Most people like the relative certainty that comes from buying an established business. This goes for both the business and the building. On the other hand, purchasing Management Rights “off the plan” allows you to use your skills to develop the business from its very beginning.


Taking Over An Established Business

When you buy an established business what you see is what you get and many people like the relative certainty that comes from buying an established complex. This goes for both the business and the building.

Existing buildings have gone through the “teething problems” that people talk about with new buildings. All the building defects have been attended to. Of course, the building might be at that point where it needs some money spent on it and you will be the one who will need to convince owners to put their hands in their pockets. Communication and education about the benefits of refurbishment are the keys to getting unit owners to spend money.

Another advantage to buying Management Rights in existing buildings is that many owners of new units in brand new complexes have very high expectations of the financial performance of their investment. Sometimes these expectations are too high and your owners might still have the stardust in their eyes sprinkled by the selling agents. As time passes these expectations become more realistic.

Existing businesses are capable of easy verification of income and expenses. Its all there to see. You do not have to rely on projections and guess work.

 

Buying Off the Plan

Purchasing Management Rights “off the plan” allows you to use your skills to develop the business from its very beginning.  However, it is important to be aware of the differences between purchasing a new business and an established one and we share with you the experience of our professionals.

From an Accountant’s Perspective – DFK Crosbie:

“When acquiring an established Management Rights business the accountant is directed by way of paragraphs in the contract of sale as to what profit and salary are to be verified and the period to which that profitability relates. When purchasing “off the plan” those safeguards (the verification paragraphs) will not be included and the accountant is required to confirm a figure represented to the purchaser by the developer.

How does the accountant do that? From the outset it is important to realise that the conclusion figure is going to be hypothetical and the report is going to include a disclaimer by the person/firm conducting the feasibility study.

The investigating accountant is going to require detail concerning the location of the complex, the number of units in the complex, the size and configuration of the units, the developer’s marketing intentions, whether the units are furnished or not, the proposed remuneration in terms of the management agreement, and whether there is any proposed rent free periods for tenants or rent guarantee periods for unit owners. The latter may depend on whether it is a residential or holiday style complex.

Armed with this information the accountant should inspect the site location and similar complexes in adjacent areas to ascertain competition and also sources from which to obtain data concerning a realistic expectation of number of units in the rental pool, occupancy percentages and tariffs. Detail concerning occupancy percentages and tariffs and associated income sources such as cleaning, linen hire and PABX fees are probably available from the accountant’s own records as well as Government and other professional groups.

This additional information will enable the accountant to prepare a calculation of expected income taking into account further variables such as high, low and shoulder seasons and the associated tariffs. Drawing from the accountant’s own records and experiences, expected operating expenditures associated with the income items will be calculated. If the developer has negotiated sales on the basis of a guaranteed return to investors these associated rentals should be ignored and all calculations assume current market rentals, otherwise the end result could be a highly inflated profit to the manager.

If the accountant is experienced in this business sector, and has records and sources from which to obtain the necessary information, his final figure will be accurate, but the report will still be hypothetical and be qualified.

Remember that your gross income, and therefore your net income, will be dependent on the amount of income received per unit, the number of units in the letting pool, and the occupancy percentages achieved. For example:

 

Units in Pool Occupancy Tariff Per Week Commission Rate Gross Income
36 85% $800 12% $152,755
36 60% $800 12% $107,827
36 85% $700 12% $102,212

 

The above are all unknown variables at the time of buying off the plan and even though some can be estimated reliably, it is evident that the revenue can vary significantly depending on the final result achieved. Another matter that should be considered when buying off the plan is the additional working capital requirements to fund the initial marketing plan, capital items (PABX, computer and office equipment etc) and even general living expenses while the letting pool is being established.”

 

THE MBA PARTNERSHIP ACCOUNTANTS

Management Rights Accountant

PAUL GAFFNEY | MANAGEMENT RIGHTS

The MBA Partnership is one of the most experienced firms of management rights accountants in Australia. Many of their clients are new to the management rights industry, and with over 30 years experience in management rights they have the expertise to help you set up correctly from the beginning. From due diligence, accounting, taxation and auditing Paul and his team can guide you through the entire process.

Phone: +61 7 5557 8700

LEVEL 3 "PIVOTAL POINT"' 50 MARINE PARADE SOUTHPORT QLD  4215

pgaffney@mbapartnership.com.au | managementrightsaustralia.net 


 

Management Rights & Motel Finance P/L

Mark Ryall

 Mark Ryall | MANAGEMENT RIGHTS

Management Rights and Motel Finance Pty Ltd is an industry leader in providing specialist finance needs to companies and individuals embarking on the purchase of a Management Rights business. Mark and his team is dedicated to helping you with all your management rights and motel finance needs! We work around the clock to make sure you receive the best deals.

Suite 4, Level 2 / 247 Bayview St Hollywell QLD 4216

Phone: 07 55641100 | 0419 640 215
Fax:     07 30140108

mark@mrmfinance.com.au | www.mrmfinance.com.au

Australian Credit Licence No: 378366


 

Management Rights Articles

  • LICENCE REQUIREMENTS

    As you will be collecting rent for your investor owners you will need a Resident Letting Agent’s Licence (Queensland) or an On-Site Resident Property Manager’s Licence (NSW) to own and operate Management Rights.

SMALL MYERS HUGHES LAWYERS

COL MYERS | MANAGEMENT RIGHTS

SMH Lawyers handles all aspects of a Management Rights transaction from establishing, purchasing and selling Management Rights to advising bodies corporate on strata related issues and disputes. Col Myers and his team of experts is constantly exposed to all aspects of the management rights industry which means they can proactively advise when and how to best handle management rights to work effectively for individual scenarios.

Phone: +61 7 5552 6604 | Mobile: +61 417 620 516

Level 2, 17 Welch St Southport Qld, 4215

info@smh.net.au | www.smh.net.au  


 

Management Rights Brokers

 

 

 

 

 

Narelle Filmer | Linda & Wayne Stoll

Think Management Rights’ is a division of the nationally recognised First National Real Estate franchise. This team of specialist brokers operate throughout the state of Queensland. With over 15 years as owners, managers and sales agents in Management Rights industry, this team has a great deal of knowledge and experience to bring to the MRA seminars.

Wayne and Linda Stoll | Listings: Sunshine Coast / Gold Coast Region
Phone: 0452 181 505
wayne@thinkmanagementrights.com.au | linda@thinkmanagementrights.com.au 

Narelle Filmer | Listings: Gold Coast / Brisbane Region
Phone: 0459 229 744
Email: narelle@thinkmanagementrihgts.com.au  

www.thinkmanagementrights.com.au 


 

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