How Do Management Rights Work?

How Do Management Rights Work?

What is involved in Management Rights?

Management Rights Listings

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Management rights listings

Put simply Management Rights is the name given to the business of living in and care-taking a unit or townhouse complex with the added bonus of running your own business from home.

When developers build these complexes and market the units or townhouses to individual owners, they appoint a Resident Unit Manager (RUM) to provide the long term caretaking of the common areas ( e.g. pool, gardens etc.). A caretaking salary is provided - commonly around $1000 to $1200 per unit per annum (e.g. 20 unit complex = a salary of $20,000 to $24,000 p.a.). This amount increases in subsequent years, usually at least by the States CPI adjustment. The base salary and duties involved are documented in the Caretaking Agreement made between you and the Body Corporate ( the developer in the first instance, but then a collective of all unit owners) The Resident Unit Manager also enters into a Letting Agreement in which the Body Corporate grants you the sole rights to operate a Permanent and/or Holiday letting business from within the complex. You can then negotiate with individual owners to let their units for which you will receive a letting commission (typically-12% of gross rentals for holiday letting and 7.5% for permanent letting). Holiday Letting also enables other simultaneous income streams through:-

Unit Cleaning – you run your own cleaning business and make a profit whether hands-on or supervisory only.
Linen Hire – You own the linen and charge hire & laundering fees to the owner for each holiday stay.
Tour Booking Commissions
Car Hire Commissions
Unit Maintenance (from changing light bulbs to fixing blinds, locks etc.)
Holiday Hire – bodyboards, tennis balls, cots, hi chairs, beach umbrellas etc.
There is also the opportunity to make good commissions by selling units in your own complex. By simply completing 2 days extra study on the end of your Resident Letting Agent licence you can work with an accredited agency such as Units4sale.Net to maximise your income.s etc.

Also see the segment on "What is Involved in Management Rights?"

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 times nett. 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 Finance ?
Most of the major banks and finance brokers will lend between 55% and 65% of the total purchase price. See our links page for finance options.

How Secure is My Investment ?
Like any business, a Management rights business has 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? Have a look at the following examples which illustrate that it is often best to borrow the maximum amount to provide the best return possible:

Example (A)		Example (B)
You have $450,000 plus $290,000 loan		Your $450,000 plus $900,000 loan

Unit Value:	$400,000	Unit Value:	$400,000
Business Value:	$340,000	Business Value:	$950,000
Total:	$740,000	Total:	$1,350,000

Income (1/4 of business value):	$75,000	Income	$190,500
Less loan interest (say 8%)	$23,200	Less loan interest (say 8%)	$72,000
Less company tax at 30%	$15,540	Less company tax at 30%	$35,400
Nett return on investment	$36,260 - 8%	Nett return on investment	$82,600 - 18.3%
N.B. Whilst these returns may not appear too exciting, remember that they are after tax, and after interest on your home as well as the business.

What Size Business Should I Look For ?
You should discuss this question with your specialist Management Rights financier & accountant so that you have the confidence of making an offer if the right business presents itself. 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.

What Do I Do Now ?
Contact one of our specialist Management Rights Consultants most of whom have owned and operated Management Rights, know what is currently for sale, & can also refer you to other industry experts. There is no charge to prospective purchasers for this service of course.

Also see the segment on "What is Involved in Management Rights?"

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