It is often the case that the first contact a potential management rights buyer has with the industry, is to talk to a salesperson on the phone. You have heard that management rights can offer a good lifestyle and income – you see some ads in the paper – you are not sure what questions to ask, but you pick up the phone!

This can sometimes be a happy experience and sometimes a source of annoyance and frustration. It all depends on the knowledge and empathy of the sales consultant who takes that call. The best piece of advice I can give to someone considering a management rights purchase is to only deal with people who specialise in the management rights industry.

Specialist management rights brokers are experts in the field and normally either own management rights or have owned management rights.

So now you have found an agent you are comfortable with – what next?

Firstly, we don’t sell management rights – we use our knowledge of the industry to match you with the management rights that best fits your requirements and, for us to do that successfully, we need to get into some detail about what you are really looking for and what you want to get out of this career move.

Let’s talk about some basic questions you need to consider.

• What budget are you working to? Have you spoken to an management rights finance expert? If you have done that you will have a very clear idea of what you can afford and the pros and cons of various levels of borrowing.

• Do you favour a specific geographic location? Management rights are available all over Queensland and even NSW. Are you limiting your search to one area, or will you consider others?

• Do you want a permanent or holiday complex? There are big differences between the two and we will discuss these in more detail.

• What size manager’s unit do you need? Remember that when you are down-sizing from your huge four bedroom family home with rumpus and triple garage, all manager’s units will look small, even if they are not.

• What level of income are you seeking? This question obviously has a tie-in with the budget consideration.

• Do you have a “green thumb” and enjoy gardening? Some complexes have extensive lawns and gardens while some high-rise buildings have no lawns and minimum gardens.

• Do you want an established complex or something off-the-plan? Many people feel that one of the attractive things about management rights for a newcomer is that you can buy an established business, move in, and just “keep doing what the other guy was doing” until you are comfortable you can do it better. A newcomer buying off-the-plan is confronted with a greater range of unknowns. Certainly not impossible but for someone with no prior experience, it can be daunting!

If you can discuss the above issues with your chosen agent and reach some conclusions, he or she will then be in a position to narrow your search.

Permanent complexes vs. holiday complexes

There is no doubt that the average holiday complex involves longer hours and greater hands-on involvement than does a permanent complex.

There is, however, the capacity to earn a greater income. The commission rate on rent collected is normally 12%, compared with 7.5% to 8% in a permanent (but remember that your occupancy factor will be lower) and you have other avenues of income such as room cleaning, linen hire, sporting equipment hire, PABX rental and tour sales.

Running a successful holiday management rights requires excellent people and marketing skills.

If you have been working too hard for the last 30 years and you are looking for a slightly slower and easier lifestyle, then maybe a permanent complex is the way for you to go.

In a permanent-let complex your tenants are there on six or 12 month leases (or more) and once all your units are full there is no need to be sitting round your office eight hours a day waiting for a prospective tenant to call!

As mentioned earlier, your commission and management fee on rent collected will amount to 7.5% - 8%.

You will also collect one week’s rent for finding, checking and documenting a new tenant and (perhaps) half a week’s rent for renewing an existing tenant’s lease.

If you are keen on working harder you can earn extra by offering to do cleaning at the end of a lease, repairs and maintenance for owners and backyard maintenance for tenants.

What are some of the important factors to look for in the agent’s listing summary sheet?

• Number of units in the letting pool and outside the letting pool.

• Type of units in the pool.

• Tariffs.

• Manager’s unit size.

• Standard module or accommodation module.

• Term of original agreement and years left to run.

• Office hours.

• Body corporate salary.

• Anniversary of body corporate salary and basis for increase.

• Nett profit.

• Management rights business price.

• Manager’s unit price.

Space does not permit my discussing all of these things in detail but your specialist consultant can explain their significance.

You have found the one you want – what next?

While most of the specialist management rights brokers use identical contracts and identical standard and special conditions, it is normal to use what we call an “offer and acceptance document” to negotiate your offer on your chosen property.

The offer and acceptance document (normally one A4 sheet in size) sets out the basic terms of the deal – how much for the unit; how much for the business; how much deposit; what is the declared net profit to be verified etc.

Once you have reached agreement, your agent will prepare the formal contracts. There will be two contracts - one for the manager’s unit and one for the business.

The time frames for clauses in these contracts are as follows:

• Your specialist MR lawyer normally has 14 days to do his legal due diligence on the contracts, agreements and associated documentation.

• The finance clause will normally be for 28 days.

• Your specialist MR accountant normally has 14 days to visit the complex, examine the books of account and prepare his report on the net profit.

• Body corporate approval of the transfer of the management agreements to you must take place prior to settlement.

The normal time frame from the signing and dating of the formal contracts to the day of settlement is around eight weeks.

It is seldom possible to push things through any faster than that.

Good luck and happy hunting!

By Mike Butler - RAAS RIGHTS

To download the full Tips for Purchasing Management Rights in a  PDF version click here