Information for Buyers
Choosing the Right Location
Management rights have flourished on the Queensland Coast for many years and quickly spread into Brisbane and along the Sunshine Coast to Noosa. Eventually the concept was taken up by developers in NSW and Victoria where today management rights can be found in almost every state in Australia.
Why the Sunshine Coast? This destination has experienced massive growth in the last decade and apart from a few bumps along the way the tourism industry has always bounced back and has proven to be of the most resilient destinations in Australia. Combined with the natural beauty of the area the region and the massive growth potential the region has become one of the fastest growing in Australia.
How management are rights priced for sale
The Business (Multiplier)
The value of the management rights business is assessed by applying a multiplier to the verified net profit prepared by a recognized management rights specialist accountant, generally over a period of the last twelve months trading. To ensure the net profit claimed by the seller is correct, the borrower’s bank will insist on having a financial verification carried out by these professionals
The multiplier is driven by supply and demand, the more people wanting to buy in a particular location combined with factors below and compared to previous sales of similar properties within that area.
The multiplier is also determined by
- The location,
- The style and quality of the property
- The type and length of management agreements
- Supply and Demand
- The historical and potential growth potential of the property
The Manager Lot (Real Estate)
The Real estate component can include the managers designated residence, the reception/office, car pars space/s and often storage facilities on the title.
The Real Estate is valued as per any residential real estate is however as it is attached to the management rights can sometimes attract a 5-10% premium. This is usually determined by supply and demand and is sometimes assessed by the Valuers.
How the Asking Price Is Calculated
The business is the multiplier calculation explained above and added the real estate value of the Managers Lot to arrive at the asking price.
The valuation of a management rights property with a net profit of $250,000 asking a multiplier of 4.5 and a managers lot valued at $500,000, would be as follows:
Valuation Of Manager's Lot
The Business Net Profit
Total Asking Price Of Management Rights
On the Sunshine Coast Region multipliers have traditionally been within a range between 3.9 to 6 times the net profit, however top properties can still achieve a multiplier of 5.6 times as a maximum however these are usually prime properties with high returns and are usually hotly sought out. The Sunshine Coast has galvanized its position as one of Australia’s tourism hot spots and preferred place to reside, combined with the stunning natural beauty of the coasts beaches, cosmopolitan lifestyle and amazing hinterland has resulted in a consistent growth in tourist numbers as well as being preferred location for buyers for management rights from all around the world
Buying Management Rights
The purchase of management rights is carried out with the following processes
- Negotiating: Your broker should be able to assist you in determining if the prices being asked are reasonable. Be careful when deciding the merits of the multiplier being asked as this is an area open to considerable interpretation, location and supply and demand can have similar properties achieve differing prices. If you have inspected through an experienced broker you should be reasonably comfortable that the sale price will meet the market. Be aware however so brokers “buy listings” on giving sellers false hopes on achieving a price
- The Offer and Acceptance: When an agreement is reached an Offer and Acceptance document is used record to agreed arrangements and conditions. It is not legally binding by either party, but sets out terms of the sale and agreed prices and conditions. Draft Contracts are then prepared on these terms
- Draft Contracts: The contracts for sale are prepared by the Sellers lawyers in consultation with the broker and forwarded to the purchaser’s lawyers for comment. Once both parties are happy contracts are they signed by both parties and the process begins. An initial deposit is usually required at this stage
- Financial Verification: Once the contracts are signed, the bank the buyers will appoint as specialist management rights accountant to conduct an on site verification of the Trust Records and Sellers Accounts. The report is then forwarded to the buyers for approval and to meet this condition in the contract
- Legal Due Diligence: The lawyer acting for the buyer will undertake search of the property records, body corporate records and the Caretaking and Letting Agreements. Again a report is issued to the sellers for approval
Bank Finance Approval: Once the financial verification and due diligence reports has been completed and are acceptable under the terms of the contract, the bank commences the loan approval process
- Valuations In most cases the Bank will request the buyers engage a registered Valuer who has been appointed to their panel of Valuers to carry out an independent valuation of the real estate and business components prior to final approval from the bank.
- Deposits: A deposit of between 5% and 10% of the purchase price is then required to be held in the brokers trust account until settlement.
- Body Corporate Approval: Prior to settlement, the body corporate is required to approve the assignment of the Caretaking and Letting Agreement to the incoming manager. This often means a meeting between both parties
Once these stages have been completed it is usual for settlement to follow soon after, It is usually between 60 and 90 days from contract to settlement, provided no unseen issues arise that may delay it further