Overview of management rights
Hi Sue,
There is a lot of information about mgt rights on various websites. I?d start with the industry association
http://www.arama.com.au
Overall they are a sound investment if you buy a complex in the good location with potential to increase rentals. The entry costs are high for legal and accounting fees approx 6% of the purchase price. From a lenders point of view they see mgt rights as a sound proposition versus other businesses due to the security of the real estate and the fact that the net income derived from the complex needs to be independently verified by an qualified accountant under body corporate legislation- at least in Qld. You will need to check state laws in Victoria.
In terms of finance case studies, this website has a good overview of mgt rights and some lending examples. Click on finance tab. See attached example also.
http://catalinafinance.com.au/management-rights-finance/example-lending-scenarios.php
As a general rule of thumb, to work out what you could afford, the total price is about 3 times your capital. For example, if you have $300,000 capital you would be looking for complexes up to $900,000. Some lenders may lend the costs (5-6%) but a broker would know.
There are generally four type of complexes ? each have their pro?s and con?s
? Student
? Permanent (usually no office hours ? phone contact only)
? Holiday (usually set office hours)
? Corporate
For security of income and less work, Permanent would be the way to go. Corporate may also be worth investigating.
Some complex?s are offered for sale as ?rights only? (business) with no need to buy a unit and live on site. In this case, you are a caretaker, paid a monthly salary via an agreement with the body corporate. Agreements vary according to the complex but range in 10 to 25 years terms.
Mgt rights are mainly offered as a package being a live in managers unit plus the Business. They are valued as follows:
? Unit price - usually sold at a price higher than similar units (say 10-20% premium) in the complex, as you may have exclusive rights for parking, storage and office.
? Business - the sale price is determined by a multiple of the verified net income. The multiplier reflects market conditions, the type of complex and the location.
For example net income $80,000. Multiplier of 4.5. Business value = $360,000.
The multiplier is used by banks and Valuers to determine price of the business. As a general rule of thumb, the worse the location the lower the multiplier. Thus a business in a low growth location would only be worth 3 times the net profit. A well located complex such as one close to all amenities in a high growth suburb may attract a multiplier in the 4.5-5 range.
Another way to look at it is Return on investment. Buyers accept a lower return for well located complex?s - due to the capital growth potential. Buyers demand a ?higher return? for complexes in less desirable locations as they have limited potential for capital growth. You need only divide the multiplier into 100 to determine the Return.
A multiplier of 5 times net means a 20% return on the business component (100/5=20) whereas a multiplier of 3 times net profit equates to a return of 33.3% (100/3=33.3).
There are search portals dedicated to management rights. Some are below.
Good luck
RM
http://www.raasrights.com.au
http://www.theonsitemanager.com.au
http://www.rnrstrata.com.au
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