Looking at purchasing creche property. Good idea?

dancarter8

Hi,

There is a creche property coming up for sale in my area. 999 year lease. Yield on property is 9%

It is a purpose built creche with the same operator since 2005. 9 year left on the lease.


Would this be a good investment?



I am unsure of investing because :

- The planning permission for the building is strictly for a creche - as it was part of the reason for getting a new development approved. If the tenant leaves due to change in areas demographics, increased competition or new regulations .. I would be stuck with a empty building.

- I have seen quite a few creches come up for sale recently (in other areas around Ireland) - is there a reason creches are coming up for sale/closing down now?

- How easy is it for new competition to open a creche in Ireland? The areas development plan projects 1500 new dwellings in the immediate area. And the reg's state a new creche has to be opened for every 75 new dwellings constructed !! Thats a lot of future competition.


Any advice would be great. Thanks

pedroeibar1

9% yield is nice. I'd ascertain why the vendor has the building on the market.... is there a break clause? has the business outgrown the premises? Has the premises become dated and needs up-grading? Creches are heavily regulated and not the type of business you can just 'drop' into. However, you are buying a building, not the business so that is looking for property investment advice, which we tend not to do on this forum.

pedroeibar1

pedroeibar1 wrote: »

9% yield is nice. I'd ascertain why the vendor has the building on the market.... is there a break clause? has the business outgrown the premises? Has the premises become dated and needs up-grading? Creches are heavily regulated and not the type of business you can just 'drop' into. However, you are buying a building, not the business so that is looking for property investment advice, which we tend not to do on this forum.

Yeah the 9% yield sounds too good to be true. Of course the vendor could be under pressure to sell for financial reasons and it could be a bargain, but a serious amount of due diligence needs to be done to establish that. 
Check out taxes, liens, mortgages on the property. Establish who is the rightful owner and its them selling it and thats it not owned by multiple different people e.g. a family. Check the plans on the building and that they match the plans in the local council so you know extensions or something wasn't built without permission previously. 
Talk to the tenant, and find out the state of their business or go see for yourself how many kids they have, how many staff and if the business looks under pressure or not. Figure out if they are going to be there for another 10 years. 
Have some new regulations come in about operating a creche that are bumping up costs and making it a harder business to operate? 
If you have any doubt about them being there for another ten years go talk to the council and find out what are the chances of changing the use on the building. I might be wrong but I wouldn't have thought there is a bracket for planning permission for 'creche only'.

dancarter8

Thanks for the advice.

Any ideas why so many creches are coming up for sale recently?

Does anyone know if new regulations have come into force recently - increasing running costs?

Is there any questions I should ask the current tenant in particular?

Can I ask to look at their books? Should I be looking for increasing/steady profits year on year?

Thanks

pedroeibar1

dancarter8 wrote: »

Thanks for the advice.

Any ideas why so many creches are coming up for sale recently?

Does anyone know if new regulations have come into force recently - increasing running costs?

Is there any questions I should ask the current tenant in particular?

Can I ask to look at their books? Should I be looking for increasing/steady profits year on year?

Thanks

Have you ever bought a building or one that did not have vacant possession? You are ignoring the comments made and repeating the same questions (i.e. asking us to do your homework) and ignoring the ones asked of you.

You are buying a building with a tenant, not a business. Were any existing or prospective buyer landlord to ask me (or similar people here) about the ‘books’ of any of the businesses I’m involved in, s/he would be given precise instructions in two words directing him/her to the rent payment records.

You need professional help. Buying a building is costly, mistakes are even more expensive , professional fees/advice are cheap in comparison.

makeandcreate

I am in Portlaoise, know nothing about childcare apart from the fees I had to pay but I do know that in a town that according to the Central Statistics office has the highest number of school age children (under 16) per head of population, there are 3 crèches for sale and another for rent that I just know of, without going looking for places.
At the same time the local employment services put people onto child care courses constantly, so it is not a lack of qualified people - insurance is perhaps the off put or tied into development commercial rates?

mrawkward

deleted

MyBusinez.com

I know 2 people who run creches as I manage their websites and office admin systems for them. There are a couple of things I will say about creches. Demand seems fairly high at the moment. If you have a good name, you'll have no problem filling your places but building a good name is difficult.

Creches are a way to bring in guaranteed income every month IF you can fill your places. BUT costs can be very high and they are seriously over-regulated. HSE inspectors ALWAYS find something wrong, even if they are contradicting their own previous inspections. For the building owner, this can mean splashing out on new equipment, new plumbing, child-proofing, extra locks, security systems and more.

Obviously the care of the child is important but regulation can make it very difficult to make a reasonable profit. I know people turning over at least 25,000euro - 30,000euro per month but are not making a profit. Staff costs are high due to ratios of children to staff. The ratios may say 3.5 or 4.5 children to 1 staff in some rooms. I kid you not. So if you want to take on 1 more child, sometimes, you may have to pay another staff member to be in the room. Crazy stuff.

Many creches, who were turning over a lot of money 15 years ago, are now going out of business due to over-regulation, making it impossible to turn a profit. The rules change, literally, every year.

Joey99

First and most basic due diligence here is to look at the existing lease and see how long the tenant is committed for.

If they have a break option within the next 18 months it wouldn't matter what yield you were buying on because unless it is strongly supported by the local property market (which your responses indicate it is not) then it's going to reset to a market rate rent on the next break (at best) or you are going to lose your tenant and be stuck with a vacant building with restrictive planning use constraints (at worst).

Your solicitor should be able to cover you adequately on that score.

If the lease checks out you then need to look at creditworthiness of the tenant. If it's a sole trader/partnership that can be hard to ascertain.

Always remember - if it looks too good to be true, it probably is.

babymamma

I am wondering if the person Makeandcreate has purchased a premises .
I am looking for a partnership in a Creche, I have a premises which I propose to rent fit for purpose for pre school/ sessional/after-school in Portlaoise. If you are interested and can work within the premiseslet me know. a.s.a.p.

Michell3

Hi babymamma,
I am currently working in the childcare industry and would be very interested in finding out some more information about this opportunity, if it's still available?
Kind regards,
Michell3

Skiba1

I think i have missed the chance.

babymamma

Hi Michelle
The premises was already an education premises , County Council has said premises is ready to go as a Creche.
and arrange a meeting. if you are still interested in partnership. jkid.minder@gmail.com