30 May 2019
Words Ben Hall
Fancy a career change to become your own boss? Find out whether a management rights business is the right choice for you.
If you’ve ever wanted to start your own business, be your own boss and the idea of buying into an accommodation business grabs you, it might be worth your while attending our Management Rights Made Easy Seminar at ResortBrokers HQ in Brisbane on June 4.
In a nutshell, management rights is the business of on-site caretaking and the letting of units and, in many cases, include associated real estate such as a manager’s residence, office or reception.
Nathan Eades is a keynote speaker at the seminar. He’s one of our Brisbane management rights sales specialist and has handled many sales of both permanent and short term complexes. Nathan will provide current market insights and discuss where the best investment opportunities can be found. Ahead of the seminar, he tackles five of the most commonly asked questions.
Q: Why should I be looking at investing in a management rights business? What’s in it for me?
It’s such a rewarding investment and lifestyle choice which means you can be your own boss, enjoy strong returns and great growth prospects. It is a secure, low-risk model with long tenure, which usually ranges from 20 to 25 years, and it includes a guaranteed salary income component. There is also the potential for additional income, on top of the body corporate salary and lettings income, with some owners willing to pay you for carrying out basic maintenance on their properties. You can either pay someone else to do the work or, if you’re handy, you can do it yourself and boost your revenue. It’s the same with cleaning, although this usually applies to management rights dealing with short-term letting.
Q: What type of accommodation business should I be looking for?
It all depends on your capabilities, experience and lifestyle preferences and there are several different types of management rights available which all have their advantages and disadvantages.
If you’re a couple looking for a career change, then a smaller property with easy-to-maintain common property is the best way to get started. These are usually more affordable to get into as well and this set up works well if both can share the workload of maintenance, cleaning and accounts. The bigger the property, then the greater the chance you’ll need to hire more people and this can eat into your bottom line so you really need a little more experience.
You also need to consider your preferred location. Something more desirable, such as an absolute beachfront property, will generally cost more than something in the outback. But some of these properties that are out of the way a bit can be great little earners with a real revenue upside.
Q: Is it possible to grow this type of business and sell at a profit at a later date?
When we list properties, we’re looking for that “upside” I just mentioned. That is, we try and spot the potential to increase revenue and net profit whether that be through greater efficiencies, marketing or simply taking on more work around the place.
One word you will hear over and over again from us is the “multiplier”. The value of a management rights business is calculated by applying a “multiplier” to its annual net profit. The annual net profit is always for the last 12 months trading and will need to be verified by a specialist accountant.
For example, if a management rights business has made a net profit of $150,000 over the last 12 months and the multiplier (also known as ‘year’s purchase factor’) is set at 4.5, the price of the business will be $675,000 (i.e. $150,000 x 4.5). There is no set rule to what the multiplier will be. It is very much subject to supply and demand and is therefore set by the market. However, some factors which can influence the multiplier are....
• Location – a beachfront property with stunning views is likely to have a higher multiplier than an equivalent tucked away on a back street.
• Style and quality – a new high-end property is likely to have a higher multiplier than an old basic property.
• The length of term of the agreements – the greater the amount of years remaining on the caretaking/letting agreements, the higher the multiplier will be.
• Size of income – as a general rule, multipliers will be greater in large high income properties than in smaller low income properties.
• Growth potential – if a property has significant scope to increase the income, it may well achieve a higher multiplier.
Q: From whoa to go, what’s involved in buying management rights?
The whole process for buying a management rights business is fairly fixed and this ensures a maximum degree of security over your purchase. There are basically seven steps and, while this may seem complicated, we do these deals all the time and our job is to make sure it all flows and all the steps happen on time.
It starts with an offer and acceptance where a non-legally binding document formalises your offer for the management rights. Once a price is agreed, the vendor’s solicitor will draw up contracts and the property is legally “under contract”.
Then due diligence is carried out with income verification carried out by your appointed accountant who will do a thorough analysis of income and expenses of the business. If that checks out, then your appointed solicitor needs to verify that the business you are purchasing is legally sound.
The final steps involve getting your chosen financier to provide a stamp of approval for your loan, which means the contracts become unconditional. You, as the new owner, then need to meet with the Body Corporate to gain approval (which is now becoming more complex) and then within a few days of that, settlement can take place and the deal is done.
Q: Before I start the process of looking at management rights businesses, what should I be doing?
Get all your ducks in a row. I can’t stress how important this is because it will save you a lot of time and, potentially, money. Start by getting your finances in order first and make sure you get pre-approved for finance using a MR experienced finance broker.
If you need legal, accountancy, finance or management assistance we can put you in touch with the right people, right away. And even before all of this, come and speak to us. This is why we’re holding this seminar, so that we can talk you through the pluses and minuses, find out what business is right for you and guide you through the whole process so that it all goes as smoothly as possible. These are big decisions and if you get it right, they can potentially change your life.
Furthermore, speak with a trusted broker who can help you understand what your qualifications and finances are likely to buy you in the current market in your area.
Please feel free to sign up for our Management Rights Made Easy Seminar at ResortBrokers HQ in Brisbane on June 4.