Purchasing a management rights business is a big commitment for you and your family. Knowing what you’re letting yourself in for and what to expect can go a long way toward smoothing your path into the industry, and making the journey for you and your family both pleasant and prosperous!

Consider your lifestyle requirements and skills

We are often lured by the prospect of making a buck, without giving due consideration to the lifestyle changes we will need to make and the skills we need to have or acquire.

Most management rights agreements require the manager to live in the assigned management unit on site. Consider what your needs are in terms of a home for you and your family for the next few years and make sure you only consider buildings that fit these criteria. Not enough space for a growing family, being too far from the children’s school or having no place for a beloved family pet can make your stay most uncomfortable.

Then consider what you are willing and able to bring to the business. Typically holiday and student complexes require longer hours and advanced people skills but can give you a higher income in return.

Conversely, permanent complexes usually require less time to run successfully and less interaction with tenants.

Whatever type of complex you end up choosing, the more work you are willing and able to do yourself, in terms of maintenance, cleaning, pool care and gardening (rather than contracting these tasks out to outsiders), the more money you are likely to make.

In addition, no matter what type of complex you decide upon, you will need to attend a licensing course to obtain your restricted letting licence, in order to undertake the letting duties required.

Or if you wish to be able to sell properties within your complex too, you will require a full property licence.

Get professional advice

Okay, so you’ve decided you’ve got what it takes. The next step, before you even consider going to look at properties, is to get advice. Now your regular accountant, solicitor and bank manager may be great but if they’re not experienced in management rights, they may not be the best people to approach. Make sure you use people who are experts in this field, to ensure the advice you receive is current and pertinent.

Most importantly, your accountant will need to advise you on structuring the purchase – that is, what type of entity you should consider using – as this can dramatically affect the amount of money you will walk away with each year and when you eventually sell up. As Dr Stephen Covey espouses, “Always begin with the end in mind!” It is imperative to get this right up front, because once the contract is signed, it’s usually prohibitively expensive to change!

The accountant you choose should be able to:

• help you figure out how much you can afford to buy for;

• help you decide whether or not you will need to sell the family home and other investments in order to purchase the business and what the tax consequences will be;

• explain what other costs will be involved in the purchase and getting started;

• explain the financing structure applied to these sorts of businesses and the tax effects to you;

• explain to you what the net profit figures, on which the values of most management rights businesses are based, do and do not include.

They should also be up to date with the current multipliers being used in the industry and be approved by the specialist financiers in the industry to undertake verification reviews.

An expert in the field will also be able to put you in touch with bankers, solicitors and agents who are well-versed in these sorts of deals.

Go look!

Once you’ve identified suitable buildings through agents, local newspapers, seminars or Internet searches, go take a good look. Look at what the agent and current manager is showing you and ask to see some of the things they aren’t showing you.

Ask lots of questions. These should include (among others) things such as:

• what outside labour the current managers use;

• how many hours they work;

• the history of the relationship with the body corporate;

• the duties imposed under the body corporate agreement and if there are any peculiarities;

• the number and trend of owner-occupiers (how many units are for sale currently and how many have sold in the last 12 months);

• what software systems they use; and

• the areas of which the managers have exclusive use or are on title.

The more places you look at, and the more questions you ask, the better will be your idea of value and the factors that affect it, such as location, condition of the building, the length of the management agreements, etc.

Sign the contract

When you’ve found the building or complex that ticks all your boxes, you’re ready to put pen to paper. The contract states the net profit for a period of 12 months and requires your accountant to verify this figure as being achievable. Again, the importance of using an accountant who is conversant with this process cannot be overstated.

He or she will furnish you with a report that comments on both the verity of the contracted amount and the ability to achieve this profit going forward. The accountant’s report can be used as a bargaining tool to seek a reduction in price should the figure prove to be unachievable, or where the discrepancy is great, as an out to the contract.

And then you’re ready to start…

Once all the contract conditions have been fulfilled, settlement is the big day!

On the day, you will need to work out who is owed what at changeover and either make or receive payment to/from the outgoing manager. You will also need to have the software provider change the name for invoicing purposes.

Usually, the contract will provide for a period of training by the outgoing manager – use it well! Your accountant and software provider will generally be able to help you with any bookkeeping issues you may have once the training period has expired.

There are several ‘trap doors’ out of contracts if things go wrong in the various checking processes by your professional advisors.

These are allowed for given this industry is slightly different to many, in that when you sign a contract the verification of figures and legal due diligence takes place after the contract is signed, not before.

This is a distinction from general business contracts that is important to note.

During this time you will hear many of the bad things about your newly found business - don’t be deterred. This is part of the process and it is meant to make your purchase well informed and understood.

All going well during the verification stage you will move forward to the body corporate interview and be approved to run and own your management rights complex.

Provided you are well-prepared, the journey to management rights ownership can be smooth and set you off on an exciting new phase of your life.

Good luck.

By Damien Moffrey - Baker & Affleck

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