19:59 PM, 24th January 2011, About 13 years ago 1
In this interview Paul explains how he develops brick and tile UK holiday park homes, sells them for £71,000, returns investors 10% + per annum and provides 10 year, fixed rate, non-status, non-recourse financing subject to a minimum £20,000 cash deposit. This is a long interview so make yourself a coffee before reading it!
Paul is a very good friend of mine. We share a passion for property and partying and live only 5 miles from each other. Paul’s property business shares some similarities to my own but his market is UK holiday lets, an area I have no experience in, hence this interview.
Paul’s background is in the leisure sector having trained with Rank and then worked as a Director at Kingswood. In 2004 he formed a business called The Concept of Leisure where he met Matthew Gibbard of the Tingdene Group. Paul is now a main Board Director of Tingdene and Operations Director of Tingdene Parks Limited. We hope you enjoy reading his story which explains the differences between caravan park home ownership, holiday park homes for owner use, holiday homes as investments and Tingdene guaranteed none recourse financing.
Can you tell us a bit more about Tingdene?
In 1969 the Tingdene Group of companies first established itself as the leading Park Home manufacturer in the country. It has since expanded its range of operations into becoming one of the UK’s largest operators and owners of Residential Park Home Estates, Holiday Parks and Inland Marina’s. We directly own and operate 20 Residential Parks, 9 Holiday Parks and 7 Inland Marinas which includes our boat sales operation. The operation spreads from Saltburn by the Sea in Cleveland through the UK to Padstow in Cornwall. Our Holiday Parks are generally based around the coast of the UK with our flagship being the 5 star Kingsdown Park in Deal, Kent. Brundall Marina and Racecourse Marina at Royal Windsor are two additional jewels in the Tingdene crown. Our sister organisation Tingdene Homes operate Tingdene Investments, Tingdene Estates, Kerdene Parks and Tingdene Lifestyle. Across the group there are in excess of 52 individual Tingdene operations.
How do you define a UK holiday property?
A holiday home is a second home that provides the attractive opportunity to enjoy a relaxed and luxurious lifestyle. It is important to differentiate between a caravan holiday home to that which is sold leasehold or on a long licence and is of solid construction. Whilst both can offer fantastic lifestyle opportunities, caravans do not attract the same investment opportunity as holiday homes sold with a long term lease.
There are a wide range of products on the market – varying in size, accommodation, construction quality and internal specification. As well as the location of the park itself, the facilities (or absence of them) provided by the park may well be an important factor for prospective owners.
There are usually a number of annual charges associated with owning a holiday home. The annual ground rent will usually increase in-line with the retail price index for the duration of the lease.
In 2010 the High Court ruled that holiday homes that are provided under lease are protected by the landlord and tenant act 1985. Such protection is not afforded to caravan holiday home owners. In making such a ruling further protection has been provided to each holiday home owner who is required to pay an annual service charge as part of their annual fees. Charges vary, but an owner will be required to pay for their own electricity, water/sewage and council tax, although there is a percentage relief applied to council tax charges. The service charge will require the owner to contribute their equal percentage cost of operating and maintaining the communal facilities on the park, this can of course vary in cost and is dependent on the facilities each park has.
In recent years Tingdene have established 12 month holiday use for our parks in Norfolk, Suffolk & Kent. Whilst there is no statutory definition of what constitutes ‘holiday’ use, the occupation of a holiday home for residential use is strictly forbidden.
How and why did you choose to buy, develop and sell holiday homes?
In 2004 Tingdene purchased Rainbows End Park in North Norfolk Bacton. The acquisition of 56 1960’s run down chalets could not have been further from the park home estate model that has been in development since the 1960’s. However Matthew Gibbard, the Managing Director of Tingdene applied simple logic – “It was a lot of property for the money”. At the time there was no clear scheme as to how the true potential of these 56 properties could be realised. Of course the easiest answer was to trade the old park as a holiday operation receiving seasonal holiday rents, but given the condition of the properties they would fetch less than £300 per week in the main season. On top of this the main agent, Hoseasons, had refused to market the park any further. A significant investment was required to bring the chalets up to the required standard.
For a couple of years the park became home to an Eastern European influx of workers. Whilst this delivered short term revenue this strategy was not sustainable. Not only as the properties would slip into further disrepair, but the local quiet villages were becoming very despondent to the approach adopted by the company.
In 2006 we embarked on a journey that would lead to the foundations of Tingdene Holiday Parks being laid for a new acquisition strategy which we will continue to roll out as long as there are old run down holiday parks that nobody else wants.
Quite simply to make this product work we had to think differently. Whilst we operate the parks as holiday parks, our grounding has generally been developments. This simple action formed the following idea –
56 properties which were sold as a holiday business became 56 individual opportunities.
I approached 5 independent estate agents when investigating our new scheme. Each categorically told me that the final product would only sell for £25,000 at a maximum. To date we have not completed a single sale via an estate agent.
In 2007 we spent £10,000 transforming the internal layout of one chalet. In doing so we applied for planning permission and building control approval. This ensured the properties we were refurbishing complied with all current legislation.
At the same time we applied for the park to be permitted to operate for 12 months of the year, the conditions being that this consent would only become valid to those properties refurbished in-line with building control consent and approval.
Tingdene retain the freehold of the properties and sell 99 year leases. The leaseholder is given the opportunity to design and pick their own internal layout which includes all fixtures and fittings. They appreciate the fact that their holiday home will not depreciate in-line with the caravan they may have previously considered buying as a lifestyle investment.
In total the full cost of the refurbishment of a property at Rainbows End, which includes new pitched roofs and verandas comes to £25,000.00
The answer to your question about why we got into this market is:
Individual Property Acquisition Cost £21,500
Average Development Cost £25,000
Average Sale Price £80,000
Profit Margin £33,500 x 56 = £1,876,00.00
Annual Rents (Linked to RPI) £1000 x 56 £56,000.00 per annum
£56,000 x 99 year leases = £5,544,00.00
We retain the option to sell the freehold of the individual properties to the leaseholder at a future date, or retain the properties for a further 99 years and hope that future generations explore similar or better opportunities.
Would we ever sell a park? Why would we when the returns are as they are?
To ensure we retain the parks original intention we re-launched the holiday product via Hoseasons in 2008. The response has been fantastic, the park and those owners who participate in the parks letting scheme report significant growth with an average return of 13%+ per year being achieved. With the parks operational for 12 months of the year holiday home owners have the opportunity to receive short term holiday let income (week by week) which can exceed £400 per week during the summer months and long term holiday let income (three/four week lets) during the off peak periods.
Some people reading this may be thinking that we had to invest a significant amount of money upfront to develop the properties. This is not the case. All, 56 properties were treated as 56 individual opportunities. Each owner pays a £1000 deposit. Once the content of the lease has been agreed by the appointed solicitors a further £10,000 deposit is requested. As such our risk is minimised. Upon completion of the works the balance is paid.
When the property completes, and the owner decides to put the property into the letting scheme, we have a newly refurbished property that we have not paid for. In-fact, we have recouped our capital costs, and will benefit from sale margins, the annual rent and our fee for managing the holiday lets. Tingdene managing the holiday lets is optional to the owner. By undertaking the development slowly we reduce our capital expenditure and cashflow risk.
Have you made any acquisitions since the credit crunch began?
Yes, in 2008 we purchased Waterside Park in Corton, Suffolk. The park has 124 properties, 20 of which were already sold, so this park presented itself as an outstanding opportunity with 104 property opportunities still to go at. Our average acquisition cost was £16,500 per property. We are currently selling the properties at £71,000. The annual rents start at £1,000 per annum and we are issuing long leases. The leases sold permit the landlord (Tingdene) to charge a 15% fee on top of the cost of the service charge.
In November 2009 we purchased Hazelgrove Park & Redcar Beach Park in Saltburn by the Sea, Cleveland. In July 2010 we purchased North Denes Park, South Beach, Lowestoft.
Each of these sites provides fantastic opportunities for all that are involved with us as we embark on the development journey.
We are still looking for parks, but generally we have to wait until everybody else has had a look first and decided it’s not for them!
We waited nearly 2 years for both Waterside Park and North Denes Park to end up on our doorstep.
Is lack of available credit damaging your business in any way?
This is one of my favourite topics; you would not believe some of the conversations I have had with lenders in recent years. I am quite amazed at the restrictions they impose on themselves.
I recently met with a lending establishment, a major lender in the holiday market and we discussed their lending ability in relation to caravans. Subject to the client (which we process) meeting the new legislative criteria, they are prepared to lend 100% of the value of a caravan at a value up to £50,000. For that the applicants simply need to qualify for a loan based on credit scoring. The caravan site owner is expected to underwrite the debt and agree to buy the caravan back at a reducing rate from month one through to year three. By introducing a sizable deposit scheme, this type of lending encourages the individual owners to sell their stock to people who are likely to forfeit. The model is simple:
Park Owner purchase caravan for £10,000.00
Park Owner takes deposit on caravan £ 6,000.00
Finance is provided by lender £14,000.00
Lender pays Park Owner £14,000.00
Park Owner has received £20,000.00
Borrower forfeits finance £12,000.00 (outstanding)
Park Owner gives lender £12,000.00
Park Owner takes deposit on caravan £ 6,000.00
Finance is provided by lender £14,000.00
Lender pays Park Owner £14,000.00
Park Owner has received £20,000.00
Figures are for illustration purpose only
And so the cycle continues.
The initial outlay of £10,000 has generated cashflow of £40,000. One forfeit has cost £12,000 leaving a margin balance (after van purchase) of £18,000 to the positive on the same caravan. For those that have worked in the caravan industry and never quite understood why finance was a key tool, this is the reason! A vast majority of deals are stacked on finance, the cashflow can be fantastic and cash is King. The art is selling the caravan again before the lender requires the money to be paid back to them.
You would be forgiven for thinking, with many lenders operating such a scheme in relation to caravans, that stacking a deal on a brick built property, with a 99 year lease using the same model would be a done deal.
The same logic applies to our properties. If a purchaser wishing to purchase a Tingdene Holiday Property was looking for a finance provision we would accept a minimum £20,000 deposit. At a purchase price of £71,000 finance of £51,000 is required to secure the 99 year lease. (Remember that lenders will lend up to £50,000 on a caravan). We offered many lenders the opportunity to provide this finance and Tingdene would guarantee to underwrite the total outstanding finance if the purchaser forfeited. Such an agreement ensures the lender has low risk, Tingdene receive cash at the point of purchase as we also need positive cashflow, our capital purchase cost is covered and we have the opportunity to sell the property on a new lease at full price if the property falls back into our ownership.
Such a scheme is a win/win scenario for any lender.
However, I remain amazed that this scheme can be applied to caravans, but is not extended to other holiday home operations across the UK.
Of course purchasers can obtain their own finance against the security of another property but the risks associated not only for the borrower but also the lender are far greater than operating to an underwritten scheme.
We solved the problem of financing by creating Tingdene Finance.
By enlisting the services of an excellent London Chambers, we have developed our own in-house lending scheme, and it really is guaranteed, non- recourse finance. Simplicity is the key to the success of our finance product.
Fixed rates over a 10 year period mean that a property sold on a 99 year lease only has debt for 10 years. Returns of 10%+ per year for the remainder of the lease make this type of product a sound investment and retirement fund, whilst providing the lifestyle that the purchaser had hoped for at the point of deciding to buy.
We require a minimum £20,000 deposit (many put more than this down as a deposit).
The following is a typical example of a Tingdene Finance deal on a two storey, three bedroom, brick built holiday home that has a swimming pool, bar, restaurant, shop, salon, arcade, play area to name but a few of the facilities on offer:
Sale Price £71,000.00
Deposit Paid by Purchaser £30,000.00
Total Financed by Tingdene £41,000.00
Finance 8% (Fixed)
Duration 10 Yrs
Monthly Repayment £491.42
Annual Repayment £5897.04
Total Repaid £58,920.00
The risk for us in providing such a scheme is minimal. Under the terms of the lease each owner is required to pay their annual rent, service charge and any other associated cost of running the property. Failure to do so may result in the company issuing proceedings to forfeit the lease.
Tingdene financing is non-recourse. Assuming the owner does not wish to sell the property privately we will simply accept the keys back. As no money other than the deposit has changed hands, there is no requirement for us to pay any third party lender. Our recompense will come when we sell the property again on a new lease, either at full value or on a finance agreement, (refer to the caravan model).
Do investors buy these or is it just people who might have otherwise purchased a static caravan on the coast?
One investor purchased 10 properties at one park last year, another purchased six on another, and of course they purchased at mates rates as they like to call it, but in general BMV (Below Market Value).
I have attended many events in the last 12 months where investors have been telling/educating other investors how to buy holiday homes to gain positive returns, I have listened to horror stories of how investors have paid in excess of £100,000 for a holiday property in the UK, a property they hope to rent out and gain a return from at some point, I have always been a believer of money in my bank rather than theirs is a much better way to live life, the same methodology should be applied to the purchase of holiday homes.
Had the person who paid £100,000 for the holiday home investment spoken to Tingdene we would have provided a way of purchasing two holiday homes. One to use for 12 months of the year and the other to generate the income to pay for both, both on a 99 year lease with an initial outlay of only £40,000.00. In addition they would have a safe way to exit if their circumstances change.
Holiday Homes can provide an excellent sustainable long term option. If viewed as a low risk long term retirement option the opportunities can be excellent.
What advice would you offer to somebody who is considering the purchase of a UK holiday home?
If a caravan is your chosen passion, you should accept the purchase for what it is, a lifestyle purchase. It is only the park owner and trader who will benefit from buying and selling your caravan many times over.
If holiday home ownership (lodge, cabin, chalet, bungalow) is your passion, then remember to ensure you are clear on the separate charges before agreeing to the lease. There will be an annual rent and a service charge. You will also be required to pay council tax, contribute to the insurance and pay for your equal share of water and sewage.
If holiday home investment is your desired route, please email Mark Alexander – firstname.lastname@example.org – Mark will then pass your details to my Customer Services team. All introductions from Mark will be treated as VIP’s and given an opportunity to spend a day (and perhaps a night) at one of our parks in order to give you an opportunity to complete your due diligence fully.
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