Management Rights - Residences With Income
Businesses for sale
Put simply, Management rights is the term that describes the business of looking after strata titled properties. Management Rights operate in strata-titled holiday and residential properties where a significant number of unit owners are investors, providing an effective management model for real estate investors.
It is a concept which combines property, business and lifestyle in one package. Developed and refined in Queensland in the 1960’s, this successful management model is now widely accepted and is being adopted throughout Australia and overseas.
The Management Rights for an apartment building or complex are initially created by the developer or, in the case of an existing building, may be established at a later date. The package consists of long-term caretaking and letting agreements and usually includes a manager's unit and an agreed manager's salary. The rights are sold by assigning or transferring the agreements with the approval of the body corporate.
Management Rights buyers come from diverse backgrounds. Specific qualifications (other than real estate licensing requirements where applicable) are not necessary, but good management and communication skills are vital. Successful owners usually enjoy living and working in a chosen location, combining business and lifestyle advantages.
Purchasing established Management Rights allows you to base your decision on the track record of the business and your estimation of the potential for improvement and growth. Purchasing new Management Rights allows you to set the business up the way you want from the outset, with no past mistakes to rectify.
Management Rights are operated by a resident manager who:
- Has a caretaking service contract with the body corporate and attends to caretaking, gardening, pool care and cleaning duties specified in the contract, as well as coordinating the work of other service contractors;
- Has a letting authorisation to conduct a letting business on the premises and is the only person who can conduct a letting business on site. The resident manager is licensed under relevant State legislation;
- Owns a unit in the building (or leases a designated unit) and either lives on the site or has an employee living on site;
- Is a member of the body corporate (as a unit owner);
- Has a financial investment in the scheme and therefore has an incentive to ensure the scheme operates well;
- Maintains an office on site, either on title or with exclusive use on common property, from which the letting business is conducted.
Types of Management Rights
- Holiday– short term accommodation aimed at the holiday market with strong growth potential. Holiday letting Management Rights generally offer higher returns on investment, generating income from rentals and service charges. The tourism component affords the opportunity to grow both the income and value of the business through strong marketing. Holiday complexes usually offer a desirable location with added lifestyle benefits.
- Corporate – catering for the corporate short and long stay market with terms similar to holiday accommodation , usually located in a city
- Permanent – Normally minimum of six to twelve month leases, Permanent letting Management Rights are ideal for those seeking a steady income stream without the higher level of day-to-day commitment required for success in the competitive tourism market. While the resident manager needs to work in the best interests of and communicate effectively with unit owners, there are fewer 'front desk' and service-related responsibilities.
- Mixed - A mix of Holiday and Permanent rentals
- Student - Specialist accommodation, for students offering specific services. Often near universities and other training facilities
Management Rights Offers
- No bad debts
You receive a monthly payment Body Corporate Manager which is a caretaking salary, and receive your commissions and other income sources for units you manage on their behalf at the end of each month. Guests pay in full on arrival hence there are rarely bad debts in these businesses.
- No working capital
You only need enough working capital for a month until you receive payment from the Body Corporate and the unit owners
- Lifestyle
Many of these complexes, particularly the permanent let complexes, can offer a unique lifestyle. By lifestyle we mean the ability, if you are able to organize your time and your work schedule, to enjoy the fantastic assets of the region
- No stock
There is very little stock needed and you are again paid for stock used monthly
- Home/Business
Management Rights requires an on site resident manager, so you are in the unique position of having a combined residence/business. You live on site, no endless hour travelling to work.
- Security
These businesses offer a unique security that is rarely seen in traditional businesses. The industry is governed under two acts of parliament and is audited a minimum of twice annually
How Much Do Management Rights Cost ?
Management Rights sell at a multiple of the nett profit (i.e. after all business expenses) with the multiple currently between 4 to 5.6 times nett income. The multiple varies for a number of reasons – position, trading history, length of agreements, future growth, supply & demand etc.
For example if the business has a nett profit of $100,000 and a multiple of 4 times, you will be paying $400,000 for the business plus the value of the managers unit.
What About Getting Finance?
Management Rights is seen by the major lenders as a low risk business so Most of the major banks and finance brokers will lend between 55% and 70% of the total purchase price. The NAB is one of the major lenders being involved in the industry for many years.
How Secure is My Investment ?
Like any business, a Management rights business has some risks. Banks and financiers that have specialist knowledge in Management Rights financing consider them to be at the lower end of the risk scale. This is because the diligent inspection of documents by the bank’s and purchaser’s solicitors, combined with a full onsite inspection of the business’ books of account (both trust & general accounts) by the purchaser’s accountant, give the banks a more comprehensive picture of the business than most other businesses.
This is borne out by the fact that they will lend up to 65% of the goodwill component of Management Rights, whereas they are reluctant to lend anything at all on the goodwill of most other businesses.
Why Borrow ?
Let’s say you have the cash to purchase, but are reluctant to borrow large sums of money. That's fine, but are you maximising your returns? Both the Financiers and accountant will advise it is often best to borrow the maximum amount to provide the best return possible and taxation benefits:
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