would ya mortgage the house for a business venture?

[thekid]

Here's the story. Wife and I have a paid off house (worth about 400K$).

Where we live, government has a certain number of daycare spots it subsidizes heavily. Currently, there is a call for tender to award new subsidized spots. We submitted a bid. It's highly competitive, but I think we submitted a strong bid so I'd think we have a chance (wife has a masters degree in education and I in law and we spent hundreds of hours researching and setting up a comprehensive program and project). -still, it's a long shot.

There are long waiting lists for subsidized spots, so daycares with them are always filled with long waiting lists and 80% of the income is provided by government. It's pretty low risk, hence why it's so competitive to get spots.

We submitted a bid for a large institutional daycare. Project costs (real eastate mostly) is about 1 to 1.2 mil. Bank would finance about 70%. We'd still have to pony up about 350k$. We have about 100k$ in out of retirement savings, but would need to borrow against the house to complete the project finance.

Risks are real estate risk (that's a large exposure to RE) and a small operational risk (ie. you can lose money if you manage very badly). Upside is that business income pays the mortgage building you equity, decently managed these things will make net benefits in the low six figures and the current resale value of these businesses as a going concern are very high (the goodwill alone is worth about 500k$ to 1mil). I find it similar to getting a well operating franchise, without actually paying for the franchise rights.

Would you do it? Mortgage up the house on a safe-ish (as far as these things go) but up front capital intensive business venture?

[snafu]

Intent is to sell the institutional daycare once it's up, running and filled or is it your intent to hire staff and operate? What is the time-line from application, government approval, student sign-up to government monies flowing through your coffers? If there are unexpected delays in having an approved building, staff and program can you carry the load as long as necessary? The underlying question I am not brave enough to ask is are you wired?

What does your research show for profit potential from start-up to fifth year? Wife's credentials are in Educational Administration or Pre-School Curriculum Development or HR or?

Those reports in the newspaper about daycare closings result from mismanagement or poor cost control or?

[thekid]

Intent is to sell the institutional daycare once it's up, running and filled or is it your intent to hire staff and operate? What is the time-line from application, government approval, student sign-up to government monies flowing through your coffers? If there are unexpected delays in having an approved building, staff and program can you carry the load as long as necessary? The underlying question I am not brave enough to ask is are you wired?

What does your research show for profit potential from start-up to fifth year? Wife's credentials are in Educational Administration or Pre-School Curriculum Development or HR or?

Those reports in the newspaper about daycare closings result from mismanagement or poor cost control or?

Our plan is to open and run. We may eventually sell down the line, but have no immediate plans of doing so. The subs actually are only granted once the place is built and running, no way to transfer them before. Timeline from government approval (we would not do this without the subs and it's a long shot to get them) to opening is about 13-14 months. We'd have no problem supporting the house mortgage for that time (we'd have no problem supporting it forever, I still make a good salary and we have no other debt). What does wired mean?

Wife's credentials are in pre-school curriculum development. In-laws have successful small business for years with employees and she has some experience there (and they would help). She knows quite a few daycare operators and they have also been helpful. I'm a corporate attorney and have worked with many small businesses. So, while we haven't ourselves run a business before (we're 33 and 34 years old), I think we can do well.

As for profitability, average EBITDA (excl. mortgage) for large subsidized daycares (the unsubsidized struggle) is about 200k-250k a year. Current resale value is very good, but that can of course fluctuate with time.