“Management Rights is an industry which combines an income with all the comforts of working from home, with the added protection of Government regulation.”
Management Rights businesses have been around since the mid-1970s and are found mainly in Queensland, but increasingly in NSW, Victoria and to a lesser extent other states. In the 1970s, property developers “discovered” Queensland and now the skyline is dotted with residential and holiday resort complexes, apartment complexes and townhouse / villa developments. Behind most of these, exists a Management Rights business.
Developers of these complexes realized early on that there was an advantage in having an on-site manager; someone who would live on site and who would look after the day to day running of the complex, as well as provide a Letting Management service to absentee investor owners. In Queensland, this concept grew and led to the State Government enacting industry specific legislation to formalise and control the industry. This legal structure offers safeguards and peace of mind to unit owners, Bodies Corporate and Management Rights owners alike. When the Body Corporate of a multi-unit complex enters into two contracts with an individual or company to (a) maintain the common property and (b) run a Management Rights and letting business from the complex, then a Management Rights business is created.
Once created, the first and subsequent management rights owners, can then resell the business like any other. Simultaneously with purchasing the Management Rights business, the buyer purchases the manager’s unit in the complex. It is from this unit that the Manager runs the business. The Manager has a vested and financial interest in the successful performance of the complex.
Many people regard Management Rights as the ultimate “Home-Based Business”, offering lifestyle, excellent return on investment and good re-sale potential. Management Rights are considered to be a relatively safe business investment, which is shown by the major banks willingness to lend generously against them.
How Does The Manager Earn Income?
Body Corporate Salary:
In all multi-unit complexes, there are areas such as pathways, gardens, pools, tennis courts, etc. which make up Common Property. The Body Corporate pays the Manager a salary to maintain the Common Property, see that the By-Laws are adhered to, and report on any matters pertaining to the complex. It is effectively a caretaker’s salary.
The Body Corporate also pays for all the day-to-day expenses of looking after the common property. Typically, all the necessary equipment is supplied and maintained by the Body Corporate. The Body Corporate salary is usually indexed to the CPI, to allow for automatic annual increases.
Letting Commission Income:
The Manager has the right to conduct a letting business in the complex. This provides for investor owners who want to rent out their units to tenants and or guests. These individual owners pay the manager commission and management fees for securing good tenants, accounting for the rent, and ensuring that the rental / holiday property is kept in good condition.
In Queensland, to legally operate the Letting Business you will need to obtain a Real Estate Salesperson Registration Certificate. This is not difficult to obtain and currently involves the study of 7 subjects through a registered training organization. These subjects are generally undertaken in a classroom environment over 3 to 5 days; however some RTOs offer courses “on line” or by correspondence.
Length of Caretaking and Letting Contracts
Management Rights Agreement terms are set by legislation, and vary from 10 to 25 years; often a series of 5 x 5 year terms. The success of management rights as a business, and one reason why the banks like to lend on them, is that when one option period expires, the manager can seek another term from the body corporate and the body corporate cannot benefit financially from extending the term. There are broadly five different types of management rights businesses:
Holiday or Resort Letting –
Holiday let buildings are part of the tourism industry. Operating management rights to holiday apartments requires the manager to promote the building to attract holidaymakers. A higher level of service and skill is required but the returns are correspondingly higher.
Permanent Letting –
Permanent, or residential letting, involves finding good long term tenants, collecting rent, maintaining the property and developing a relationship with unit owners. A great lifestyle option!
Corporate Letting –
These buildings are run much the same as holiday letting complexes except that the clients are away on business not holiday.
Student Accommodation –
This is a small market segment mainly located in capital cities or major regional centres with all such complexes situated adjacent to university campuses.
Retirement Letting –
These buildings are run like a retirement home, as the provision of food is a requirement; managers need to have a skill set to accommodate this requirement. So there you have it very briefly, an exciting and rewarding industry. It’s not rocket science – Life experience, 30% cash or equity deposit and the ability to work with people are the only prerequisites.
What is a managements rights worth?
The value of a management rights business is calculated by applying a ‘multiplier’ to the annual net profit. For example, if a management rights business has made a net profit of $200,000 in the last 12 months and the multiplier is set at 5X, the price of the business will be $1,000,000.
There are no set rules to what the multiplier will be; it is subject to supply and demand and is therefore set by the market. Factors that can influence the multiplier are interest rates, bank lending policies, positioning, income level, and growth potential, duration of the agreements, style/quality/age and location.
The manager’s residence
The manager’s unit is valued like any other piece of residential real estate. However, any additional space associated with the manager’s lot like an office, storage shed etc. needs to be taken into account as it will add some value. Factors that influence the value of the unit are presentation, style, age and size.