What questions to ask when buying childcare centre

As title said, what should I look for when considering purchasing an child care centre business? I'm looking for a boutique centre in Sydney areas within 1.5M budget.

 

Is it pest free

 

Both business or the property

 

Commercial lenders look at child care centres as highly quality investment grade securities. They are throwing themselves at these types of securities so you are definitely on the right track.

You really need to analyse the business - Who are the tenants? How long have they been trading for? What are the lease options? Is it a multi site operator?

Don't be afraid to take a hit on the yield for a quality tenant.

Have you prepare a cashflow analysis?

 

• # of licensed spaces
• Occupancy
• Copy of the DA
• Ages
• Kitchen or externally catered
• Disabled access
• Parking spaces
• Operating hours
• Calculation of rent (if based on occupancy/turnover)
• Franchise fees
• Systems/QA

 

Oh its the business - why are they selling?

Make sure you get their full financials for the past 3 if not 2 years. Are they a multi site operator?

Is it an approved Long Day Child Care Centre?

 

Yes, potentially I can have 1.5M cash and ideally I don't want to borrow. I'm reading that the yield maybe within 7-9% each is very attractive considering that it is quite secure.

Wife is interested in running the childcare business as well so it's good if it is freehold.

 

Yes I'm only interested in Long Day ccc. This is my 1st commercial purchase so kind of newbie into what to do. That's reason why I chose cc business as well as it's safe isn't it?

 

Thanks Scott, this list is great.

 

Do you accept Amex?

 

Hope you are not actually going to use the cash directly but are considering a related party loan for asset protection and tax reasons.

Also ask, if buying the building, are the tenants and the owner related in anyway.

 

We have a pro for a list we give clients when we do DD. It is pretty big.

I can send it through if you would like.

 

Please, I have pmed you my email address.

 

If buying a business and the freehold, it is often best to hold these in separate legal entities for asset protection purposes. Business leases the premises from the entity holding the freehold. Then if business goes belly up (hopefully not), you still have the freehold.

 

Bloody good point!

 

Quality of the childcare can be searched below. The centres who regularly exceed the National Quality Standards are very popular and often have long waitlists.

Search for child care services in your area

What are the demographics of the area the centre is situated in? An affluent area would mean more parents able to absorb increases in childcare costs.

 

When I looked at the sector a year ago, the listed players were buying up the good centres, so you will be competing against corporates with BIG cash to spend. They likely get the call from the brokers before these even hit the open market.

They generally buy the business and not the freehold what I saw so maybe less competition if buying both or they may buy both and sell the freehold if they really want the business. Yields on the freehold have come down substantially over the last few years due to their popularity, they are the "in thing" at the moment. There are a few freeholds that come up on the Burgess Rawson auctions so have a look there as well.

I am not sure the LVRs but the freehold used to be classified as a specialised security and carry a lower LVR. Now every Tom Dick & Harry seems to want one so the banks may have upped this. If you are buying cash as you say then this is not an issue.