|
||||||||||||||||
|
||||||||||||||||
|
||||||||||||||||
 |
|
|
|
| WHAT ARE MANAGEMENT RIGHTS |
|
Caretaking Agreement
The contractual agreement is for a specific term from 5 years to 25 years depending of the type of complex / building. If you have a Caretaking agreement – 20 years, then you are guaranteed that you will receive a body corporate salary for 20 years (with CPI increases) for your duties and responsibilities as long as you conduct the business in a satisfactory manner. Letting Agreement
Letting Pool - This is the number of units that you manage on behalf of the investor owners. A building may consist of 50 units in the total complex, however you may manage 40 of those units. The balance of units (10) may be live in owners or lock ups (Owners who leave the unit untenanted) Most investor owners prefer to have the RUM manage their investment as you have a common interest in maintaining the value of their investments. Living on site gives you significant competitive advantage over outside agents as you handle all situations straight away. Minor repairs and maintenance of units can be handled straight away without having to engage a tradesman. If there is a problem with a unit, the tenant will generally contact you first. The term of the letting agreement usually runs concurrently with the term of the management agreement. |
“Management
Rights” is a term used to describe the on-site management
business of an apartment building or unit complex. Many people regard
Management Rights as a blue chip investment that offers lifestyle,
great returns on investment and good re-sale potential.
Cleans the swimming pool (daily or weekly) |
| MANAGERS UNIT |
|
| The managers unit is generally on the
ground floor beside or attached to the office / reception
area. This unit in the building is the only area from which a business of letting units can be conducted. This is goverened in the BY LAWS / Letting Agreement preventing another person establishing the same business in your complex. The office/ reception, is generally on the same title deed as the managers unit giving you security over your investment. |
|
| MANAGERS INCOME |
|
| There are normally two parts to the Manager's
duties and two major parts to the Manager's income.
The Body Corporate pays the Manager a salary, monthly in arrears, to maintain the Common Property, see that the By-Laws are adhered to, and report on any matters pertaining to the complex. The average salary range is between $800 - $1200 per unit in your complex. The salary will depend on the type and size of complex. The Body Corporate also pays for all the day-to-day expenses of looking after the common property. Such things as mower fuel & repairs, pool chemicals & fertilizer are expenses for the Body Corporate, not the Manager. Usually all the necessary equipment is owned by the Body Corporate, and provided for the use of the Manager. You are paid commission and management fees by the individual unit owners for letting out their property, accounting for the rent, and ensuring that the rental property is kept in good condition. The average rates of commission are:
Some of the other incomes:
Unlike most other businesses, the income from
Management Rights has regular annual increases through adjustments
to the Body Corporate salary by way of C.P.I. or National Wage Case,
and also increase in tariffs which in turn increases your commission
- remember every dollar increase in |
1.
Body Corporate Salary: |
| ACCOUNTANTS ROLE |
|
| An accountant who specialises in management rights will complete a verification report of the net operating profit. The verification report will confirm the actual income and core operating expenses incurred for a specific period (usually the last 12 months). The verification report is required under the purchase contract to confirm the net operating profit. Your financier will also require the report to confirm the ability of the business to service your loans. |
|
| STYLE OF COMPLEX'S |
|
 There
are 4 styles of complex’s
A building can consist of one of two of these styles depending on the complex. The style of building that will suit you will depend on the location and the type of business that you want to run. Holiday: These buildings are generally located in holiday
tourist areas. The building must be promoted to attract holiday
makers for short to medium stays. Permanent A typical permanent complex comprises a number
of units or townhouses that are designed for longer term accommodation
– 3 months and over. Student This type of complex is usually located is the
surrounding area of universities Corporate: This type of complex/ building is generally located
in the central business area |
|
| WHAT IS THE VALUE OF THE MANAGEMENT RIGHTS |
|
There are 2 components to a management rights
complex:
The value of the business is determined by the net operating profit
by a multiple of between 3.5 – 5.5 times. The net operating
profit is calculated by deducting the core operating expenses from
the gross receipts for a specific period. The expenses exclude depreciation,
borrowing costs, interest on loans and expenses of a personal nature
including those of a business nature but not necessary to be incurred.
Net operating profit for the last 12 months = $100,000
x 4.85 = $485,000 (value of business) The multiplier is based on supply and demand. The multiplier has been increasing over the past 10 years. The average multiplier over the past 12 months with a net operating
profit of $150,000 and below is just under 5 times. There has been sales with multipliers around 6 times, however these
are very large buildings and would be considered an exception rather
than the normal sale. |
The
managers unit is normally located near or adjoining the office.
The value of the managers unit is based on the location, size, type
of complex, additional storage area and age. A premium of 10 –
15% can be applied to the value of the unit, as it is the only unit
in the complex that is allowed to operate a management rights business.
|