Management Rights

What are they and how do they work?

It is the name given to the business of On-Site Management and Letting of a holiday or permanent strata titled complex on behalf of the individual unit owners and the Body Corporate. The business and residence is purchased from the developer or an existing Manager; you are buying the rights contained in contracts with the Body Corporate. Contracts vary from building to building, sometimes all the rights are in one agreement but generally, there are two agreements

 1) Caretaking Agreement      2) Letting Agreement.

More information
The Caretaking Agreement is between the Body Corporate and the Manager; it defines the duties and requirements of the Manager, the term of the agreement and the Manager’s salary.

The salary is provided for the services and caretaking duties performed and are the foundation of the monies earned in the Management Rights Business.

The Letting Agreement authorises the Manager the rights to operate a letting business from the complex. The Manager can then enter into individual agreements (PAMD 20A) with each individual unit owner to let their unit.

The following are just some examples of income streams generated from the letting of the units, Letting commission, unit cleaning, linen hire, tour booking commissions, unit maintenance, hires etc.

Management rights operators are required to be licensed (resident letting agent) and reside on site you are required by law to open and operate a Trust Account.  Management Rights businesses are purchased because it is a lifestyle that appeals to many, they are available in some of the most desirable locations in Australia, Port Douglas, Cairns & Airlie Beach to name a few. You are buying a business and a home all in one with a return on investment that is on average higher than most owner-operated businesses. 

As far as capital growth goes this is usually assured by an;
Increase in value of the Real Estate
Increase in Tariffs and Commissions
Increase in Body Corporate Salary.

How Are Management Rights Valued?
The price of a management rights business is generally determined by applying a multiplier to the net profit (i.e. after all business expenses) the multiplier is currently between 4 to 5 times the net.  The location, trading history, length of agreements, the age of the complex and future growth all determine this but overall supply & demand establishes the true value. For example if the business has a net profit of $120,000 and a multiple of 4 times, you will be paying $480,000 for the business plus the value of the managers unit.

What Size Business Should I Look For?
You should discuss this question with a Specialist Management Rights Financier & Accountant. Financiers will usually lend to a formula based on 80% of the residence and 50% of the total business price, legal fees and stamp duty. Choosing the level of borrowing you are comfortable with is important, however what becomes obvious when looking at the various options is that the more you spend on the business the greater your income will be.
A due diligence procedure is carried out by an accountant and solicitor who should be an industry expert. The process involves an onsite investigation of the vendor’s records and systems by the accountant and the solicitor conducts a search of the body corporate records and agreements.

How Do I Start
Establish what you are worth.
Look for what you can afford.
Decide what type of Management Rights you want and in what location.
Find yourself a Managements Right Specialist Broker who you feel comfortable doing business with and can trust to be there for you, a good broker will guide you every step of the way.

We have various publications from industry specialists to assist you in the purchasing of Management Rights and are available from the Management Rights Specialists Qld on request. If you would like to discover more about this exciting industry, please feel free to contact us.