Just about everything you have wanted to know or need to know is here.
Below are the key elements to making your step towards becoming a Management Rights owner – if you have other questions or feel we should add something, please contact us.
Topics on this page:
- What are Management Rights
- Types of Management Rights
- How Managers Earn an Income
- Contract Process
- How Long Does it Take?
- Selling Tips
- Industry Specialists
What are Management Rights
“Management Rights” is a term used to describe the on-site management business of a unit complex
or apartment building.
There are three basic elements involved in a management rights business:
- Managers Unit – The ownership of a lot in a community titles scheme (which usually includes an office or the exclusive rights to use of an office);
- Caretaking Agreement – The caretaking of common property on behalf of a body corporate (i.e. Gardens, pool, lifts, pathways etc.); and
- Letting Agreement – The on-site letting of units in the common titles scheme in which you reside.
People choose to invest in management rights for many reasons. These include return on
investment, lifestyle and being your own boss.
The returns from management rights business are very identifiable, which gives many purchases new to the industry peace of mind that cannot be found in many business environments.
Types of Management Rights
There are 3 different types of management rights which reflect the type of accommodation:
- Permanent
- Corporate
- Holiday
Permanent
A typical permanent complex is made up of townhouses or units and usually consists of a mixture of owner occupiers and long term tenants on letting agreements not less than 3 months.
The demands on the resident manager are far less than holiday with less intense marketing strategies and fewer office hours required.
The resident manager is responsible for sourcing tenants, collecting rent, maintaining the common area, upholding by-laws and general maintenance.
Holiday
Holiday rights are complexes and resorts generally located in tourist destinations whereby holiday makers stay for short to medium stays.
These kinds of management rights require much more work from the resident manager – they are required to stay open for longer hours, generally 7 days per week as well as be able to provide information on local activities. Marketing is a very important part of the managers role – the idea is to attract people to stay in both the high and low seasons.
Corporate
Generally located in business precincts of major cities and towns, this kind of business is similar to holiday accommodation.
Often serviced apartments, guests tend to stay for short to medium terms for business purposes. Once again marketing plays a heavy role in the manager’s duties to maintain a high level of occupancy.
Generally speaking the rates are higher in holiday and corporate compared to that of the weekly rent payable in the residential permanent arena.
How Managers Earn an Income
There are normally two parts to the On-site Manager’s duties and two major parts to the Manager’s income.
1. Body Corporate Salary
Often referred to as a caretaking agreement the resident manager is paid by the bosy corporate to fulfill certain duties.
In all complexes there is a certain amount of common property that resident manager is paid to maintain. Common property such as gardens, pools, lifts, walkways etc are
taken care of by the manager and he/she is then paid monthly in arrears for these duties. Other responsibilities include making sure the building’s by-laws are adhered to and organising contractors for maintenance as required.
The maintenance and any consumables involved in carrying out these duties are all expenses to the body corporate.
The Body Corporate salary is usually indexed to the CPI, to allow for automatic annual increases.
2. Letting Commission Income
The onsite manager also collects an income from any investor owners that may engage his/her services to manage their property.
The manager is provided the opportunity by the body corporate to act as the onsite letting agent – however all agreements are made with the resident manager and the owners directly.
The body corporate does not compensate the manager if units were lost to the letting pool.
Commissions and management fees are paid by individual lot owners for the manager to seek quality tenants, perform inspections and account for rent.
Generally the onsite manager has a higher stake in making sure the property is well maintained and therefore it could be argued that using the onsite manager works in the investors’ best interest.
3. Qualifications
Many people from varied backgrounds and industries choose to trade in their careers to invest in management rights.
There are several institutions that can offer new and aspiring managers the appropriate training and qualifications that are required to operate this kind of business.
The resident letting agent (RLA) licence allows you to:
- Rent out and manage units in residential complex (e.g. block of units) on behalf of the unit owners and body corporate
- Collect rent
- Operate a trust account
The restrictions on the RLA licence are:
- You must reside full time in the residential complex that you plan to manage (not applicable for corporation directors or all partners in a partnership)
- The principal place of business must be located at the building complex where you do the letting
- You cannot sell any units independently, as this requires a real estate licence
- You must find a suitable replacement to manage the units while you are absent due to holidays or illness. If you go for more than 30 days, you must apply for a substitute licensee.
To qualify for this licence you can complete these six subjects of the Property Development and Management Training Package (PRD01) through a registered training organisation -
- PRDRE10A Manage agency risk
- PRDRE18A Lease property
- PRDRE19A Provide property management services
- PRDRE28A Maintain trust account
- PRDRE37A Perform and record property management activities and transactions
- PRDRE39A Prepare and execute documentation.
Alternatively, if you choose to obtain a full Real Estate Agents Licence the this qualifies the holder to operate as a resident manager and also participate as a sales agent both within and outside of the complex in which you reside.
The following links are organisations that provide the appropriate training and licencing:
- Property Training Queensland (Sunshine Coast)
Shop 2A Unistyle Lifestyle Centre
7172 Bruce Highway
Forest Glen Queensland4556
Ph: 07 5476 4588
Web: www.propertytraining.com.au
- REIQ
Real Estate House
21 Turbo Drive
Coorparoo, Queensland, 4151
Ph: 07 3249 7347
Web: www.reiq.com.au
- Australian Property College
Level 4,243 Cleveland Street (PO Box 2241)
Brisbane Qld 4001
Ph: 07 3220 1511
Web: www.australianproperty.qld.edu.au
Contract Process
Purchasing Management Rights follows a general course as follows:
Step 1: Offer & Acceptance
When an agreement is reached, an offer acceptance document is often used as a fast way to
formalise the negotiations. It is a handshake document and is not legally binding by either party.
Step 2: Contracts
The contracts for sale are prepared by the seller’s solicitor and forwarded to the purchaser’s solicitor.
Step 3: Deposits
The deposit amount may be negotiable to some degree but it is usual for the purchaser to pay a deposit of between 5 and 10% of the total purchase price.
Step 4: Financial Due Diligence
Once the contracts are signed, the bank providing the finance will require a financial due diligence involving an on-site investigation of the sellers records carried out by an accountant experienced in the management rights sector and at the buyers expense.
Step 5: Legal Due Diligence
The solicitor acting for the buyer will undertake a thorough search and check the caretaking and letting agreements, the PAMDA Form 20a letting appointments and check the body corporate records and contract conditions.
Step 6: Bank Loan approval
Once the financial due diligence has been completed and found correct, the bank commences the process of approving the buyers loan application.
Step 7: Body Corporate Approval
The body corporate is required to approve the assignment of the caretaking and letting agreement from the existing manager to the incoming manager.
How long does it take?
Once the above requirements have been finalised, the settlement will go ahead – It usually takes around 8-10 weeks to satisfy all the Contract Process requirements above.
A timeframe of approximately 3 months is expected from initial offer to final settlement.
Selling Tips
The top reasons for management rights contracts falling over are as follows:
- Legal due diligence to satisfaction of buyer
- Financial due diligence to satisfaction of buyer
- Failure to obtain finance based on issues arising from the legal and financial investigation
In order to ensure that a contract has a high chance of successfully reaching settlement, please consider the following when listing your business for sale:
- Choose you agent wisely – make sure they understand the industry and how to market your property accordingly.
- Do your market research – has the market dropped? What kind of multiplier are other rights selling for in your area? What are the differences or similarities to your business?
- Provide accurate figures – make sure your records are up to date and accurate. Provide these details to your agent as soon as you can. Presenting this to the agent early on will allow an accurate price to be determined and also help prevent the deal from falling over due to a poor financial due diligence.
- Check your agreement terms – make sure you top up your agreement when you get the chance. Another main reason that deals fall over is due to legal due diligence – short agreement terms contribute to this significantly.
- Prepare the business and unit for sale – make the unit clear of clutter and keep it neat and tidy. Take photos and make it look a million dollars. Similarly, do this in the business – make sure everything is up to date and all procedures are followed and documented accordingly. If a new owner can come in and start work without having to organise files etc then this is hugely desirable.
Industry Specialists
Management Rights is a very specialised industry – one that it is fair to say even general real estate agents are not aware of. It is for this reason that we strongly recommend that when looking at selling or purchasing management rights that industry specialists are consulted. We encourage you not to use your local lawyer, accountant and local bank. Please research carefully and use the people who do these kinds of deals on a daily basis.
Finance
The role of the finance broker is to obtain the finance for your purchase. Essentially you are purchasing 2 different components:
- The management rights component is the business component and
- The manager’s residence is the real estate component.
Using an experienced broker in the industry will allow for any time delays to be minimised. An experienced broker can establish loan parameters immediately and know which banks are likely to look favourably to your specific circumstance.
Daniel Green - www.greenfinance.com.au
Legal
The role of the lawyers is to make sure that you are structured correctly from the beginning.
Lawyers are the central part of the contract process who are responsible for carrying out the legal due diligence and liaising with the accountant and financier to make sure that compliance is achieved at all levels of the deal.
Legal due diligence means making sure that all the agreements you are purchasing are legal and valid. By-laws are reviewed and the minutes of body corporate meetings are scrutinised. A lawyer who is experienced in management rights can make a very complicated process simple for the buyer and seller.
Accounting
Having a management rights experienced accountant is key in the purchase of management rights. The account during financial due diligence will verify the net profit alongside the trust account records and books of the business. Upon completion of this investigation you will receive verification of the net profit stated to be earned by the seller. This is imperitive as the business operates on a multiplier and the calculation can be skewed significantly if the basic earnings are mis-calculated.
