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Management Rights - Pros and Cons

Discussion in 'General Property Chat' started by Munga, 15th Dec, 2015.

  1. Munga

    Munga Active Member

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    I am looking in to the possibility of purchasing some management rights in the next few years as an option once finishing my career at sea.
    Does anyone here have any past experience or opinions on the viability of MR?
    The returns seem good. I understand it is like buying a job.
    I am more interested in the larger ones with a more managerial role , rather than a caretaking role.
    Is the risk of the letting pool getting sharked by local agents a real threat?
    Any thoughts guys and girls?
     
  2. Xenia

    Xenia Adelaide Property Manager Business Member

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    What are management rights?

    Over what?
     
  3. Scott No Mates

    Scott No Mates Well-Known Member

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    Check out whether you will require a real estate licence to run the business, whether the letting pool is tied to the in house management, the multiples these types of businesses are sold.

    Have a chat with a few business brokers.
     
  4. RPI

    RPI Property Lawyer, Town Planner Business Member

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    We do quite a lot of these, both from the developer selling and from the person buying.

    One client has bought quite a few little ones and is very happy with the money from that. The ones I see that are not so happy are the ones with short term rentals. Much more work.
     
  5. Chilliblue

    Chilliblue Well-Known Member

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    The only Management Rights that I am aware of are the ones that allows an entity to give the right to the resident owner of a lot, contained within a community living complex, to fulfil the role of Caretaker and to operate a letting business of that complex on behalf of non-resident owners. I have only really seen them in QLD where they are common,

    I believe that you will need to be licenced in that state.

    @Munga take a look here http://www.pcsfinance.com.au/media/pdf/Tips for purchasing management rights.pdf
     
    Last edited: 15th Dec, 2015
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  6. willair

    willair Well-Known Member Premium Member

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    I know someone that bought i think a 25 year set-up like this in Garden -City Brisbane,not sure of the entry costs but they sold a 1.4 mill property inner city to buy in..
    I think he had to do a fully lic real course for above 3k,police checks ect and maybe a blue card,and they were doing all the garden outside cleaning maintenance but his wife and him had zero people management skills,all long term rentals,money wise it's been very powerfull
    but it is also a job you have to be there for 7 days a week,24/7,they are..imho..
     
  7. Xenia

    Xenia Adelaide Property Manager Business Member

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    Is this like purchasing a rent roll?
    Or does it only apply to units?

    Who are you buying it from? An agent?

    I believe a license and trust account is required in any transaction where money is received for the benefit of a third party.
     
  8. HUGH72

    HUGH72 Well-Known Member

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    I'm but sure if you are talking about buying a rent roll or motel management rights?
     
  9. willair

    willair Well-Known Member Premium Member

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    All the above , i think there is over 40 units in the complex,and they purchased through a broker who deals in this and hotels motels ect ,their plan was because of the down turn in os students to build it back up too 100% constant tenants,they have done that,they also started a property management business business for property investors ,and that also is doing very well
    one simple item they have a very high weekly cashflow,and from what they tell me they could sell the management rights as there is over 20 years to go,for a lot more then they paided 2 years ago,imho..
     
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  10. Andrew H

    Andrew H Well-Known Member

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  11. Munga

    Munga Active Member

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    Obviously the time remaining on the rights determines the value. I wonder what happens if the BC decide not to renew the rights or extend the term? Does that mean your investment goes up in smoke?
     
  12. Munga

    Munga Active Member

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    Xenia, it seems to be popular in Qld. Either buying the rights to manage and let a permanent complex or a holiday complex, or a mixture of both. The returns look good , however as willair mentioned, the time commitment is immense.
     
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  13. Munga

    Munga Active Member

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    Thanks chilliblue, much appreciated
     
  14. willair

    willair Well-Known Member Premium Member

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    I'm not 100% about the "BC", but from what he told me they control that part of the business model,and their was a company they went too prior and did a course in what may happen,some mates of them bought the same value set-up up the north coast in between Noosa somewhere and went belly up it depends on the location,the same as anything i guess..
     
  15. RPI

    RPI Property Lawyer, Town Planner Business Member

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    You have a contract with the Body Corp that you need to breach for them to terminate. Time commitment can be small on small complexes. Includes things like mowing the grass, bins to go out etc (you can pay others to do this but comes out of your money). They can be worth a decent amount once you get over 20 units.
     
  16. Munga

    Munga Active Member

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    I was thinking of buying and building up value before selling it for a factor of the income. i guess my main concern is losing tenancies to either other letting agencies or investors selling the unit to owner occupiers
     
  17. RPI

    RPI Property Lawyer, Town Planner Business Member

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    If you buy them Off the Plan then there is normally an adjustment made the earlier of 6 months post the 1st unit settling or 30 days after the last unit settles. Buyer pays a certain amount at settlement and then provides a bank guarantee for the maximum number of units anticipated to be in the rental pool. Depending on the size of the development either, each time a unit settles and goes into the rental pool or every agreed period (eg 30 days) the buyer releases the agreed amount per unit to the seller.

    At the OTP stage it is almost assumed you will do a good job so the price per unit is only slightly discounted, not sure a lot of money could be made there on a resale. If you could buy one where the manager ran it into the ground and then build it back up that sounds possible. Problem I see is that if they owners are happy with their current outside manager it can be hard to get them to move back, no matter how good you are.
     
  18. JacM

    JacM VIC Buyer's Agent Business Member

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    Managing a rent roll ... you need real estate licensing. You need to provide a means of collecting rent which means running a trust account. Giant hassle. The ongoing compliance urgh.

    I am not familiar with the ins and outs of management rights of things like motels and such but I suppose it means being at work all the time. You don't know when the punters are going to arrive and want to check in, or require their blocked toilet to be repaired.

    Owners Corporation (aka Body Corporate) management is another idea. Pretty easy to get up and running, but you need a bunch of properties to make it worth the bother and justify the insurance expense.