability.  If your design uses sand, gravel, bricks, blocks, cement, or glass, then you'll need to be ready to defend your claim.

whattheduck

SarahB16 said:

It is normal for a lender to want to have first charge over the land (so yes I understand that Homes England wish to have first charge). 

Lenders wish to see you taking some of the risk and this is usually in the form of you buying the land and offering a first legal charge over it.  You contributing funds of £100k-£150k is not much.  Do you have any equity in your house so you could remortgage and release additional funds?  I really do agree with everything k12479 has says. 

Another option might be to go to a funder who does not require you to build five homes, e.g. I believe Ecology Building Society is supportive of your type of schemes (not sure if they have a lower limit) but I have heard good reports of how extremely supportive Homes England are at supporting people like yourselves to build up the delivery record to then enable them to get mainstream funding.  

If you are confident you have got the experience to deliver a scheme of 5 homes then really try to raise the finance yourself and own the land outright and go to Homes England.    

Any further questions please just tag me.     

Thanks all, for comments so far. 

Yes the plan is to bring the land as our "skin in the game" to H.E. which is more than enough numbers-wise to borrow the build cost. So in this route, we need to somehow gain full ownership of the land with only having maybe 25% of the funds up front.

We are in talks with some land owners, and waiting to see if we can negotiate something like, 25% up front with a further payment after each house sells, such that the penultimate sale will be around the amount they're looking for, and then the last one taking the total OVER, so they will get more than they want, to give them a bigger margin / account for interest etc. 

We have previous attempted a pitch to Angels but it was a very open-ended invite to try to get in discussions with anyone interested, and it didn't yield much interest. It was right at the start of our journey. We're now thinking to go back and try again with an exact site in mind, with actual numbers involved. 

I'm not sure about this last bit yet, but I'm wondering if we could secure the funds we need to buy the land outright in exchange for a 25% stake in the company, and to counteract the point that this is "25% of nothing" currently, it could be structured more as a loan that has equity as a bonus. So if they buy into our vision and agree that once we're up and running, we should be able to grow nicely, then it is potentially "25% of a lot" for free, where the numbers should work as a loan, regardless. 

Interested in thoughts on that - especially from people who have secured investment before from Angels. 

whattheduck

Section62 said:

whattheduck said:

I'm working with a couple of seasoned pro's starting a sustainable home development company, and we've designed what we think will be the UK's most efficient and sustainable home. 
...

In seeking cash or partnerships you may need to rely less on this as your selling point.  If you market the properties with that badge you are likely to be asked to substantiate the claim.  Moreover, there is little stopping other people copying your design and making a little tweak which makes their version fractionally more efficient/sustainable... at which point your claim can be invalidated.

You'll probably be advised to use wording like "...some of the UK's most....", at which point you'll be swimming in a very large pool.

"Sustainable" means a lot of different things to different people, and has been used to label things which are very far from real sustainability.  If your design uses sand, gravel, bricks, blocks, cement, or glass, then you'll need to be ready to defend your claim.

Yes conscious of the legal dangers of saying "the most" or "the best" [anything] - it's more of an internal conclusion.

But no we're looking to build with a timber composite, so not really using any of those materials I think, except obviously glass windows. But it will run negative carbon/energy surplus etc. borrowed several ideas from different places, nothing is 100% new and untested, just not been done all together in one package like we're planning, to our knowledge - yet!

It's maybe a little off topic to the finance side anyway, but sharing in case you were intrigued! 

Albermarle

Sustainable" means a lot of different things to different people, and has been used to label things which are very far from real sustainability.  If your design uses sand, gravel, bricks, blocks, cement, or glass, then you'll need to be ready to defend your claim.

There is a desirable Riverside location where I often go for a walk.

Regularly one of the older houses will be demolished, and a new 'sustainable' property is built in its place.
They may well be energy efficient etc 
However not sure that demolishing an existing building ( presume a lot of it goes to landfill), and building one twice as big from newly manufactured materials ( bricks, concrete, steel, insulation, glass, flooring , new bathrooms , kitchens etc ) is really a project that can be called sustainable.