Key Considerations When Purchasing Management Rights

Considering buying a Management Rights Business? Here’s What You Need to Know.

If you’re looking to purchase a management rights business, it’s crucial to understand the ins and outs of this investment.

In this blog, we’ll highlight some key factors to consider before making your decision. Additionally, we will explain what management rights entail and the benefits of owning such a business.

What Are Management Rights, and What Do They Include?

Management rights refer to the ownership of the management and letting rights of a strata-titled property, usually within a resort, apartment complex, or townhouse development. The owner (you) usually resides on-site, managing the day-to-day operations and letting of units.

When you purchase a management rights business, you are typically buying:

• An onsite residence (that may also include title to an office/reception area).
• The rights to provide caretaking services such as gardening, cleaning and maintenance of common areas (e.g. pool, lawns, gardens, tennis court) for an agreed salary.
• The rights to provide letting services for agreed commissions.
• The rights to provide additional services to residents/guests as agreed by the body corporate, i.e. equipment rental, linen services).

The Benefits Of Owning Management Rights

• You are able to work from home, no need to battle the traffic to and from work.
• Take pride in where you live, you will be responsible for the upkeep of grounds and facilities and gives you a sense of pride and accomplishment in keeping the complex to a high standard.
• Body Corporate salary is guaranteed income for the contract period, which can be topped up regularly.
• Your body corporate salary increases each year in line with CPI.
• It provides a great, steady income and job security.
• Some agreements have no set office hours, therefore providing flexibility.
• You have the option to purchase a great existing business, so no need to re-invent the wheel and have income from Day 1.
• You are your own BOSS!

Things To Look Out For When Buying Management Rights

When it comes to buying management rights, there are a few key things to keep in mind.

First and foremost, it’s important to have a clear understanding of what your responsibilities will be.

Management rights can be a great way to generate income, but they also come with much responsibility. As the manager, you’ll be responsible for the day-to-day operations of the property, as well as for maintaining the property itself. Additionally, you’ll need to ensure that the property’s financials are in order and that all the necessary paperwork is in place.

Arm yourself with a knowledgeable broker, finance broker and management rights specialist accountant and solicitor. Hotel Resort Sales can provide some options for these.

Due diligence will pick up anything untoward in terms of net profit, agreements, body corporate disputes and any other legal issues.

Things To Look Out For When Buying Management Rights

1. The importance of due diligence

When considering purchasing management rights, it is essential to undertake due diligence to ensure that the business is viable and will meet your expectations. There are several key areas to research, including the letting pool numbers, the condition of the common property, and the financial performance of the business.

A management rights accountant will review the business’s current financials to verify that net profit figures provided by the vendor's accountant are true and correct. They can also offer management rights tips to ensure you maximise your standings.

It is also essential to understand the management rights contract comprehensively, including any restrictions on how the business can be operated. By doing your homework, you can minimise the risks associated with purchasing management rights and maximise your chances of success.

2. What to look for in the contract

When buying management rights, it’s important to carefully review the contract to ensure you understand all the terms and conditions. One of the first things you’ll want to look for is the length of the contract. Most management rights contracts are for a term of either 10 years (standard module) or 25 years (accommodation module) with an option to renew.

Agreements will state if there are specific office hours to adhere to and whether there is a requirement to reside onsite, etc.

A management rights specialist solicitor needs to be engaged to assist you in the legal due diligence for your management rights purchase. Hotel Resort Sales can provide some options for these.

3. How to assess the financials

Management rights accountants will look at the overall profitability of the business and advise you on whether it is a good investment, and whether the net profit stipulated is true and correct.

Management rights accountants will also assess the taxation implications of buying management rights, as this can significantly impact your overall returns.
By engaging the services of a management rights specialist accountant (Hotel Resort Sales can provide some options for these), you can be confident that you are being protected in your management rights purchase.

4. What questions to ask the current owner

Initially, ask for a copy of the Caretaking & Letting Agreement (this is usually requested through your broker). Amongst other important information, this document will outline the duties that are expected to be undertaken by the owner / manager on a daily, weekly, monthly and yearly basis. If any areas are not clear, be sure to ask the current owner for clarification.

By asking the right questions, you can help ensure that you cover all bases and have all the information needed to make the right decision. Questions may include office hours, list of duties, time spent each day completing various tasks, and is the body corporate committee supportive.

5. How to inspect the property

When considering the purchase of management rights, it is essential to inspect the complex and manager's residence to see if this is a good fit for you.

This includes taking a close look at the condition of the buildings and grounds and assessing the quality of the amenities. It is also important to get a feel for the surrounding area. If a holiday building, is this a good location for holidaymakers, does it have access to beaches, lakes, transport, shops, restaurants and does it have any works scheduled to upgrade / improve the building? If this is a permanent complex, is this in a good location with nearby schools, public transport, shopping precincts, high rental demand.

Is the manager's residence large enough for you / and your family to live comfortably?

How to find the right property for you

When purchasing management rights, consulting with a management rights broker is important. By discussing with the broker parameters that are important to you, such as size of residence, location, price, office hours, net profit return etc, will enable your broker to source the ideal management rights business for you.

Conclusion

Purchasing management rights can be a great way to secure your financial future. However, doing your due diligence before making any decisions is essential. By following the tips outlined above will help you in your decision-making process.

Disclaimer: The information contained in this blog is general in nature and does not consider your personal situation. You should consider whether the information is appropriate to your needs, and where appropriate, seek professional advice from an accountant and/or financial adviser.