First Purchase of a Management Rights Business

Hi All,
So, I have decided to purchase my first Management Rights Business (30 units, currently 11 in the letting pool (6 perm & 5 holiday), turnover approx $75K) & I have so many question to ask. Would really appreciate any advise you're able to give to this 'newbie'

Questions are as follows:

• I am purposing to purchase the complex in my own name as a Sole Trader but my solicitor has advised me to purchase as a Trust. I have spoken to my accountant (who is not a specialist in Management Rights & actually told me not to purchase one! Guess, I'll need a new accountant) and he said that due to the size of the complex and turnover, a Sole Trader would be the best solution. What are are thoughts? I don't have a large family, just myself & my husband, who also runs his own business as a Sole Trader
  
• I am proposing to change 5 holiday lets into permanent lets, is this easy to do? Will I potentially lose the owners?
• Once I have paid the deposit for the purchase of the unit & business, can the seller pull out of the sale for any reason or are they locked in once they sign? The reason I ask this, is because I am due to give notice on my job in 10 days time & it's taken 3 weeks to even get the contracts signed, which hopefully will be today. I know that my due diligence won't be finished by then, but do these type of contracts collapse? What are the chances of not getting BC approval? I'm very nervous about resigning without this being unconditional........
  
• What is the easiest management software to use, the currently owner is using REI Master, but I notice that it's quite expensive.
  
• The unit that comes with the complex is a 1 Bedroom, which is going to be fairly tight to live in. I am allowed to put a 'nominee' in the unit & live off site, do I need to get a full real estate license to do this or will my RLA be OK?

Thanks so much in advance, and sorry if they seem like dumb questions.

Lisa

 

1. Ownership structure is legal advice so I would listen to the lawyer rather than the accountant. But you should have asked why they suggested a trust. What sort of trust and how should it be structured should be considered too.

3. read the contract and seek specific legal advice. There are probably a number of ways a vendor could terminate a contract.

5. what does the contract say?

 

Welcome to the MR Industry! This is very unique to Queensland, especially Gold Coast and Brisbane. Not many information are available but happy if you PM me if you have specific or confidential questions. IMHO It is a niche market and not everyone is the same. There are many good stories, and not short of horror stories.

I am not sure what stage are you in: have you signed Contract, appointed Financial & Legal Due Diligence? Finance - self finance or bank loan?

Just responding to your questions:

• Legal entity: regardless of what industry you are in, this is very important as mistakes cost money and time, and some mistakes are irreversible. I would strongly advise you see someone with real experience in MR. It really depends on your circumstance: age, pension, gender, other (current & past) business, other income etc etc..... And always get second opinion especially for a new person like yourselves. I have many contacts and happy to share.
• Change from short-term to permanent: Please understand what Building Format you have, your CMS, By-Law and everything legal. If you have commended Due Diligence, your Solicitor should be able to help. But why do you want to change the holidays one? The profit is much higher although currently 5-units is not a lot .
• Transfer Ownership: A lot of things can happen between payment of Deposit to actual transfer of Ownership. Generally speaking it should be fine but there are reasons why Sellers (or Buyers) might pull out, one of them being the Interview. In most cases the Body Corporate Committee will interview the new Onsite Manager (or Caretaker, Building Manager, many names), and if the interview fails, there will be no go.
• Resignation: From what you said above, I would suggest you keep your job. 30-unit is not big and can be easily maintained by one-person, or 2-persons part-time. You might devote more time in the first 1-3 months which you can take leave. But I wont burn my bridges. After 1 year you might be bored
  
• REI Master is very expensive for 30-Unit. Caretaker is much more affordable. But you have to do the "migration" (data transfer) yourself. And be sure to have heaps of back-up records!
• Live offsite: I would not live offsite. One of the advantages of being Onsite Manager is being "onsite". You get to understand the Complex, the people, the Committee and everything else that happens around that. You might be able to increase your letting.

All the best and good luck with everything!

 

Surely his decision is up to the individual unit owners? The complex manager has no say in how they choose to rent their property, simply has to manage it.

Do you intend to refuse to manage holiday letting? If so, check your BC agreement carefully.

Most owners I know who do holiday letting do so because they want to use the unit themselves at certain times. Permanent rental would not suit them.

 

Quote..

• The unit that comes with the complex is a 1 Bedroom, which is going to be fairly tight to live in. I am allowed to put a 'nominee' in the unit & live off site, do I need to get a full real estate license to do this or will my RLA be OK?

I only know 2 people that have gone into a set-up like this..one up at Noosa which went very well..the other in inner Brisbane and mainly o/s students ..Both lived on site, did all the booking cleaning ect,and i think both had to obtain a qld full real estate license --good luck..imho..

 

I myself have only recently purchased a management rights business in May this year. I'm only doing the caretaking at the moment, I'll be restarting the letting pool very soon myself.

I can't speak to your specific situation but I would not trade as a sole trader in almost in any business. Ask them to describe to you the different options & implications of buying as a sole trader vs. buying as a trust vs. buying as a company. Tax & liability are the 2 big questions I'd have and how they differ between the different trading structures.

Speak to your mortgage/loans broker before signing, give them your proposal & see what they say about getting finance. I got finance at quite possibly the worst time possible in the lead up to the election, basically no bank wanted my business because the loan size was small. I'm pretty sure it's only because of family connections that the deal got done. Basically get your finances in order & speak to a broker ASAP. I had a 75 day settlement and it came down to wire even with all that time.

 

Hi @Jammy26 - is everything ok?